> So the bankers kept all their profits and everyone else lost big.
I believe the government actually made a profit on the bailouts (the TARP program), probably because they bought while prices were low. Not that there isn’t a lot to criticize about how things went down.
I wouldn’t put too rose-colored-glasses on the pre-central bank era either, we still had financial panics and bank failures and the fact that the world is more globalized/interconnected now is probably true regardless of if we have a central bank or not.
> The real answer is to do away with the fractional reserve lending
I saw an interesting thought experiment related to this a while back.
Say country A is careful about making loans, and B is less careful. Country B takes out 300% more loans, and runs into a huge bad debt problem, and has to write down 20% of the total of all lending. Say people lose 20% of their bank accounts (maybe because the currency depreciates after a bailout).
Which country was more responsible? Country A right?
But if you look at the results, after the write down, country B has 240% as much stuff (housing, infrastructure, etc). And the people there also have 240% as much savings in the bank, since that’s mostly bank credit backed by debt.
The author made the argument that country A resembled Russia and county B resembled China.
Examples like this make me feel that the most responsible way to handle debt (at least at the public policy level) is not really very clear, since even doing things that seem responsible can have huge costs in the end.