It has been nearly a year since the financial crisis was at its peak, but discussions of what should have been done and what to do now are ongoing. The Federal Deposit Insurance Corporation (FDIC) has always been in charge of insuring some investments but soon may be given some new powers, including the ability to dip into taxpayers funds.
And that is the real danger, says Jeff Miron, a senior fellow at the Cato Institute and director of Undergraduate Studies in the Economics Department at Harvard. Miron was asked to speak to the House Financial Services Committee and told Federal News Radio that the pending legislation would allow the FDIC to use taxpayer money to prop financial institutions up and bail them out, exactly as we did with TARP.
Large financial institutions do need different regulations and possibly even a different kind of bankruptcy but bailing out institutions could hurt in the long run. Miron told the Federal Drive, the economy could suffer because it could lead to the mindset that no financial institutions should fail, institutionalizing the idea that, “If you mess up, we will bail you out.”
Miron compared this situation to a teenager over-spending and having a parent pay off debts under the guise of “I will help this time, but never again.” And we all know how that works out in the end.