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It becomes a crisis if a sufficient mass of political leaders (people with followers) deem it necessary to elevate the debt problem to something requiring substantial applications of political power to resolve in favor of one group of people or another.
Finally, what would have happened and whom would have been hurt most if governments did not bail out the suddenly insolvent banks? Would the crooks that caused the problem really have faced some kind of justice, or would a more complete collapse in lending than what actually occurred have just result in even more innocent bystanders losing their jobs and homes due to an unnecessarily exaggerated economic crisis. Sometimes it's good policy to let crooks off easy -- even with their loot -- in order to save many more people from deprivation.
On Main Street I was a winner. I bought for 3% down at $2 in '99, sold at $5.6 in late '07 and ended up with no debt, a larger house on 1 1/4 acre in Arkansas free and clear and more than the house cost me in the bank. I could smell the fraud after 2003. Fortunately, I was close to retirement age and had the money to survive until I was 65 and started drawing SS and got Medicare. Even better, I continued to have work in LA through '07 at my consulting rate, even if it cost me more for travel and accommodations. But the GFC trashed my business and I made very little last year. All in all, we have been very fortunate.
Deciding whether to let looters get away with their loot in order to save the innocents would and should be a painful decision, but it was never really made. I have seen little evidence that prosecution of fraud would disrupt the economy. More likely is that it would deter future fraud, but, as yet, it isn't even on the table. However, in the first few days of this week I have seen mention of massive fraud in several mainstream media outlets, including the NBC Nightly News, the New York Times and the Arkansas Democrat Gazette. Possibly some WaMu executives could be charged. That would be a start. But I am not holding my breath.
Were vigorous fraud prosecutions to take down all of the TBTFs it may product some temporary dislocations, but, if done properly, it would also result in writing down much of the bogus debt which is currently strangling the economy and cutting "Wall Street" to a half or a third of its present bloated size would be a net plus for the economy as it would remove a massive parasite from the body politic and economic. It would also make easier instituting needed reforms to redress the current extremes of wealth distribution which are also strangling the economy, IMHO.
The whole GFC could be readily dealt with could we only find a way to bulk erase the poisonous programming that has been written into the popular mind over the last forty years regarding the nature of the society and economy. That legacy is the true problem.
"It is not necessary to have hope in order to persevere."
And, just as it is often counterproductive during a war to be overzealous of justice during negotiations for peace with perpetrators of great crimes, it would have been wrong for central bankers and government regulators to be threatening private bankers with legal actions when their cooperation was still needed to avert a still wider financial panic. Only now, when the damage has been averted and there is little more that can happen due to bad bankers, some measure of justice can be sought, through courts or through policy changes.
It wasn't law breakers that caused the crisis.
ignore the fraud.
ignore....as in reward?
'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
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