Preventing Failure

I read an interesting article today which I will post the link to at the bottom of this post, but it really captures the true nature of capitalism and sheds serious concern on the consequences of government intervention in the market.

Essentially HSBC in Hong Kong was insisting that the governments stop guaranteeing bank deposits. Their reason? Prior to the guarantee, people were pulling their deposits out of these failing banks and many of them were putting them into accounts at HSBC. Why? Because they were a more secure bank and there was much less risk of them collapsing. As a result, the balance sheet of HSBC was strengthening. The weaker businesses were failing and the stronger ones were prospering, exactly how the system is supposed to work.

As a result, the weaker banks are allowed to continue limping along rather than being flushed out of the system.



http://www.nytimes.com/2008/12/06/business/worldbusiness/06hsbc.html