Should financial institutions to be allowed to run rampant over the economy and then?
The thing is everybody knows there will be bail-outs but everybody pretends it isn’t the case. The bankers know their bonuses depend on the paper profits made, and hence are encouraged to take maximum risks allowed. The shareholders allow them to take maximum risks since as profits grow so do share prices and dividends to a lesser degree. The savers allow these risks by placing their funds with these bankers because they know the government/fed will bail them out if something bad happens. Today’s issues are due to that. They can also be traced back to the new products created during the boom. Lending to people with low credit rating (sub prime) is bad enough, but reselling the streams of payments as commercial paper assuming a low bankruptcy rate was the killer. Everybody was too optimistic, nobody did their jobs properly. Whatever checks and balances failed. Allowing a mortgage product that starts with low interest and then has increasing interests encourages people to buy the most ex
