Why the bail-out backfired
“We must do something!” It’s been the rallying call of the bail-out brigade since the financial crisis kicked off more than two years ago, and they’re still screeching it from the rooftops today.
But the trouble with doing ‘something’ is that once you start, you can’t stop. Because every little something that you do creates further unintended consequences.
For example, the Bank of England – and in the US, the Federal Reserve – slashed interest rates and pumped liquidity into the financial system last year in a desperate attempt to stop the banks from going under. If they hadn’t saved the banks, we’re told, then civil society would all but have collapsed as ATMs stopped functioning and bankers stopped buying Porsches.
But maybe – just maybe – things would be better now if we’d let the market deal with the banks.
• Read the full editor’s letter here: Why the bail-out backfired