At the height of the financial crisis in 2008, the Republican Congress correctly rejected the Paulson/Bush bailout scheme. McCain foolishly suspended his campaign and flew back to Washington to help save the day. During that week, behind closed doors, Paulson and others somehow convinced the Republican House to reverse its vote and allow the bailout legislation to pass.
Conventional wisdom says the entire financial system would have collapsed had the bailout not passed. Certainly, the McCain campaign collapsed during that week.
Would the financial system have really collapsed? Possibly not. The S&L crisis of the early 1990’s did result in the closing of many insolvent financial institutions but did not result in the financial system collapsing.
What if the financial system had collapsed? We might actually be better off today. The speculators would have been wiped out. Average Americans would have been protected by FDIC insurance. The failed financial institutions would have been reorganized in the bankruptcy courts with some being liquidated. The financially sound institutions, who engaged in responsible business practices, would pick up market share. General Motors and Chrysler would have been downsized and reorganized in bankruptcy courts (like the airlines were in the 1990’s) instead of becoming wards of the state. Obama would be president but he would not have administrative control over the banking system and automotive industry.
Likely a full financial collapse would have impacted large corporations in bed with the government to a greater degree than mid and small size companies. Out of the ashes of a collapse could have come a revitalization of American capitalism without the cozy mutual beneficial relationships between big government and big corporations. Instead, with the bailouts we accelerated a rush to socialism and state ownership of the private sector.
The Republicans didn’t control the House in 2008.
Thank you for your perspicacity. I'm going to keep your comments as a quote, posted under the article, in Investigating Obama.