Randolph Kinney
Elite Member
- Joined
- Apr 7, 2005
- Professional Status
- Retired Appraiser
- State
- North Carolina
One of the unintended consequences of crony capitalism is reckless abandonment of risk management knowing that government has to bail you out. It is the government's policy of too big to fail, meaning, the government will collapse along with the economic system if it does not bail out those individual institutions that, knowingly, took on huge risks for huge gains. As long as the risk play returns high gains, no problem. But as soon as risk consequences return big losses, rather than let those institutions fail, government steps in with taxpayer guarantees and taxpayer money to save the day.
Looking at what happened, for example, BofA buys Countrywide. That surely concentrated risk, not diffusing it, however, the government sanctioned it. BofA buys Merrill Lynch. Again, that surely concentrated risk, not diffusing it, however, the government sanctioned it. BofA grows exponentially larger in risk with huge impairments in the value of the assets acquired.
That same scenario played out with the top 20 institutions. In order not to have the concentrated risks explode, again, the government through the federal reserve steps in with zero percent cost of money to the banking system and quantitate easing. The government suspends FASB accounting rules for banks. The government instructs the regulators to not enforce the rules for impaired assets.
And, the big payoff is no one goes to jail. Works for me, how about you? woohoo woohoo
Looking at what happened, for example, BofA buys Countrywide. That surely concentrated risk, not diffusing it, however, the government sanctioned it. BofA buys Merrill Lynch. Again, that surely concentrated risk, not diffusing it, however, the government sanctioned it. BofA grows exponentially larger in risk with huge impairments in the value of the assets acquired.
That same scenario played out with the top 20 institutions. In order not to have the concentrated risks explode, again, the government through the federal reserve steps in with zero percent cost of money to the banking system and quantitate easing. The government suspends FASB accounting rules for banks. The government instructs the regulators to not enforce the rules for impaired assets.
And, the big payoff is no one goes to jail. Works for me, how about you? woohoo woohoo