Insight: Owning up to freedom – by Martin Litwak

First came the collapse of the Silicon Valley and Signature Banks in the U.S., followed by Credit Suisse. The last to fall was Deutsche Bank, the largest private bank in Germany, which ranks among the largest 20 worldwide in asset management. Details of the crisis are inundating the press these days, so I would like to consider the subject from a different angle today.

In the midst of these collapses echoing around the globe and causing fear in many countries, the FED (the Federal Reserve System) decided to come to the rescue. Instead of going for the basic insurance applied by any financial institution -that is, a minimum covered in the event of a collapse- it opted for a bailout. It was the FED -the U.S. equivalent to a Central Bank- that prevented the banks from their final breakdown.

Meanwhile, numerous leaders who are self-proclaimed advocates of liberalism spoke out publicly in support of the FED’s decision, under the excuse of "saving the market", which needs no State, President or Congress to continue functioning. What the market does need precisely is freedom; and freedom must be reckoned with.

Investors, who leave their money in the hands of financial institutions seeking further riches upon promises of good dividends or succulent interest, are -or should be- well aware that, in doing so they are taking on certain risks.

According to U.S. law, any individual depositing up to 250,000 dollars in a commercial bank will have a state guarantee. Depositors are aware of such limit and they manage their risk accordingly. When they fail to do so, the State has no obligation to back them up and undertakes no liabilities. You cannot go from being a capitalist in good times to becoming a communist in bad times. It is fine to take on risks, and so much the better when we win. But when we lose, we must take responsibility. Those are the rules of the game.

Here is a brief story to better illustrate the situation: once upon a time, there was a family, commonly known as the "standard family" with parents and two children, who lived a carefree peaceful life. One day, one of the boys -still young, but old enough to make decisions- packed his bag and flew off in search of his own life. The young man left with the scarce savings that his parents managed to lend him.

He lived on those savings for a couple of years, while he incurred in all sorts of things that turned out quite well. He met a man who told him his life could change with a small investment that would produce a great return. The young man took a stake in that company that soon began to yield results. He enjoyed the landslide for some months, but those gains slowly dwindled until they finally vanished.

That man, who had promised to change his life around, had no answers for him. The young man returned home, where his parents received him with open arms to offer him care and protection. The question here is whether those parents did the right thing, and whether their son did the right thing. My opinion is that they did the right thing; because parents will always support their children, regardless of circumstances.
 
However, we should not take the State as our savior, expecting it to act as a parent. When we consider ourselves as liberals we must remain so through thick and thin.

Therefore, those who seek profits in dealing with financial institutions -something to which we are all fully entitled- should abide by the consequences of their own decisions, forgetting about the State’s rescue that is only possible with the money of taxpayers who chose not to take such risks.