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Yes. The lesson of 2008-9 is that TBTF and bailouts will be applied in case of any financial crisis. Not much has been done to rein in moral hazard and so ins
by briatx 8y ago
Yes.
The lesson of 2008-9 is that TBTF and bailouts will be applied in case of any financial crisis. Not much has been done to rein in moral hazard and so institutions will continue to offload risk to the public when they can.
This works as long as the Treasury and Fed can absorb the shock and will create near term stability, at the potential cost of a currency crisis if the shock is too big to be absorbed.
- topspin 8y agoThis is dead on correct; the precedent has been set and has no significant opposition; almost no one in power today would deviate. Questions I ponder; Is the US in the coffin corner where then next recession inevitably induces the next financial crisis or can we still have a conventional recession that doesn't strip a bunch of gears and lead to QE funded deficits and bailouts? Is the traditional recession/recovery cycle politically feasible any longer or will the great and the good open up the QE spigot at the first sign of trouble? The answers would help to predict a lower bound on the eventual currency collapse.
- gdubs 8y agoPart of the story of 2008-9 was that congress nearly didn't act, with Paulson famously getting down on bended knee to beg Pelosi to whip the necessary votes. The government has the capacity to act – but there's no guarantee that they'll make the correct choices in a timely manner.