Quote:
Originally Posted by jyl
Let's suppose govt had let BSC fail, and then completely stood aside and provided no support to rest of financial system - banks, money markets, brokers, non-financial companies, etc. Suppose other govts had done the same.
Then most likely LEH MER GS MS would have failed too, also numerous commercial banks including C. Similar results globally - Barclays, RBS, UBS, CS, many German banks, etc. Essentially a near-global collapse of banking system, triggering appx $4.2 trillion of FDIC guarantee payments, while another $2.6 trillion of uninsured deposits would be lost (end 2007 data).
Most money market funds would have collapsed, so that's $4 trillion or so of investors' money gone (early 2008 data).
Equities would have collapsed, of course. More than they have.
Credit to consumer and businesses would have shut down, full-stop. You can see how much damage a tightening of lending standards is doing to the economy right now, imagine the damage from a sudden -70% to -90% decline in lending?
Global trade, state/local govts, other areas of economy would have been slammed.
And the Federal govt's own ability to fund its operations - maybe even to pay the FDIC guarantees - would have been in danger. Since China, Japan, and other buyers of treasuries wouldn't be happy that the US govt decided to fiddle while America burns.
Under your scenario, the Second Great Depression would have started in spring 2008.
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And would be ending at the end of 2008 as all the "bad actors" would have been wiped out completely.
With the current situation the "bad actors" and "zombie businesses" are being kept afloat
at the expense of the "good actors" and solvent businesses.
The government is destroying the healthy in the economy in order to save the sick and dead and especially the
corrupt.
Not allowing failed businesses -- and especially,
not allowing the failed financial system to collapse -- is creating another Great Depression.
"Pretending" it's not there, doesn't mean it's gone away.