A Solution to the Financial Crisis: Require Insurance Before the Bailouts

There is a passionate discussion going on about the government bailout and its costs. Some say that there should be no bailout, and that the the taxpayer is being unfairly stuck with the cost. Some believe that the financial system should be allowed to operate without interference - that, ultimately, the free market will prevail. On the other side are those who strongly believe that, without the bailouts, there could be dire consequences for the economy, including a depression. There are some valid arguments within each of these points of view. However, if we are not careful, we can increase our FreePasser problem on a massive scale.

It is amazing how people respond to incentives. My son often ignores my warnings or instructions but, when I threaten to take away his television privileges, his hearing improves immediately.

We All Are in the Same Boat

Many,  including the President, are saying that we are all in the same boat, and that the economy will crater if we do not assist our countrymen in need. There is truth to this but, if we take the analogy further, there have been severe penalties for individuals who endanger the operation of a ship. This included flogging and hanging in times past. No FreePassers in those days.

There Must Be Blood, But Only for Those Responsible 

There must be substantial penalties for those who are responsible for this mess. However, it sends the wrong message to send the bill to taxpayers, rich or poor, who were not in any way responsible. This is like kicking the dog out of frustration when you get home after a bad day at work. Eventually, Rover, like the taxpayer, is going to get very angry.

Require Insurance if Bailouts are Necessary

If we buy the argument that some institutions are too big to fail and have to be rescued to avoid a meltdown, we should accept it and require them to pay for that government insurance in advance. We already do this with the F.D.I.C. Why this can’t be extended to other financial activities as well? In fact, recent news has made it clear that the F.D.I.C may need to go back to the banks for additonal funding due to the extent of the current crisis. So, even in the midst of a true banking crisis, the responsibility to insure the depositor falls on the very institutions that have led us down this path.

The Model of Auto Insurance

Auto insurance is required in most states if you own a car. This ensures that there is money to pay the bill if someone causes an auto accident . If the person does not have insurance, then criminal penalties are levied against them. In addition, this discourages irresponsible behavior since. if you drive recklessly, you will see your insurance rates skyrocket. If goverment handles this in the right way, being a FreePasser can be very expensive.

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One Response to “A Solution to the Financial Crisis: Require Insurance Before the Bailouts”

  1. tampa doctor Says:

    Our national debt nearly doubled under the Bush administration.

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