Bailing out the banks
From Jeremy Grantham’s latest letter:
Let me end this section by emphasizing once again the
difference between real wealth and the real economy on
one hand, and illusionary wealth and debt on the other. If
we had let all the reckless bankers go out of business, we
would not have blown up our houses or our factories, or
carted off our machine tools to Russia, nor would we have
machine gunned any of our educated workforce, even our
bankers! When the smoke had cleared, those with money
would have bought up the bankrupt assets at cents on the
dollar and we would have had a sharp recovery in the
economy. Moral hazard would have been crushed, lessons
learned for a generation or two, and assets would be in
stronger, more efficient hands. Debt is accounting, not
reality. Real economies are much more resilient than they
are given credit for. We allow ourselves to be terrified by
the “financial-industrial complex” as Eisenhower might
have said, much to their advantage.
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