Discussion Thread: $700 billion bail out: The Rescue of the US Economy or Biggest Socialist Nationalization Ever?

There is an elephant in the room that I haven't discussed on this blog. This topic is so big I haven't been able to reduce my thoughts to a simple entry here. The feds have rescued Fannie Mae, Freddie Mac, AIG, and on and on.

The cost to tax payers is estimated to be up to $700 billion. That is $2,333 per person in the US or almost $10,000 per family of four. But only 1/3 of Americans file a return that has a net tax amount (e.g. your 2 year old, as well as your 17 year old either don't file a tax return or get all their money back). So a more accurate representation is that each net taxpayer in the US will pay $7,106 or $14,212 per married couple.

As a conservative, I don't like or trust the government to do what the free markets can handle, and which I believe the free market can handle better. Based on this tenet alone, a conservative would say, let the various investment banks fail and let the market correct itself.

But, even from a conservative's perspective, the government should provide for certain things: primarily defense and infrastructure. Traditionally, that meant military and roads.

But a banking system, particularly when it is close to failing because there is no liquidity in the market to lend to the banks, might justifiably be called infrastructure. Certainly, central banks (and in the US the Federal Reserve Bank) have traditionally provided the infrastructure to keep the country's banking system fluid and open.

This was particularly so in the days before fast communication and travel. When there was merely a rumor that the local bank was going to fail, there would be a run on that bank which could cause it to fail. Often, there was no one else that could make a short time loan to a bank to stave off a run. Those of us who have watched "It's a Wonderful Life" know the trouble George Bailey (played by Jimmy Steward) was having before the townspeople lovingly brought in their $10s and $20s to save Bailey Building and Loan when Uncle Billy lost the S&L's deposit and a run started on the the bank. George considered suicide but was dissuaded by an angel who showed him how bad the town of Potter's Bluff would have been without George Bailey.

There was no FDIC at the time nor any mechanism for the Fed to lend Bailey S&L enough money to make it through the run.

So...I will write more on this topic to help you understand it, but presently I am thinking that it is proper and indeed necessary for the Feds to make the rescues they have made this past week or two.

And what might the cost per person have been if our banking system collapsed?