A different choice

While I definitely do not agree the conclusions he often seems to draw (as an aside, how does more government solve problems caused or incented by government in the first place?) I enjoy the stories Michael Lewis tells in his writings.  Anyone able to write a truly interesting book that deals with collateralized debt obligations and mortgage backed securities (The Big Short) deserves praise.  In Boomerang Mr. Lewis humorously examines financial crisis in countries outside the United States. Iceland was once such country highlighted.  Very different from many other countries in the word and much to the angst of the UK and others, Iceland refused to bailout its banks in the financial crisis.

Boomerang was published in 2011 and recently The Telegraph ran an article on the current state of the country's economy.  The article highlighted how quickly Iceland's economy has rebounded following the collapse of 2008 especially relative to other countries.  While I am not a fan of the IMF the main point of the article is that Iceland paid off $484M in loans (after paying off more than $900M in March).

We hear horror stories in the mainstream media about how bad things would have been / would still be if we did not bail out banks (and unmentioned the continuing bailout via the fed maintaining ultra low and no and implicit guarantees).  To be sure allowing banks to fail would indeed be painful for all those who have lent money and owners of stock (hello U.S. government) would see their investment wiped out.  Undoubtedly there would even be broader repercussions that might impact some businesses and some individuals.  However, similar to Iceland's experience, the sharp and painful contraction would be followed up by growth an prosperity.  Growth and propriety built on the back of savings and investment that truly grow the wealth of a nation - and without the moral hazard of bailouts.