Too much is at stake to test the proposition that the global economy can withstand the insolvency of large parts of the financial system, said The Times in an editorial yesterday. Excerpts:
In 1996 the International Monetary Fund noted: “In many countries, a banking crisis is an accident waiting to happen.” Few could have imagined that the mother of all banking crises would take place, little more than a decade later, in the world’s leading economy. How to deal with it is now an issue of fierce political contention.
Numerous criticisms were justifiably leveled at the original and abortive plan for a $700 billion bailout for the banks. An amended version has been approved by the Senate and will be voted on by the House. Politicians will understandably be sympathetic to constituents’ concerns about a bailout. And rescuing bankers from the consequences of their own reckless lending decisions is not a cause of great popular appeal. But for all that, a bailout of the banks is a necessary evil, and the House ought to pass the plan.
Too much is at stake to test the proposition that the global economy can withstand the insolvency of large parts of the financial system. The political debate should focus not on that issue of principle, but on minimizing the cost to the taxpayer and containing the risk of future crises. It is an indictment of governments and central banks that they failed to curb the credit expansion associated with a housing bubble. And it is a scandal that bankers sold financial products that destroyed value and misled investors. But the right course is to learn from the experience, not to reinforce the damage out of ideological purity.
