Banks are like any other for-profit business. They are nothing special. You people have been brainwashed to believe that banks have a special status and that the world would crumble if, god forbid, a bank will fail. Get a grip of yourselves. It's all smoke and mirrors people.
You asked, "What if the we let the banks fail?" My answer is from a tune http://www.youtube.com/watch?v=sK_gDmweR9Q We would have to let all hell break loose - weak willed stomachs couldn't take it - you would have to answer the weak masses, "Give me something to believe in!" -gastropod
I think we should start the First World Internet Bank, fund it by franchising it out like convenience stores and start the economy up again with toxic paper free lending while we laugh at the failing banks. Jeez, arrogance has no limits. Before this crisis was widely known my Credit Union was asking for my ID before I could deposit money to my own account!! What the frell was that about? Now they don't even make me fill out a deposit slip, I just tell them my name. I like them a lot better nowadays.
The trouble with letting banks fail is that there is no quick and transparent mechanism for valuing and disposing of assets (by design, position knowledge has long been an institutional trading edge). We need to move all these non exchange traded instruments on to a regulated exchange with exchange set margin requirements and daily mark to market. Is the CME is asking for a bailout?! There are buyers right now for many of the toxic assets but the banks are able to hold on to them at unrealistic non market prices due to the massive infusions of taxpayer money. No one else gets to do that.
'The government can ship a whole lot of bottled water to the people but when it runs out you still have a broken pump and no water coming through. ' Yes, shipping of bottled water makes sense, as it will allow you to drink, cook and do other basic things, if not take a shower every single day etc. The situation is not as bad as 'no water and bottled water' scenario. The situation is more like water supply has reduced to 25% with low pressure and there is a threat of total freeze up down the road if situation is not corrected. Somewhere it was mentioned that it will take 30% rise in real estate prices for toxic debts in RE sector to turn normal again. Historically, over 30 years, the RE prices rise on average 4% a year, so sit back for atleast 3-5 years for economic variables to rebound.............if the RE prices do not go down any further from here. Some folks, including Buffet are saying that there are other asset classes like credit cards, treasuries, insurance that are also loaded with toxicity and would require a bail out. So be ready for other bottled water trucks on the residential blocks. US has to bring down the defense budget to 300B a year from current 600B. That translates to $3T in 10 years and surely cancels out the recent stimulus packages. US should also try to refinance the debt interest rates to both locals and foreign governments. Nations get this help quite often and unfortunately it is now US that needs this help. Good news around the blocks is that Oil might go down to $25-30 a barrel and that is another boost of lower interest rates to the world economies to seek a good jump start from the recessionary downturn.
It's kinda too late to speculate on what could have been, but I'm told it's always better to cut out the damn cancer while it's still in its infancy.
Actually, that was the Republicans following Bush up until the last election. I wised up maybe you should too!