I can't believe he would be so foolish as to cite safety nets as proof that this won't be so bad. The biggest crashes so far have been in mortgage-backed securi

I can't believe he would be so foolish as to cite safety nets as proof that this won't be so bad. The biggest crashes so far have been in mortgage-backed securities (created by government entities, owned by government entities, insured by government entities, subsidized by taxes) and banks (heavily-regulated -- it's not like there's a Fed equivalent for oil companies, that would give Exxon millions of barrels of oil at a huge discount to market prices if they asked nicely). Meanwhile, loosely-regulated hedge funds are outperforming almost every other asset class. Safety nets do not prevent crises; they delay and concentrate them. People take safety nets into account -- if we knew, for example, that the government wouldn't let stocks drop more than 20% without bailing us all out, we'd all leverage our portfolios four to one (not strictly legal, but you can do it fairly easily with derivatives). This would make the 20%-drop insurance plan far too expensive, and make stocks so overpriced that such a drop would be inevitable. GSEs, deposit insurance, social security, and unemployment insurance all have similar moral hazard issues. The effective insurance plans are not the ones that reduce risk (assuming behavior is the same). They are the ones that reduce actual risk relative to apparent risk -- which means they could be the rules that increase risk. Unfortunately, "Effective, but superficially harmful" is a perfect description of a policy that will never be enacted by a democratically elected government, so we're stuck with what we have.