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Ziggy's avatar

What I find particularly interesting about Thomas Hoenig (and his doppelganger: Sheila Bair), is that they are both remarkably deontological. They are capable of nuance and detail, but they prefer to view things as right or wrong. Most people in the money biz are consequentialists, which makes Hoenig and Bair stand out. (I toiled in the vineyards of Mammon for three decades.) The consequentialists can't understand why "too big to fail" sets people's teeth on edge, if the ex ante incentives are more-or-less optimal. No can they understand the social need for retribution.

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John Newman's avatar

Had the bad banks been wound down in 2008, and the debts written down as they had been in the S&L crisis twenty years earlier, the financial overhead of the overall economy would have been greatly reduced and all those in finance who were responsible for the debacle would have paid the bulk of the cost.

To big to fail isn't too big to nationalize which is what the $29T in Fed loans effectively did, but without taking title and without punishing the obvious malefactors in the executive suites. The bailouts rewarded failure and QE has sustained a simulacrum of "financial markets" ever since with most of the same actors who precipitated the crisis still in their posts.

The refusal to assign the costs to those who should bear them, "foaming the runways" with home owners instead, is also a refusal to assign costs to those who CAN bear them. As Long Covid depopulates the workforce and similarly incompetent foreign policy "leaders" attempt to wage Cold War on our resource and manufacturing bases at the same time, it will be interesting to watch the Fed try to stop the inevitable inflation by unemploying people who are blameless in the underlying issues.

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