Both the Bush Administration and the Obama Administration have sold massive government intervention in the financial system as necessary to prevent a larger crisis and to save the economic system itself. Nicole Gelinas makes a persuasive case that it would have been much better just to let bad companies fail and the normal process of bankruptcy proceed. It would have been bad for sure, but at least investors and the public generally would have some idea of what to expect moving forward. As Gelinas explains:
In place of a wrenching but consistent and well-tested process of winding down a failed company, what have we chosen? A world of investors who can never be sure, in the future, that if they put their money into a company that fails, they can depend on a reliable process to recoup some of their funds. Instead, they may find themselves at the mercy of a government veering from whim to whim as it reads the mood of a volatile public.
Even worse, we’ve got a broader public that suspects that its government will not commit to any core principles of fairness. Because the public has utterly lost faith that the government will allow failed executives to take financial losses or failed companies to die, the public is trying, bluntly, to do this job itself-and it’s an ugly, dangerous, and scary spectacle.