Improved Clinch

Let ‘Em Fail

The Wall Street Journal has an interesting interview with Anna Schwartz, co-author with Milton Friedman, in 1963, of The Monetary History of the United States. I have not read this tome, but, I’ll be heading to my local used book dealer shortly to see if he has it piegonholed in his shop.

From the interview, which reads more like an article.

...In fact, by keeping otherwise insolvent banks afloat, the Federal Reserve and the Treasury have actually prolonged the crisis. “They should not be recapitalizing firms that should be shut down.”

Rather, “firms that made wrong decisions should fail,” she says bluntly. “You shouldn’t rescue them. And once that’s established as a principle, I think the market recognizes that it makes sense. Everything works much better when wrong decisions are punished and good decisions make you rich.” The trouble is, “that’s not the way the world has been going in recent years.”

I think Anna Schwartz is correct, “firms that made wrong decisions should fail.” Unfortunately, the principles Ms. Schwartz hopes would be established are lacking both at the firms that should fail, and at the state level.

The rest of the interview is worth reading.

The WSJ piece is titled Bernanke Is Fighting the Last War

Posted by .(JavaScript must be enabled to view this email address) on 10/18 at 03:06 PM