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unixronin: Galen the technomage, from Babylon 5: Crusade (Default)
Unixronin

December 2012

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Friday, January 11th, 2008 07:55 pm

There was an interesting segment on NPR this evening while I was out buying electrical parts.  They were talking about the current banking situation and its effect on the stock market, and the point was made that one could say the current subprime crisis came about in part because the Fed was doing too good a job.  Not that the Fed did anything wrong — the trouble is that it did too much right.  The banks and, in particular, the financial investors and speculators got into the mindset of thinking that it was OK to take chances, because the Fed would always be there to bail them out if it all went pear-shaped, and whatever they broke, the Fed would be able to fix.

What was that again about perceived-risk adaptation...?

Saturday, January 12th, 2008 01:09 am (UTC)
there's also the widespread perception that as government sponsored entities, Fannie Mae and Freddie Mac would be bailed out by the government in the event of the insolvency of those two institutions and/or widespread default by individual borrowers. This is despite quite clear language in the legislation enabling those two agencies that the loans are not insured or guaranteed by the government in anyway. The widespread perception has been that the GSEs are "too big to be allowed to fail" and will be bailed out by the FedGov despite the language to the contrary.