6:24 am October 26, 2009, by Henry Unger
It’s a question that just won’t go away in this recession — should the government intervene in some aspect of our economy or stay away?
The latest twist on this issue comes today with a report in the New York Times that the Obama administration and some in Congress want to rein in companies deemed “too big to fail.”
One idea would make it easier for the government to seize control of troubled financial institutions, throw out management, wipe out the shareholders and change the terms of existing loans held by the institutions, the Times reports.
U.S. Treasury Secretary, Timothy Geithner, was planning to endorse the changes in testimony before the House Financial Services Committee on Thursday, the Times said.
Deep-seated voter anger over the bailouts of companies like American International Group, Citigroup and Bank of America, the Times said, has fed the fears of lawmakers. They want changes in the regulatory system to include the imposition of more onerous conditions on those financial institutions whose troubles could pose problems for the markets.
Some economists believe the mammoth size of some institutions is a threat to the financial system at large. Because these companies know the government could not allow them to fail, the argument goes, they are more inclined to take big risks, the Times said.
But others believe the government has already gone too far in regulating or intervening in the economy.
They warn about what some call “creeping socialism” and believe the markets and current legal system should be left to deal with the excesses of these institutions. Allowing these companies to fail should be an option. Over time, normalcy will return, they argue.
What do you think?
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