Gretchen Morgenson‘s Fair Game column posits an interesting question this morning that seems like a combination of pragmatism and surrender – Why don’t we figure out what the next round of bailouts for Too Big To Fail institutions will cost us, because bailouts are inevitable anyway?
The point she’s making is that nothing much has changed in Washington in terms of a lessening of systemic risk, so we may as well plan for another crisis now.
From the New York Times:
If the government won’t reduce the size of the safety net, and it has shown no appetite for doing so, it should at least tell us the price tag.
Marvin Phaup, a research scholar at George Washington University who examines federal budgeting, is one who is urging such an assessment. An expert on government guarantees, his wholly sensible view is that it is dangerous for possible bailout costs to remain unmeasured and, of course, unrecognized in the budget. “If we are extending the safety net, extending the implied guarantee to the debts of a lot of other financial institutions, and we know those guarantees are valuable and costly, then we ought to start budgeting for it,” Mr. Phaup said in an interview. “We can’t reduce the costs of these subsidies if we can’t recognize them.”
I suppose a budgeting of what the failure of some of these companies may cost the taxpayer is the economic equivalent of building a fallout shelter – one may as well prepare for the aftermath of a bomb going off than hope in vain that it won’t.
Pragmatism and surrender indeed.