Should the federal government have broad authority to seize private financial institutions on the verge of collapse to keep them from harming the economy? President Obama and his treasury secretary, Timothy Geithner, are arguing just that – saying that such power would have eased problems associated with recent bailouts. “(It) is precisely because of the lack of this authority that the AIG situation has gotten worse,” Obama said in a press conference on Tuesday.
They do have a point. In any sector of the economy, failure should be an option. That means we need effective and workable ways to wind down institutions in an orderly way, without unnecessary collateral damage to the economy. And it’s not clear that current bankruptcy laws or other existing mechanisms do that. Continue reading…
