Wednesday, November 11, 2009

Government as Co-Conspirator

In my previous post I cited a WSJ op-ed piece, in which the author argued that the government has been a co-conspirator with many on Wall Street in running up debt that led to the financial and economic crises. I think the article still focuses too much on Wall Street and not enough on the government. It does note that the recent actions of the government, both the Fed and the Treasury, are similar to actions taken several times over the last thirty years. The most surprised and disappointed man in America had to be Dick Fuld, CEO of Lehman Brothers, when the government didn't resuce them the way it did so many others in the past. Given what happened afterwards, it is very doubtful the government will ever let any large financial institution go under again. So, the moral hazard issues continue. The short-term approach followed by the Fed and Treasury also continues.

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