re: #284 Killgore Trout

…And another thought on ending the bailouts. I think history will show that the biggest mistake of this whole fiasco (at least so far) was the failure of the fed to rescue Lehman Bros. I really think repeating this mistake another couple dozen times would be a disaster.

Hmmm… maybe.

It depends on whether this crisis is caused by too much bad debt (a quality issue)… and then the answer is for the government to buy up the bad debt, and thereby unclog the system.

If the problem is simply too much debt, good or bad (a quantity issue), then all of these bailouts are only going to prolong and deepen the problem, as the money for the bailouts is borrowed as well. The current pattern of defaults could break in either direction, as the weakest loans would be the first to fail in either scenario.

If the economy comes back moderately strong and doesn’t trip into a second decline… it was the former.

If it is the latter, then all of the borrow-and-bail machinations of DC are only going to make things worse… think: Brazil in the eighties style inflation, and a lost decade with little or no growth like Japan in the nineties.