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Released: October 28, 2007

Not wise to bail out reckless investors

Source: William R. Bonner and Lila Rajiva [Washington Post] (Free Registration)

Last summer, the bill started to come due on our debt-fueled economy. We should have let it - and let reckless speculators, subprime lenders and banks finally get what they had coming. But instead, the financial authorities let them off the hook. Rather than simply letting markets be markets, they bailed out both the fools and the knaves. We'll all live to regret it. At the moment of truth, the Federal Reserve cut the overnight cost of money in the United States (known as the Fed funds rate) by 0.5 percent. Meanwhile, the governor of the Bank of England also succumbed to temptation, infusing ¿10 billion into the British banking system. Next, the Fed let Citigroup and Bank of America increase the quantity of funds that federally insured banks could lend to their affiliates, many of which held risky mortgage debts. When investors, spooked by the subprime lending crisis, stampeded out, the affiliates ran short of cash.

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