Did I Forget To Mention Moral Hazard?

clipped from www.nypost.com But the biggest villain, in my view, is that ultimate enabler of Wall Street’s greed and stupidity — the federal government, in the form of the Federal Reserve and Treasury Department. Throughout the last 30 years of market ups and downs, the feds have bailed out the financial system by cutting interest rates to excessively low levels or, when Long-Term Capital was about to explode, by orchestrating a bailout of a hedge fund that had spread its virus throughout the banking system. Each time, the financial bureaucrats told us the bailout was necessary to prevent total financial calamity — and that Wall Street had finally learned its lesson and wouldn’t engage in the risky practices again. Plus, they told us, the feds had learned their lesson as well — they’d be watching Wall Street’s every move. Well, not quite. After each market implosion (in 1986-7 and 1994 and on through the 1998 LTCM crisis), Wall Street returned to risk on a larger scale