http://krugman.blogs.nytimes.com/2008/09/29/bailout-questions-answered/"I’m being asked two big questions about this thing: (1) Was it really necessary? (2) Shouldn’t Dems have tossed the whole Paulson approach out the window and done something completely different?
On (1), the answer is yes. It’s true that some parts of the real economy are doing OK even in the face of financial disruption; big companies can still sell bonds (and have lots of cash on hand), qualifying home buyers can still get Fannie-Freddie mortgages, and so on. But commercial paper, which is important to a lot of businesses, is in trouble, and I’m hearing anecdotes about reduced credit lines causing smaller businesses to pull back. Plus there’s a serious chance of a run on the hedge funds, which could make things a lot worse. With the economy already looking like it’s headed into a serious recession by any definition, the risks of doing nothing look too high."
http://www.huffingtonpost.com/2008/11/24/krugman-citigroup-bailout_n_146176.html"If Citigroup had not been bailed out, then the whole financial system could collapse," said Princeton economics professor Paul Krugman on CBS' The Early Show."http://blogs.alternet.org/speakeasy/2010/04/02/are-bail-outs-for-the-super-rich-inevitable-ask-paul-krugman/"But, why isn’t Krugman calling for an end to all financial bailouts for the wealthy, instead of announcing that they will go on forever?
One reason is that he doesn’t think breaking up the big banks will work: “I don’t have any love for financial giants,” he writes, but I just don’t believe that breaking them up solves the key problem.”
He argues that a run on thousands of little banks, as in the 1930s, would also require bailouts to avoid another Great Depression."
http://www.nytimes.com/2009/08/10/opinion/10krugman.html?_r=1&partner=rssnyt&emc=rss"In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse.
The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed.
And that’s another reason we’re not living through Great Depression II."