Thursday, 20 March 2008

Too big to fail

I heard on the news today that the British government is likely to pump another £11 billion into the financial system - this time to help high street banks keep on lending. Just whose billions is the Chancellor planning to give to the banks? The government doesn't have any money of its own, so it's going to be taxpayer's money - whether taken directly from tax funds or indirectly by printing money. Words fail me. Fortunately, Alex Epstein of the Ayn Rand Institute does have something to say in his short but illuminating article "Too Big to Fail". He explains how the policy of bailing out big banks encourages poor investment decisions at the expense of those who exercise better judgment, and argues that the risk of bankruptcy is the ultimate protection against irresponsible lending policies. Instead of allowing the people who make the bad decisions to suffer the consequences, the government encourages corporate and individual irresponsibility by interfering in financial markets. If the American and British governments go on implementing panic measures then, as Epstein says, "the next financial market fiasco is just a matter of time."

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