What's Fair Got to do With it?

Is it fair that prudent taxpayers and home owners should bail out people who borrowed foolishly and companies whose executives were responsible for the credit crunch?

The answer is “no,” but that doesn’t make the bailout a mistake, says Zvi Bodie, finance professor at Boston University. "My own view is that the world isn't fair," says Bodie. "But would it be fair to put the economy into a deep recession or depression? I don't think so."

If the monetary and fiscal authorities are right in their judgment that the risk of an economic plunge of frightening proportions is real, then the actions they're taking are fair to all of us, Bodie contends.

The U.S. economy in 2008 — with a 5.7 percent unemployment rate and economy expanding at a 1.9 percent average annual rate — is far from Depression-era statistics and only time will tell whether monetary and fiscal authorities exercised sound judgment or panicked. In the meantime, history rewards the bold — not the timid — when the financial system is threatened with collapse, according to Bodie.

Source: Business Week. Chris Farrell (08/05/2008)