Cash does not get destroyed. They mere change hands - we are not considering burning cash as an option. So, though the investment banking world lost money, the cash is floating somewhere in the system. It does not make an appearance because of the fear of cash crunch - a typical catch 22 situation.
The best response to the present crisis would have been for the US government to do nothing. The market should be allowed to follow its course. Let the financial institutions who did well thrive, the ones that have made bad decisions dies out. Instead of pumping $700 billion into the money market, I would have loaned it to the sectors that are suffering because of the cash crunch. Say, a company had planned to develop a new line of business and the take off has been postponed because of the present market, fund that company. If required involve the relatively better regulated banks / financial institutions.
Too simplistic? Perhaps! But an alternative nevertheless.
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2 comments:
yes. I dont see why governments should be bothered about bad business decisions and bail out them with tax payers money. - santosh
I dont understand why govs should bail out bad business wasting tax payers money! - santosh
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