Monday, March 17, 2008

More Welfare for Wall Street

Economist Paul Krugman (NY Times, 3-17-2008) states that a bailout of investment banks is "inevitable." Bear Stearns was the first to fall last Friday, losing 90% of its value in one day. Media outlets are hinting that Lehman Brothers and UBS are also unstable.

If one follows the money, this run on investment banks has resulted from unscrupulous lending and a form of speculation that working-class people would lose their homes over. In other words, it was the "free market" doing what it does naturally.

If the US government bails out these so-called banks, what kind of message does it send? What lessons have been learned?

A little bit of economic history. According to Krugman, the S&L scandal cost the US $450 Billion in current US dollars, and real estate speculation in Japan cost its people 3 Trillion in current dollars. In an interview in CNNmoney, Krugman predicts capital losses of $6-$7 Trillion in the housing market and $1 Trillion in housing-based securities.

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