You never know, it’s the law of unintended consequences. Maybe it would’ve caused people to walk away from stocks as an investment. Maybe people would’ve put all their money in real estate instead. Kind of staggering if you think about how much worse the whole housing crisis could be.
No, it would not have been neat. It would have been incredibly messy. Their life insurance in particular, was mostly shielded by statute, but the remainder of their business would have been fair game -- that would have had wide-reaching implications, both in and out of the financial sector. The collapse of major investment banks that would have inevitably followed would result in many companies not being able to make payroll. That would have exacerbated the already existing problems with the real estate market collapsing, as meeting payment obligations would be more difficult for people, further depressing the values of mortgage-backed securities, as financial companies would have sought to mitigate their losses and cover their reserve and capitalization requirements by selling things at firesale prices.
It would have been a disaster of epic proportions. Would it have been worse than what happened? I don't know -- and neither do the economists who insisted on action. As it was, innumerable businesses not at the scale of AIG were left in the cold to collapse without billions of dollars of free money, and, more significantly in my view, institutions and well-capitalized individuals who correctly predicted the collapse of the market would have been well-positioned to use their assets to buy up undervalued assets (including home mortgages, which, if purchased at fire sale prices, would have made decisions about de-valuing the loans easy, because the effective yields would have been so much higher).
I still don't think that would have had the same downstream macroeconomic effects as, say, exploding mortgages for millions of working and middle class Americans. Nobody leasing their commercial properties to WeWork is one missed paycheck away from homelessness or health crisis.
No it wouldn't have. The company would still be solvent and have a large number of total deposits, just less in total than they could've had otherwise. What they did literally destroyed the entire company; not doing so would not have had that result. The outcomes are not comparable.
Yes but observing the end effect it was apparent a lot of that money went into the stock market, and thus didn’t really go where it was needed. The damage was done already.
More like they took the wrong kind of risk. The problem was that people were expending their future incomes on present consumption-- e.g. by borrowing money to live in luxurious houses. It would not have been so bad if they'd been been borrowing money to invest it in productive assets, like more efficient machines for their businesses.
I don't understand enough about the stock market to comprehend the possible unintended consequences, but trying to interfere in the free market can result in things like the 70s fuel crisis.
I'm not sure where we are on the "people never learn / we're screwed enough to need this" continuum, but I definitely don't get warm fuzzies from this. :/
I would bet money it would have the opposite effective. Imagine the number of news articles, discussion, and hype that action would bring. Rational investors might see it as a negative, but...
If they really had no great alternative, and the chain of reasoning was that clear, then traders would have anticipated it and it wouldn't have caused any major problems.
Since it was widely unexpected and people did lose piles of money, I expect there were other likely alternatives and perhaps your analysis may be suffering from a bit of post-hoc rationalization.
I know this is not how it works. But telling people to not talk about negative things makes the market even less rational. I would argue that more negative talk would have slowed the build up of the .COM and real estate bubbles and avoided the following major crises.
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