You have no idea how upset I am by the latest turn of events on Wall Street -- it's against the very essence of conservatism that people face the consequences of their actions.
I know AIG had to be bailed out to prevent worse damage. But, I don't like it one bit.
That requires a functioning market. If I am able to loan too much money at a ridiculous teaser rate because the Fed has forced short term rates low, that is not a correctly priced market transaction. If the securities regulators overlook fraudulent ratings given to mortgage backed securities (based on infinite price appreciation of housing in 2005), that is not a functioning market. If the government forces loans to be made in the bad parts of town, that is not a functioning market.
The consequences of all these "innovations" and interventions was systemic risk. The market reaction to systemic risk is a severe credit crunch (banks not lending to other banks). The only really conservative solution is to raise rates to reflect realistic risks but intervene in cases of systemic risk. But Fed doesn't care about being conservative, at least not Greenspan and Bernanke.