Government Can’t Rescue a Bank from Itself

It’s not just that the government SHOULDN’T bail out banks. It CAN’T bail out banks — not truly.

How can the GOVERNMENT guarantee your deposit? If every bank collapsed, then everyone’s money would be worthless. The government could not simply command the banks into profitability, as that ranting, decrepit dementia patient in the White House claims. In the much more probable scenario that SOME banks collapse (two so far), then the government CAN take money from profitable bank accounts (via taxes, or more inflationary debt) and bail out the people with accounts in the failed banks. But this has the effect of rewarding bad investments and keeps both bank owners and deposit holders from making necessary corrections. The market and economy as a whole will suffer, making additional depressions, recessions and additional bank failures more likely.

If you think the government can truly shield you from your own or another’s mistake WITHOUT causing someone else to pay for it, you probably believe in Santa Claus, too.

Michael J. Hurd, Daily Dose of Reason

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