The government’s official strategy for fixing the financial system is to do whatever it takes to support the banking sector. Yes, the financial system hasn’t collapsed, but the ramifications of this risky strategy could be astronomical in the future.
Former IMF chief economist Simon Johnson says it’s not surprising that the government’s decision to essentially give unlimited resources to the banks has “buoyed confidence in both that sector and at least temporarily helped shore up confidence in financial markets more broadly.”
But what if the “size, nature, and clout of finance” is the real problem, he asks.
“Then the official view is nothing close to a solution,” Johnson says. “At best, pumping resources into the financial sector delays the day of reckoning and likely increases its costs. More likely, the Mother of All Bailouts is storing up serious problems for the near-term future.”
