dlaw

The End of U.S. Financial Domination

First of all, it's "MORAL", not "MORALE".

Second, you're a young fool.

You can't see a reason institutions are not allowed to fail because you have always lived in a world where they don't.

And you can dismiss "fiat paper" but it only makes you look stupider. Fiat money is the only kind of money there is. Since medieval times, we have known that the agreements behind banking (this "fiat" of which you speak) are many orders of magnitude more valuable than the hard assets that back them. That's just the math. I refer you to this paper:

frbatlanta.org/fileleg...

republished by the Atlanta fed.

Finally, the problem we now see is that for all the talk about market efficiency, our financial system was more than slow to put the bad results of bad credit decisions where they belong - onto the holders of equity.

Because of the "Invisible Hand" religion taught to you by people who should really know better, we came foolishly to believe that the financial industry would self-regulate the new world of private-label MBS and derivatives. About 700 years of market history should have told us that when there is nobody there insuring the quality of the inventory, an exchange will inevitably become a "Market For Lemons" and fall apart. It only happens EVERY SINGLE TIME. But this time, we knew better.

If you really want to see what some true tax-inefficiency looks like, keep pushing for liquidations and collapses - just like the Hoover Administration did. Maybe its the only way people can learn, but I hope not.

The bailout will not cause credit damage because the credit damage is already done. It's just a question of where it lands now. If our system of corporate ownership really was an efficient market - which it isn't - bad institutions should have been gobbled up by good institutions already and new capital should have flowed in to take advantage of the crisis mispricing of the financial assets (business efficiencies, valuable agreements) created by the MBS and derivatives markets (which certainly exist).

But since the system is intrinsically inefficient, debt and deception by management and rogue institutions were heaped onto the equity of the good parts of the system to the extent that it may already be broken. The failure of banks to do equity deals during the past little run-up is telling. It shows the private equity finance system in the first stage of failure.

THAT is why the government is coming in here. You don't want to see the second stage and you really don't want to see the third.