The Case For Allowing Banks To Fail

In many previous posts on this blog, I outlined why allowing the incumbent banks to fail when they become insolvent is a pre-requisite for achieving macroeconomic resilience. In my previous post I outlined how allowing such failure can be managed without causing a deflationary economic collapse in the process. Nevertheless, there are many who believe that a no-bailouts policy is tantamount to ‘financial romanticism’. In criticising the no-bailouts approach, Krugman deploys three arguments: