Krugman: Goldman Sachs Profits Are Bad For America

July 17, 2009 at 11:09 am  ·  Category: Economics, Market Commentary, Politics

Krugman is relentless in his calls for increasing government involvement in the economy and regulation:

What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong.

You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression.  In fact, I agree.  But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.

Now the last time there was a comparable expansion of the financial safety net, the creation of federal deposit insurance in the 1930s, it was accompanied by much tighter regulation, to ensure that banks didn’t abuse their privileges.  This time, new regulations are still in the drawing-board stage — and the finance lobby is already fighting against even the most basic protections for consumers.

If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road.  The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole.

“The Joy of Sachs”, Paul Krugman, The New York Times, July 17

The alternative position is to just let these guys fend for themselves and stop subsidizing and bailing them out.  Let them do what they want and bear the consequences in profit and loss.

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 

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