| Avinash_Tyagi said: The fed is fine as it is, however the recent actions by the fed, as a bailout to the big investors and banks is troubling, since the best way to change people's habits is to let them get burned for their bad investements, but by bailing these jokers out after they created this downturn with the subprimes, they only give them an incentive to continue to make the same stupid investments, so the only issue I would have with the fed is the fact that the people running the show at the moment lack the guts to do their job properly. Too big to let fail, my foot, let them burn I say. |
Moral hazard defined. The problem is human nature of course. If the Fed and politicians didn't bailout big investors it would cause short term pain (in exchange for a better longterm situation) but elections and firings happen in the shortterm. Better to bailout now, save your job, and hope that when bigger problems come longer term you'll either be gone or can find someone else to blame. Although in this case I'm not sure if the bailouts will cause more problems than they help. Avoiding the deleterious impact that allowing major American banks to go under would have on an international financial system that is concerned about the stability of its biggest member may make the bailouts worthwhile. I haven't really read up on the situation enough to have an informed opinion though.
The Wall Street Journal print edition had a great editorial a month ago or so about how the same phenomenon is hurting corporations, ie no one wants to fix long term problems because the short term pain would place their job at greater risk now than the long term problem would later. It's popular to blame the Fed for the housing bubble but why were banks giving mortgages to people without doing credit and income checks? Because if the loan officers and managers didn't match their competitors loan growth rates they would have been fired or at the least lost bonuses.
