enjoy the invisible hand..

ah scratch that...

make it an invisible middle finger..

Moral hazard analysis is for the riff raff such as the victims of fraudulent mortgage practices or print so fine and language so arcane it is totally incomprehensible.

Would set a very dangerous precedence. Just yesterday the head honcho at Wells Fargo hinted that with government help (read US taxpayor);Wells would put WaMu out of it's misery. (WaMu apparently is slighgtly "over extended" with toxic mortgages.)

Don't you just love our "privatize" the profit and "socialize" the risk mentality!

Moral hazard BS.

Wall Street has fostered a system which is like a cancer which if you try to cut it out, you kill the host. The Fed knows it. The banks know it. All the hedge funds know it. And know the people know it.

A company too big to fail.

But how do you enforce bad behavior of these companies?

While you may "bail" them out, you need to make those who are most responsible for wrong doing to forfeit personal wealth AND SPEND SERIOUS JAIL TIME.

The bail out has to have some very severe pain so that others will take notice and change their behavior?

Will they? No! Because they are gamblers and like big risks and are irrational.

This is socialism, vetted by unelected bureaucrats. The Fed conducted an illegal operation to save a non-bank entity, which is beyond its purview. Congress should act immediately to break the deal and then build new laws to handle these new era leveraged debacles in a manner that puts the onus on the non-bank entities. The shareholders AND the bond holders of Bear should all suffer, not just the shareholders. The Fed has bailed out the bond holders but left the shareholders swinging in the breeze.

The Bear Stearns stockholders didn't get a bailout. They got $10 a share for a stock that was worth $160 last year. If anybody got a bail out it was the counter parties insuring the risk on BS investment instruments. Of course letting the counterparties go belly up would nail a lot of towns, county governments, small universities and other groups of "little people" who invested based on the fast talk of the Wall Street shysters (include Greenspan in this group).

Wall Street was for the sub-prime before it was against it. The BS bailout is just another finger in the dike. A big fat one for sure. And let's not forget our "rebate" checks. Soon, the middle class will have its arm up to the elbow in this cash cow.

There will be no regulation as long as the Supremes are in power. You and your poor friends can go suck eggs. Four more years! McSame 08.

I'm no economist, but to me a brief reading of Mr. Wolf's piece seems to mean that when deregulation causes suffering in India or China, they're supposed to suck it up. But when it causes suffering to American bankers, it's time to fix the system.

Some real economist should correct me if I'm reading this wrong.

Martin Wolf: It [the Fed] concluded that it must, for this reason, open the monetary spigots in favour of such institutions. Greater regulation must be on the way.

A laughable non sequitur.

No, Kevin I disagree. The whole sub-prime debacle is "moral hazard made visible". When the Fed arranged the bail-out of Long-Term Capital Management in 1998 it became clear to Wall Street that they had an invisible safety net. If a hedge fund--a type of investment designed to provide greater reward for greater risk--could not be allowed by the Fed to fail, who could?

It was the "should" kind of must, not the "is", but yes, it was confusing.

How about sending some of these people to prison? I guarantee that that is the only way to stop this crap. How long before they come up with another absurdly complex, yet transparently obvious way to steal money from the country and most particularly the lower half. These people are the real terrorists.

Why don't these people pull themselves up by their bootstraps and get a job? The government didn't help me out; I'm a self-made man! It's not the government's business to...whoops! Wrong talking points!

Gop, you still buy into the myth, I see. Because the wheelers & dealers are by their own admission motivated by pure greed and they are way more powerful than you or I, they will suck at the teat as long as it exists. Pardon me if I'm not willing to go to anarchy just to disprove your point. Absolute free enterprise is as extreme and unworkabable as communism and the wheelers & dealers know that. Why don't you? or do you?

I'm no economist, but to me a brief reading of Mr. Wolf's piece seems to mean that when deregulation causes suffering in India or China, they're supposed to suck it up. But when it causes suffering to American bankers, it's time to fix the system.

Well, I am a pseudo economist and I work in emerging markets.

The quick answer is "One Size Fits Not All" in any given growth stage - or what's needed in a mature and fairly liberal market is not what is needed in an emerging market.

Or the more economically minded, the law of diminishing returns. While my 'liberal ideologue' friends in the US believe that promoting liberal markets requires hide bound Bolshy style absolutism, most economic liberals admit that a degree of regulation is good. It's like insurance, one sells off a bit of economic upside for greater stability. But, like insurance, different circumstances require more (or less) insurance, depending on the skills of the insurers (read regulators) - not all are equal and not every level of business (economic activity) needs or even more importantly can afford the same level of insurance (regulation). Over-insuring with all the costs - premiums - can be harmful.

While Lefty innocents and ideologues may want to believe all are created equal, in terms of current capacity (I take it as given people are people, and my colleagues here are as sharp as I, but institutions and policy culture can and do suck rotten eggs) that is not true.

India, China can benefit from lightening the load. Out here so called Regulation is usually nothing but an ill-disguised (often with nice populist rhetoric to fool Leftist idiots in the West, even PhD bearing economist idiots) tool to extract rents and protect privileged classed (sometimes privileged working classes - such as labour unionized formal sector workers for major multinationals who appeal to Leftist sops in the West at the expense of more cost-reasonable and more realistically enforceable labour standards applicable to all)/

But this is likely wasted given the usual Left whanking.

I'm no economist, but to me a brief reading of Mr. Wolf's piece seems to mean that when deregulation causes suffering in India or China, they're supposed to suck it up. But when it causes suffering to American bankers, it's time to fix the system.

Well, I am a pseudo economist and I work in emerging markets.

The quick answer is "One Size Fits Not All" in any given growth stage - or what's needed in a mature and fairly liberal market is not what is needed in an emerging market.

Or the more economically minded, the law of diminishing returns. While my 'liberal ideologue' friends in the US believe that promoting liberal markets requires hide bound Bolshy style absolutism, most economic liberals admit that a degree of regulation is good. It's like insurance, one sells off a bit of economic upside for greater stability. But, like insurance, different circumstances require more (or less) insurance, depending on the skills of the insurers (read regulators) - not all are equal and not every level of business (economic activity) needs or even more importantly can afford the same level of insurance (regulation). Over-insuring with all the costs - premiums - can be harmful.

While Lefty innocents and ideologues may want to believe all are created equal, in terms of current capacity (I take it as given people are people, and my colleagues here are as sharp as I, but institutions and policy culture can and do suck rotten eggs) that is not true.

India, China can benefit from lightening the load. Out here so called Regulation is usually nothing but an ill-disguised (often with nice populist rhetoric to fool Leftist idiots in the West, even PhD bearing economist idiots) tool to extract rents and protect privileged classed (sometimes privileged working classes - such as labour unionized formal sector workers for major multinationals who appeal to Leftist sops in the West at the expense of more cost-reasonable and more realistically enforceable labour standards applicable to all)/

But this is likely wasted given the usual Left whanking.

fafner1: The Bear Stearns stockholders didn't get a bailout. They got $10 a share for a stock that was worth $160 last year.

Oh, the poor dears, they lost money on an investment! Why that's so hard and cruel, it sounds almost like capitalism (but not quite).

If anybody got a bail out it was the counter parties insuring the risk on BS investment instruments.

Yup, they got a bailout, and JP Morgan got a big, juicy present.

Of course letting the counterparties go belly up would nail a lot of towns, county governments, small universities and other groups of "little people" who invested based on the fast talk of the Wall Street shysters (include Greenspan in this group).

Oh, quick, let's make sure that nobody can ever loose money on an investment. Umm, how about outlawing foreclosures and, if the market pays less than what you bought your house for, the government will make up the difference!

Here's another one: spent a lot of time and money getting an education for a job that's been offshored - have the government pay you for the loss of potential earnings! Run it by Wall Street and see how it goes.

Interesting that you use class warfare to make your point, Lounsbury. You admit that it exists and yet still use it to prop up idiots. You are saying that humans are no more than club bearing animals and can never be anything more. Maybe where you live that is true but that is not my experience. You should get out more.

The Lounsbury (Oxford, Class of 1884, long live the Queen!): While my 'liberal ideologue' friends in the US believe that promoting liberal markets requires hide bound Bolshy style absolutism

Yes, clearly the economic problems are due to all that Bolshy style absolutism like the repeal of Glass-Steagall and allowing an unregulated shadow-banking sector to arise.

the law of diminishing returns

Is something that we haven't even come close to in our regulation of the financial industry.

Out here so called Regulation is usually nothing but an ill-disguised ... tool to extract rents and protect privileged classed

Oh, that does sound terrible. Would "protect privileged classes" be anything like bailing out Wall Street when they fuck up yet again?

Lounsbury, The;

Do you have an American relative named Norman, by any chance?

The Thersites

thersites the blackguard: Lounsbury, The; Do you have an American relative named Norman, by any chance?

Yes, he does, but they haven't spoken to each other since the unpleasantness of the colonial revolt (which for some unfathomable reason Norman calls "The Revolution").

alex: they haven't spoken to each other since the unpleasantness

It may have something to do with that extra 'aitch' in wank.

It's time for the sequel to "Bonfire of the Vanities".

fafner1, without the fed guarantee of $30B (now $29B), there was no deal and Bear Stearns went belly up.

that's $10 less a share than the shareholders are getting, and yes, that's a bailout.

which doesn't change your larger point: as someone wrote in the immediate aftermath, the issue wasn't that Bear Stearns was too big to fail, but rather that it was too interconnected to fail, so the counterpartires (short term) and the larger financial system (long term) got the big support of the bailout.

But still, $10/share beats zero bucks a share....

The important thing about moral hazard is not to get moralistic about it.

Let's get technical about it. Moral hazard is the tendency of a risk-mitigating action to increase people's tendency to take risk. A bad thing? Not necessarily. Seat belts in cars create moral hazard. And anybody who opposes seat belts on this ground is a dolt. Insurance almost always creates moral hazard. Should we ban it? Or to give another example: the police, who usually have a policy of not shooting jaywalkers on sight, thereby increase the risk to pedestrians of getting involved in an accident. Moral hazard? No doubt. Dick Cheney might think it contains the germ of an argument.

To properly judge whether a particular source of moral hazard is acceptable, we have to look at the entire picture. I don't want to talk about Bear Stearns, but I shall mention something similar: FDIC deposit insurance. Except for a few folk at Cato, most economists (including Uncle Milton Friedman) think it is excellent public policy, notwithstanding the moral hazard it surely creates. Why? Three reasons. First, it prevents bank runs, at least retail bank runs. Second, wholesale depositors (who tend to be more sophisticated) are uninsured. Finally, policymakers know that insurance creates moral hazard, and have used bank supervision as an offset.

Well, I am a pseudo economist

Refreshing honesty, that.

One third of Bear, Stearns stock is held by it's employees. [I'm one of them.] The stock is usually given in lieu of a salary increase, or as part of your annual bonus. [I haven't had a salary increase in eleven years, BTW.] I'm not one of the Big Boys. The stock was a component of my retirement plans, approximately 20%.

By all means, condemn subprime mortgages and structured instruments that no two people can agree as to valuation. But do not condemn Bear employee-stockholders. We're as pissed off as the rest of the U.S.

As Robert Rubin said, this rescue was absolutely necessary to avoid what could have become a cascading series of defaults that could have rendered total gridlock in the financial markets. Who likes it? No one. But it was needed and it was well conceived and when all is said and done it could well be this move which started us on the track back to stability. People will quibble with the details, and if they do maybe the next one will be done a bit differently, but unless you really wanted to confront world wide economic catastrophe as a full participant, you should really think out the alternatives before you criticize the move.

"There's nothing better than fishing."