Tuesday, February 2, 2010

The seeds of the next crisis?

Has the rescue of the financial system in September 2008 created the seads of the next crisis? The Inspector General for TARP released its report to Congress that suggested the basic problems remained unresolved.  The "to-big-to-fail" institutions are even bigger, the use of TARP has encouraged further risk by demonstrating that the government will bail out failures, there has been little change in the bonus culture of Wall Street, and the government has not let the housing market deflate but instead had been trying to keep housing prices up. From the report:
[E]ven if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.

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