I have a close friend who is in bankruptcy right now.
The reason that the pain of bankruptcy is limited, is because the government steps in and keeps you from getting completely crushed by the effects of your own mistakes.
That's what the government was trying to do by backing some of Bear Sterns assets, but they weren't really doing it for Bear Stearns. They were doing it because they were worried about a complete collapse by Bear Sterns might cause people to pull their money out of investment banks on a huge scale. Not just Bear Sterns, but all investment banks.
If there's a run on banks, we end up with another great depression. The Fed is trying to instead soften the blow caused by people's overzealous risk taking, and tone down the effects to stagnation or a short recession, rather than a repeat of the great depression.
What the fed is doing kind of resembles how the government protects you during bankruptcy.
Amazingly enough, we survived the depression, and many people came out a lot stronger. Debt was minimal, people learned what was important, and they all learned that actions had consequences.
Instead, the nanny state has decreed that the very people responsible for the mess, who are the Fed, the IBs, the commercial banks, the monolines, the ratings agencies, and the government oversight agencies, will be bailed out by joe taxpayer. The bank execs are still pulling down their multimillion $$$ salaries but joe taxpayer sees a huge increase in daily expenses and joe taxpayers children and grandchildren will live in a country that will either 1) be so underwater in debt that we inflate our way out of it or 2) we default on our debt and we become just another failed state with citizens paying the price in prosperity.
You miss the entire point. If failure is not an option, then no consequences occur and no lessons are learned. Has JPM accepted any further regulations to the effect of unwinding their derivatives positions, deleveraging, bringing crap back on their balance sheets, running a transparent business so their shareholders don’t wind up paying for management mistakes ?
No. There were no consequences to anyone other than BSC shareholders and lower-level employees. Did these people deserve to pay, or should the a$$hats in management who approved the overleveraging been the ones to pay ?
Welcome to the nanny state, where people making 7,8,9 and 10 figure salaries and bonuses are considered worthy of bailouts. God, this stuff makes me sick.