Free Liberal

Coordinating towards higher values

The Lesson of Grisis: Stop Bailing Out Banks!

by , Columnist, Free Liberal

When people make bad economic decisions — be they individuals who buy homes they can’t afford, corporations that agree to labor terms they can’t afford, governments that promise spending they can’t afford, or banks that loan money to any of the above — they should deal with the consequences of their decisions. I’m with Yanis Varoufakis on this: it’s hypocritical to advocate austerity for everyone but the banks.

The lesson of the Grisis [Greece’s new leading export is hideous portmanteaus] is that bailing out banks only prolongs and worsens the pain. The banks that lent to Greece should have lost their money a long time ago; instead, they were bailed out by the IMF and the EU, who continue to try to get back the money Greece borrowed, and as the negotiations drag on and Greece slides into default, the stability of the Eurozone is at stake. Here we are, seven years after the bubble burst, facing the prospect of getting dragged back into recession, and have the bankers learned their lesson? Yes, they’ve learned once again that there is no incentive to prudence. Thus, it’s certain that we’ll end up here again.

Break the cycle; stop bailing out banks!

That may make me sound like Bernie Sanders or Elizabeth Warren, but they have a different approach than the one I propose. They, like most progressives, would seek to influence banks’ behavior through complex regulation, an approach that costs taxpayers, reduces economic efficiency, has unintended consequences that necessitate further regulation, and finally fails to directly address the problem. At the end of the day, either one of them would still bail out banks and corporations in the name of saving jobs.

The only regulation that works is that imposed by the market: go out on a limb, don’t do your due diligence, and you might lose everything. If banks knew that they had no safety net, they would be a lot more careful, and they’d be less likely to get us into these messes in the first place.


Joe Swetnam is into some serious escapades.
Joseph Swetnam majored in English and minored in Economics at George Mason University. He writes about developing economies, immigration and the search for extraterrestrial life. He lives in Alexandria with his wife and two kids.