Most Austrian economists argue that the best response to the 2008 financial crisis was to â??do nothing.â?ť By refusing to bail out the banks, investment firms and insurance companies, the government would be sending a clear message that Wall Street and the private markets must avoid irresponsible decisions in the future.
A few make an exception for the banking system itself, defending the governmentâ??s guarantee of money market funds, for example; otherwise, the whole system would have collapsed.
I just finished reading Tim Geithnerâ??s book, â??Stress Test,â?ť which makes the case for the opposite — he justifies almost every decision by the Feds to reduce short-term rates to zero, to flood the system with money and to bail out the banks, investment firms and insurance companies, as well as General Motors. He was at the center of the crisis, before and after, as New York Fed chairman under Bush and Treasury Secretary under Obama.
Read more about the differing economic views on the role of government at Eagle Daily Investor.