Tuesday, December 9, 2008

Market failure or government failure?

From a Bloomberg report:
Dec. 8 (Bloomberg) -- Illinois Governor Rod Blagojevich said the state will suspend business with Bank of America Corp. until the lender restores credit to the shuttered Republic Windows & Doors company in Chicago where workers are staging a sit-in.

Republic Windows told the bank on Oct. 16 it planned to cease manufacturing in January after losing $5.7 million during the first nine months of this year and a total of $12.7 million in 2007 and 2006, according to a Business Wire press release issued by the company. The bank last month turned down Republic’s request to issue vacation pay to its employees, the release said.
We are in the worst financial meltdown since the 1930s due not to illiquidity but insolvency. The root cause of the problems is that the banks made too many bad loans, and government encouraged them to make some of those bad loans. If I did not have contempt for politicians, it would strike me as bizarre that politicians want to force banks to make loans that are even more unsound than the loans that got us into this mess.

Update: Even before I posted this, the federal government had arrested the good governor of Illinois on numerous charges, including the charge of trying to sell the Senate seat vacated by Barack Obama. How many of the last five Illinois governors have been arrested and tried for corruption?

Illinois has a Governors State University. Maybe it should also have a Governors State Prison.

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