September 17, 2013
Writing in the Fresno Bee, Heritage Foundation economist Norbert Michel debunks a big-government myth about the 2008 financial crisis:
The notion that allowing Lehman [Brothers] to file bankruptcy caused the financial crisis is both wrong and dangerous. The danger in this myth is that it perpetuates the policy of bailing out financial institutions with taxpayer money. Plus, it allows policymakers who contributed to the crisis to escape responsibility for their actions.
In fact, it was ”inconsistent government policy” that “heightened uncertainty in the financial markets,” Michel points out in a Heritage report. The government’s earlier decision to bail out Bear Stearns that set an expectation that government would step in to save banks that were “too big to fail.” This expectation was not met.
“If congressional leaders want to calm markets, they should end the too-big-to-fail doctrine once and for all,” Michel concludes.
What do you think lawmakers should do to end too-big-to-fail? Tell us in the comments.