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Fierce Conservative: Saving The Mercury

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A blogumn by Brian Pelfrey

Let’s imagine that your town is blessed with two motion picture theaters, each at one end of Main St. The first is called “The Galaxy Theater.” The Galaxy runs the films everyone is dying to see, and serves the best popcorn in town. But everyone you talk to says that the admission price is too high and that the popcorn is overpriced as well. And yet…the Galaxy is filled to capacity for every showing, and they always run out of popcorn. This suggests that patrons are willing (in spite of their grumblings) to pay the price in order to enjoy the experience.

If the owner of the Galaxy were to lower his prices, he could not get more people in to see the movies, since the seats are already packed out. Instead, he would have longer lines outside, as well as at the snack counter, diminishing both his profitability and the quality of the experience. His staff would be doing more work while the establishment made less money. Results might include the inability to secure the most popular films, inability to keep the restrooms clean, and the necessity of using less-than-delicious popcorn. Soon, there would be empty seats, and customers would say, “That place used to be nice, but now it’s a dive.” So you see it is in the best interest of everyone for the owner to charge as much as people are willing to pay.

The other theater in town is called “The Mercury.” It is an old building where second-rate films are shown to listless audiences in dirty, ripped seats munching stale popcorn. The Mercury is widely praised for its $1 ticket price and ten-cent bags of popcorn, but it is poorly attended, filthy, and swiftly becoming an eyesore. Should the mayor and city council negotiate a bailout package for the Mercury theater using taxpayer funds? Or should the owner of the Galaxy make an outrageously low offer for the Mercury and put it to better use?

The current banking crisis reveals the existence of Galaxy-type banks and Mercury-type banks. And Congress has acted to prop up what are by definition the most unsound institutions. Such institutions should be allowed to fail. Then better-capitalized, better-managed banks can buy their assets at bargain rates and put them to better use. This bailout will result in many months of derelict banks tottering anemically along, needing more and more help; providing depositors and borrowers with the financial equivalent of The Mercury–complete with lousy entertainment, sticky floors, and second-rate snacks.

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Photo Credit: Darren Hester