- Joined Dec 17, 2008
Essential1 wrote: [hr][/hr] yeah derivatives, credit default swaps, naked CDS, repeal of Glass Stegall Act, and lying on the bottom line of banks had nothing to do with the financial crisis at all.
The risky financial practices would not have been viable without lenders of last resort, that being the Fed and tax payer bailouts. Bankers may be greedy butthey are not stupid, they knew that losses would be socialized and gains privatized. They were rational peopel responding to incentives created by thepolitical class.
People also love to shout "Glass Stegall" as war cry against free markets. The real outrage should have been at the bailout of LTCM. When that group,a large, non commercial hedge fund was bailed out in 1997, it sent a message to commercial banks that being merged with a hedge fund was an asset and not aliability because size and diversity of financial products pushed your firm into the rarefied "too big to fail" class.
The best regulation is to make it clear to bankers and other financial managers that they will be allowed to fail, like most firms are. No firm is too big toofail, although some firms are too big to be liquidated quickly but no firm is too big to fail. Without the safety net of bailouts, we would see much morerestrained and rational risk taking in financial market.
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