Bailing out the banks

From Jeremy Grantham’s latest letter:

Let me end this section by emphasizing once again the

difference between real wealth and the real economy on

one hand, and illusionary wealth and debt on the other.  If

we had let all the reckless bankers go out of business, we

would not have blown up our houses or our factories, or

carted off our machine tools to Russia, nor would we have

machine gunned any of our educated workforce, even our

bankers!  When the smoke had cleared, those with money

would have bought up the bankrupt assets at cents on the

dollar and we would have had a sharp recovery in the

economy.  Moral hazard would have been crushed, lessons

learned for a generation or two, and assets would be in

stronger, more efficient hands.  Debt is accounting, not

reality.  Real economies are much more resilient than they

are given credit for.  We allow ourselves to be terrified by

the “financial-industrial complex” as Eisenhower might

have said, much to their advantage.