[tn13]

This is a good example of why we should let failed companies fail and let good companies then salvage the good assets.

Imagine US government had taken over RadioShack to "protect the jobs" using taxpayers money and spent billions for a so called turnaround.

[650REDHAIR]

RadioShack is not comparable to Detroit.

[jessaustin]

Yeah unionized auto workers are far more valuable to politicians than part-time $9/hr people.

[derefr]

The entire voting population of a city [not] losing their jobs all at the same time is more valuable to a politician than a lot of things, really.

[dredmorbius]

Radio Shack isn't 1) too big to fail and 2) doesn't have an entire ecosystem dependent on it (hobbyists included).

[jessaustin]

"Too big to fail" is a term with only political meanings. Best not to let it cloud one's thinking.

[dredmorbius]

No, systemic risk and global financial collapse are not "only political".

But that said, your assertion, your burden of proof. Convince me.

[jessaustin]

Well of course one cannot prove that global financial collapse would not have followed from a decision not to "make whole" some of the various counterparties of AIG and some other failing institutions. (Perhaps some would say that we got something of a GFC even with those heroic efforts?) Neither can one prove that pension and other benefits defaults on the part of two of the fourteen automakers with factories based in USA would not have had some knock-on effects beyond the retirees of those two companies. We don't get to react to the same economic situation twice. Those who staked their reputations on the interventions aren't going to publicly regret them. Likewise, those who at the time worried more about the long term have seen nothing to change their minds.

But that is just my point. There is no empirical reason to believe or disbelieve in 2B2F. There are myriad political reasons to do both. Not all questions must be answered, and if this is the only sort of answer available, I'll pass.

[dredmorbius]

Proving a counterfactual is of course difficult, but there's no need to. There are numerous financial panics which have been precipitated by the failure of a single firm, or an interconnected set of firms.

The loss of Lehmann in 2008 very nearly precipitated this, and in multiple histories of the 2007-2008 crisis, it's cited as the reason that a bailout was created.

The most notable instance in the past century was of course the Great Depression precipitated by the Great Crash of 1929. If you've not read John Kenneth Galbraith's book on the topic (short, comprehensive, and highly readable), I very strongly recommend it. It was precisely a case of general financial contagion brought about by grossly excessive moral hazard, and spread throughout the world.

There's a long list of financial panics caused by the failures of single firms, generally financial or with a significant financial impact:

https://en.wikipedia.org/wiki/List_of_stock_market_crashes_a...

In the sense of creating regional depressions or declines in economic vitality, there's a long history of manufacturing first entering, then departing, various locales. This happened in many of the former factory towns of England, then New England, the Steel Belt extending from Pennsylvania through Ohio and Michigan in the U.S., the garment and furniture industries in the southeastern U.S., and the aerospace and defence industries in Southern California following the 1990s defence budget cuts. Or pretty much any extractive industry boomtown anywhere.

Some of those have left lingering poverty, others simply resulted in a former golden age which has never fully recovered.

[jessaustin]

As the example of manufacturing shows, nothing can last forever. There is no principle of morality that says all steel must be forged in Bethlehem PA forever. Self-described "capitalists" (not a shot at you, but I'm sure you know the type) wax poetic about competition and creative destruction, right up until the moment when their complicated financial instruments are rendered worthless by bankrupt counterparties. But this discussion is still a political one. If the government hadn't had the money to spare for these purposes, we would never have heard of 2B2F.

[tn13]

This too big to fail is a random assertion coming out of nowhere. Several large corporations have failed from A&P to Enron without any effect on global economy. Also, the fact that government interference leads to any better outcomes is not evident. What exactly has happened to Detroit today ?