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Yes, their gamble of buying extremely risky assets paid off. Similar to how you can "bet all on red" and manage to win. But that doesn't make it a good long-te
by lawn 7y ago
Yes, their gamble of buying extremely risky assets paid off. Similar to how you can "bet all on red" and manage to win.
But that doesn't make it a good long-term plan. The incentives for banks are still unchanged: "heads I win, tails I get bailed-out". And of course even if they run the economy into the ground they still get their bonuses.
- QuesnayJr 7y agoIt worked out because the assets became risky from panic. The government is a large enough entity to stop the panic, and thus remove that risk.
- lawn 7y agoThe assets were always risky, way before the panic set in. I recommend the books After the Music Stopped or The Big Short for background on the crisis. (Also the movie The Big Short is excellent).
- QuesnayJr 7y agoIf the government's strategy was so risky, then why did it make money? The government wasn't gambling that there wouldn't be a crisis -- they intervened right in the middle of the crisis. (I should have said became riskier, though. Of course the assets had some risk.)