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Posts Tagged ‘financial sector’
July 11th, 2011 at 9:47 pm
Gelinas: 3 Choices on Leftover Toxic Debt

City Journal’s Nicole Gelinas describes the Bush-era “TARP” bailout as a massive case of moral hazard.  With the financial sector able to fob off its bad debts to the American taxpayer while suffering almost no consequences, it’s no wonder the jobless rate is not recovering.

The politicians we elect have three choices—the same choices they had four years ago. They can admit that this debt isn’t worth much and allow the financial sector to bear the consequences. They can hope that the Fed tries to use inflation to raise the price of everything else, making the debt seem a lighter burden in comparison. Or they can maintain their silence, letting the financial sector take another half-decade or more to make enough money on new ventures so that it can finally admit what it should have admitted back in the fall of 2007: bad debt is never good. At least the Fed acknowledges this strategy: it says that it’s using “time” to manage toxic securities and “minimize disruption to the financial markets.” But prolonging government control of financial markets just prolongs investors’ uncertainty.

If Congress and President Obama, as well as the candidates who would like to succeed the president in 2013, maintain their silence, people should at least understand that the lousy jobs numbers are no mystery. They are the result of a policy that Washington has willfully chosen. As the Fed notes, the cost of this policy isn’t measured in dollars but in something more precious: time. Washington’s refusal to confront the debt problem is costing millions the most productive years of their lives.