Demos v. Cato Round I: Bailouts Saved Us From a Second Great Depression

If libertarians had been calling the shots in Washington in the fall of 2008, the United States might now be in a second Great Depression. That’s because a failure to bail out key financial institutions – particularly AIG – might have caused a complete meltdown of capital markets and the collapse of the U.S. economy.

I say “might” because we’ll never know what would have happened in the absence of TARP and the Fed’s actions. But it’s hard to imagine why anyone would have wanted to roll the dice with so much at stake. Read Henry Paulson’s memoirs if you have forgotten the horrific details about how the collapse of AIG and Citigroup could have triggered a truly unstoppable contagion.

National leaders need to be pragmatic, especially in the very gravest of crises – whether it’s entering into an alliance with Stalinist Russia to beat the Nazis or bailing out the irresponsible institutions that caused the financial crisis of 2008. When the nation has a gun to its head, the last thing you want are purist leaders who inflexibly govern based on ideology.

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Round II Monday, Nov 21: With 20 million Americans unemployed, what should the government do to stimulate job creation? 

Round III Wednesday, Nov 23: Should we be more upset with Washington or Wall Street?