On Mon, Sep 14, 2009 at 9:55 AM, Bruce Bostwick <lihan161...@sbcglobal.net> wrote: > On Sep 14, 2009, at 11:29 AM, John Williams wrote:
> The rest of the answer is that the Federal Reserve stepped in and put the > brakes on the ridiculously overleveraged derivative trading that was going > on, How exactly did the Fed "put the brakes" on derivative trading? > injected some strategically placed capital into the firms that had the > collateral and other fundamentals to support it, The government bailed out firms that had made errors and would have otherwise failed, thus creating a huge moral hazard. Instead of allowing creative destruction -- bad firms fail and better firms survive, leading to a gradual improvement in the strength of surviving firms -- the government propped up the bad firms and preserved most of the flawed systems that led to the 2008 downturn. Thanks to the government, the next downturn may be deeper. > It's worth noting, too, that those injections of capital were loans, the > bulk of which are already in the process of being paid back. Not by a long shot. In reality, the government has committed money to backstop hundreds of billions or even trillions of dollars of risky assets. Even the auditor of the Fed could not answer how much and where this money has been committed, or how many trillions were at risk. Only a tiny fraction of this money has been paid back. >Those sorts of shenanigans are more or less to be > expected in the complete absence of any sort of regulation. Those sorts of shenanigans are the RESULT of unintended consequences of regulations providing incentives to do things in more obscure ways. _______________________________________________ http://mccmedia.com/mailman/listinfo/brin-l_mccmedia.com
