Cash advance to banks? Absolutely not.
Joseph Stiglitz
Cash advance for banks will not solve this problem.
Ambrose Evans-Pritchard of London’s The Daily Telegraph reports that former White House Council of Economic Advisers Chair and Nobel Prize-winning economist Professor Joseph Stiglitz has a rather novel approach to the current state of troubled banks. “Let them fail,” he says.
According to the Telegraph reporter, Stiglitz believes that government should allow “every distressed bank to go bankrupt and set up a fresh banking system under temporary state control rather than cripple the country by propping up a corrupt edifice.” Moreover, to give London-centric readers something to chew on, he said that British banks too should default on foreign operations and wipe the slate clean after the dust settles.
Happy bank executives and payday loans
Why should taxpayers have to tighten their belts while bank shareholders reap the dividends of bailout money? Why should the bulk of the populace have to conserve themselves back into the Stone Age for 20 years so bank executives can maintain their lifestyles? The inequity has made payday loans necessary for the public when catastrophe strikes. These are the kind of questions Stiglitz is pondering.
Short term, letting banks fail will be painful. In a world that is geared primarily toward instant gratification, old habits will die hard. Stiglitz recognizes that doing so will cause turmoil, but he also is certain that it will be a cheaper way to deal with the problem. Specifically, he says government should “underwrite all deposits to protect domestic credit and safeguard money markets that lubricate lending.” As Evan-Pritchard describes it, this would “use the skeletons of the old banks to build a healthier structure.”
Free market responsibility and cash advance is needed
Even if it leads to healthy banks having to scratch for funds as they compete with state-run entities, the change will be necessary. Survival of the fittest and free market responsibility pave the road out of this dilemma. Those who can survive will, and those who enter the brave new economic world with principles based upon integrity and responsibility will survive.
Stiglitz doesn’t overlook financially battered households. He intends for his ideas to be a means for families to bring debt under control while avoiding bankruptcy. But the adjustment period after banking behemoths fall to the ground will be difficult. Cash advance is one solution to help meet surprise expenses. Used responsibly, they can bridge the distance without causing harm to consumers. Limiting such loan products is what actually causes harm.
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He has a point, but I really don’t think that it would be a good idea at this point. The rate of unemployment would skyrocket, and it would remain at Great Depression levels for over a year, if not more. I think the reason why we are bailing the banks out is so that we can avoid exactly that kind of thing.
I couldn’t have said it any better, Professor Stiglitz. Why should we have to suffer for the banks’ irresponsible financial dealings? While we struggle to clean up their mess, they are basically sitting on their high seats judging and criticizing others for making sluggish movements. They don’t understand what the word “help” means. Their understanding is based on greed and wealth. Nothing more.