Oversimplifying a bit, but basically still true:
In the economic crisis after World War I, there was no attempt at intervention or bailouts, and the economy came roaring back. In the S&L crisis, we liquidated the bad banks and their bad real estate bets. Property prices fell, capitalist juices started to flow, and the economy came roaring back. This time around, we did not liquidate the guys who made the bad bets . . . The Bernanke put---the market belief that if anything goes bad the Fed will come to the rescue---has had a profound impact on people and how they act.
It's like this: the reason why we have banks at all is to allocate capital in the most efficient manner. These people failed spectacularly at their jobs, and we rewarded them for it with trillions of dollars to cover their bets. We should not be surprised when (not if) they blow up the world again.
---Baron V
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