Howard Gleckman explains that by removing risk from investment, capitalism has become a game whose rules are a mystery:
Just since the 1970s, we have gone though Michael Milken's junk bonds, the savings and loan crash, leveraged buy-outs, Long-Term Capital Management and the hedge funds, venture firms and the dot-com bubble, the private equity craze, and the subprime mortgage mess. It's all a variation on the same theme -- smart guys take other people's money, leverage it by as much as they can get away with, buy stuff, securitize it, and then flip the paper for a huge profit.
Unfortunately, the deals get riskier and riskier and finally crater. Eventually, someone gets caught holding the bag. If that someone is big enough -- a bank or even an investment house -- the Fed steps in to bail them out. Even more troubling, the central bank continues to pump liquidity through the whole financial system to keep things afloat. So, to ease the consequences of the bursting dot-com bubble, the Fed made plenty of money available for the mortgage market. That not only kept home prices up, it set off a housing boom, subprime and no downpayment mortgages, and finally, kersplat, here we all are.
Is the "ownership society" dream or nightmare? Read the rest and discuss here.
--The Editors
