from Noam Chomsky's blog on myspace

We might also take note of the striking similarity between the structural adjustment programs imposed on the weak by the International Monetary Fund, and the huge financial bailout that is on the front pages today in the North. The ....US.... executive-director of the IMF, adopt ing an image from the Mafia, described the institution as 'the credit community's enforcer.' Under the rules of the Western-run international economy, investors make loans to third world tyrannies, and since the loans carry considerable risk, make enormous profits. Suppose the borrower defaults. In a capitalist economy, the lenders would incur the loss. But really existing capitalism functions quite differently. If the borrowers cannot pay the debts, then the IMF steps in to guarantee that lenders and investors are protected. The debt is transferred to the poor population of the debtor country, who never borrowed the money in the first place and gained little if anything from it. That is called 'structural adjustment.' And taxpayers in the rich country, who also gained nothing from the loans, sustain the IMF through their taxes. These doctrines do not derive from economic theory; they merely reflect the distribution of decision-making power..... Chomsky's blog blog.myspace.com/chomsky

The real estate bubble grew larger and crashed harder because the financial services industry ignored moral hazard

The real estate bubble was made more dangerous to the larger society by bankers who borrowed money (they were highly leveraged) to buy bundled mortgages, even though they knew that the bubble would burst and they risked loosing their (and their investors' and depositors') money.

Some people within the system objected that this strategy was inherently risky, and heard the reply, "Oh, we'll just get the government to bail us out when it all collapses".

We should NOT bail out those who disregard moral hazard in their actions in pursuit of personal gain. To do so makes future calamities more likely and probably more severe.

We should allow those who gambled on a government bailout to take the brunt of the losses that the collapse of the bubble now produces for them.

The financial institutions and investors in the future will be less likely to repeat such behavior when they are forced to learn by "hard knocks", so to speak.

A bailout teaches that such behavior will be profitable in the future: The upside of the business cycle is "capitalism", with individuals reaping the rewards. But society at large pays the consequences on the downside.

That is just not fair.

John Champagne


A cure for what ails the planet