The magnitude of the error is shocking

[reality_hammer]

There is a mountain of evidence that shows we should not be doing what we are doing with regards to the banking and mortgage situations. We are in effect throwing good money after bad and allowing problem banks to "double down" on their bad bets, just like we did with the S&L crisis when it started in the late 1970s. The result will be the same: massively higher costs to properly resolve the situation years down the road.


This first chart shows US bank borrowing from 1918 up until 2008. (Charts from Doug Ross.)



Note that the Y axis scales to $10 billion.

Now include 2008. The Y axis now has to scale to $800 billion.



This is borrowed money. If these banks fail you and I will have to cover the losses with massively higher taxes.

Two more charts showing why would should have let the problem banks fail. (From Carpe Diem.)

First, the number of problem banks compared to the tail end of the S&L crisis:



And the amounts at risk from both periods:



Allowing the bad banks to fail would have cost less than the auto maker bailout and the costs would have largely been absorbed by the banking community itself.

Is it any wonder that this has started to happen?

I high recommend these books:

• 
  Money Mischief
  
• 
  Capitalism and Freedom
  
• 
  Free to Choose
  
• 
  The Road to Serfdom
  

All are excellent resources for understanding why we shouldn't be doing what we are doing right now.