Let’s imagine a world where we go along with Ron Paul and refuse all bailout money to every financial institution that is in trouble. We let them all go under. Let the chips fall where they may. Many believers of this hands-off economic policy seem quite secure – as if they not only know that the fallout will be benign or that they know they won’t be injured in the ensuing tsunami.
Can we imagine a world where all the major banks closed, most money market funds went into liquidation and any borrower who needed to roll over debt was shut down. The FDIC would be broke so don’t expect to get the $250,000 maximum from your savings account. The stock market would be down about 90%. All the debts you have like your car lease and your mortgage – they would all be intact, but you would would have no income. Let’s not forget that the average citizen began this mess with virtually no savings.
So all the people who want to pull the plug are either
- far more liquid and insulated from catastrophe than I am or
- failing to appreciate how huge the downside will be in a system without a solvent financial industry
Are all these people hording gold bars or $100 bills in their mattresses? Maybe they’re short the stock market.
Maybe they haven’t thought this through at all.