Does the USA need a perestroika?

[NJ5]

Final-Fan said:
mrstickball: so --just double checking -- you're saying that if the government had simply allowed the banks to fail (and the smaller banks would rise from the ashes), the consequences of that situation would be as good as or better than (or, if you prefer, as bad as or less bad than) the consequences of the government intervention that in fact took place?

The consequence of government intervention has been to allow banks to hide their problematic assets (which can be seen every time one more bank fails, their assets turn out to be marked 30-50% above their true value). So far I haven't seen any evidence that government intervention made the financial system inherently stable and sustainable. Instead some of the bad debt gets shifted to the taxpayers, and business as usual continues.

So the positive consequences may be few or none in the long term, while the negative consequences are that the bad lending practices are still allowed to continue. For example, instead of banks taking the risk from subprime loans, now you have the government (through the FHA) backing loans which require 3% downpayments or less.

http://www.msnbc.msn.com/id/27844894/

Then are other negative consequences like moral hazard (what's to stop the banks from doing the same again in the future?), and the high possibility that trying to reinflate the housing bubbles will result in an equal collapse down the road...