October 28, 2008 § 9 Comments
September 29, 2008 § 8 Comments
update2: the revised bill passed.
update1: the bill failed to pass by a margin of 228-205.
The U.S. Congress has just reached a deal on a $700 billion bailout plan, designed to rescue struggling U.S. banks. The imminent passing of this enormous bailout package is a perfect example of the ‘equity vs. common good’ dilemma.
In term of fairness, this rescue package is nothing short of robbery. The government is using $700 billion of taxpayer money to bail out wealthy investors and institutions, whose greed and corruption have led to millions of people losing their homes and savings. This plan is also a moral hazard because it would give investors and banks the false security that the government will always step in to bail them out; these people will have the incentive to take big risks again in the future. Furthermore, the bailout will most definitely cripple the government budget resulting in big spending cuts and tax increases. In another word, average Americans will likely be at least two times poorer and worse off than now. Conversely, wealthy investors will be better off.
On the other hand, the cost of inaction is also likely to be high. Washington Mutual, America’s largest savings and loans institution, shockingly filed for bankruptcy just a few days ago. This is a telling sign that the whole U.S. banking system is on the verge of collapse. Without intervention, apocalypse is likely to happen. Imagine all the banks in the U.S. simultaneously collapse. We will see panic on the streets, market crashes around the world, huge job losses, crime waves, and eventually an economic depression. This begs the following question:
If you are in charge of the U.S. government, what course of action would you take? Would you bail out Wall Street or let the free market decides? Is there an alternative?