Eric looks amazingly like his father.

Small banks who take care with their loans do exist, but new FDIC requirements on all banks to pay for the careless big banks is adding to the moral hazard that squishes lament, yet demand. (This law is absolute. Smart squishes will always alternately demand that the government bail out everyone to prevent a "systemic crash" and follow it by showing their Adam Smith cred with a nod to the concept of moral hazard. Maybe not so much a nod as a wink-and-the-gun.) So, the FDIC is a vile institution that guarantees big collapses by allowing a situation where depositors don't care at all how solvent their bank is because they know the government will guarantee their funds. If mainstreeters want to know where their bailout is, it's right there: the FDIC will bail you out if the bank you didn't care to check up on goes tats up. It's already done it many times, will do it many more, and if the "insurance" payments of banks don't cover the problem, the central bank will just print more. The Chinese central government has had an invidious policy for a while: devalue

Quoting Raghav: Eric looks amazingly like his father.

Seems to think like him, too.

Quoting nikkibong: Seems to think like him, too.

Tough to tell. What does Posner Sr. think? He's busy recanting his life's work as we speak. This after he gradually gave up on the field he founded, law and economics, and switched to his own version of pragmatism.

As I listened to the podcast, I had many small quibbles, but I thought this was a very entertaining and informative diavlog. 1. The '97 Currency Crisis in Thailand that spread through the region, and then helped tip over Russia in '98 is related to this meltdown in a couple ways. Firstly, people like Robert Rubin and Timothy Geithner helped craft US advice to the IMF. Secondly, due to IMF mistakes, states like ROK, increased reserve savings to avoid the insult they associated with the IMF's treatment (which American officials had advocated). 2. Instead of a regulatory scheme which banks and other financial institutions will quickly undermine, and which will lead to corruption, why not just bust big public banks back to their private, smaller share of the economy origins? In addition to encouraging moral hazard, the bailouts have kidney-punched other smaller firms that could have benefited from opportunities to increase their core products and thus stifled competition.

Quoting Baltimoron:
2. Instead of a regulatory scheme which banks and other financial institutions will quickly undermine, and which will lead to corruption, why not just bust big public banks back to their private, smaller share of the economy origins? In addition to encouraging moral hazard, the bailouts have kidney-punched other smaller firms that could have benefited from opportunities to increase their core products and thus stifled competition.

Wasn't that long ago that a lot of Wall St. firms where private partnerships. If the firm cratered, the managers lost their fortunes. They were a lot more careful about blowing up back then.

The problem is the leverage (borrowing) ratios that they used to do these deals. Banks, investors what have you have always used some level of leverage. A lot of this stuff was being leveraged 20-30 to one. These levels of leverage cause a couple of problems. First is the problem of too much capital chasing too few resources. This inevitably results in asset value inflation; it's the hottest thing going-look at the returns-we have got to get into this-result bidding war. It also leads to the need to generate more of these vehicles and the politicians saw to it that vehicle creation was readily available by letting Fannie Mae and Freddie Mac get into the game. The second problems with high leverage ratios is it makes it impossible to cover a few losses with the capital you have fairly immediate access to. You now have to take steps to get that cash or fail to meet your reserve limits, or your margin limits etc.. and the problem becomes the proverbial snowball rolling down a hill. Limit the leverage ratios and much of what happened this time

I agree both with your points about leverage and gaming the system. Unlike most Democrats, I would NOT criminalize greed - it's an inevitable part of the system. I wouldn't want to get rid of securitization. I would, however, criminalize those morons who both believe they can predict the future market and create safe investment products with no proof and sell it to consumers like snake oil. There's a place for such products, but it's like XXX films - the securities should come with warning labels. In addition, busting firms back down to small private firms and re-starting competition would be good for everyone.

Quoting Baltimoron: I agree both with your points about leverage and gaming the system. Unlike most Democrats, I would criminalize greed - it's an inevitable part of the system. I wouldn't want to get rid of securitization. I would, however, criminalize those morons who both believe they can predict the future market and create safe investment products with no proof and sell it to consumers like snake oil. There's a place for such products, but it's like XXX films - the securities should come with warning labels.

In addition, busting firms back down to small private firms and re-starting competition would be good for everyone.

While it's easy to sympathize with the sentiments you express--who in their right mind is not outraged by the shenanigans in the financial industry in recent years?--it's hard to see how your suggestions to "criminalize greed" and "bust the banks down" would fix anything. Just how do you define "greed"? What should the punishment be? If I'm just a little greedy--say I ask for a raise of 10% at my job when I only improved my productivity by 2%--should I be drawn and quartered? Fined? Given a good talking to by Barack Obama? As far as "busting

Quoting rfrobison: The ownership structure of financial firms, too, is a complex issue. Having investment banks be held as private partnerships (as Goldman Sachs was until a few years ago) may give the owners a larger stake in being cautious, but it also severely limits their access to capital and thereby the amount of investment they can channel to productive parts of the economy.

The key word here is productive. We've just seen trillions crash and burn chasing bubbles and ponzi schemes. We've got to get rid of the system of "heads I win tails you lose." We need to bring back "tails I lose."

Sorry, I forgot to insert 'not' in that sentence. But, I thought the preceding phrase would alert you - most Dems include a talking point about how bad 'greed' is.