Bad bank or bad government?

Wednesday, Feb 04, 2009

A study by the IMF (which the U.S. funds with $1.9 billion every year) found the following in November 2008 of "124 systemic banking crises over the period 1970 to 2007." It suggests the incorrectness of the "bad bank" and bank aid proposals by the U.S. Government.

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

International Monetary Fund, Systemic Banking Crises: A New Database, November 2008, Page 6

Although some things President Obama proposes aren't so bad, you can't have a healthy government without a healthy economy, and his fear-mongering and rejection of other ideas are a bad omen.