Coke-head bankers caused financial crisis?

g_star_raw_1989

Link: http://www.rawstory.com/rs/2013/04/14/uks-former-top-drug-official-coke-head-bankers-caused-financial-crisis/

Former government drug adviser David Nutt blames the financial crisis on coke-head bankers.

What are people's opinions on this? Was the financial crisis caused by bankers being aggressive and over confident after snorting too much coke?

(edited 11 years ago)

Reply 1

Barksy

Original post by g_star_raw_1989

No.

The Federal Reserve inflated the housing bubble with their easy money policies. The government also encouraged banks to lend to anyone as part of their Keynesian experiment. This caused a continual increase in house prices. As the conventional wisdom at the time was that this would keep happening, consumers took on mortgages they shouldn't have. Collateralised-debt-obligations (CDOs) bundled mortgage-backed securities into tidy little packages to sell on through the financial system. This is just a natural part of financial innovation. However, these CDOs contained sub prime mortgages. When there was a lot of defaults, banks struggled, as seen with Northern Rock. To make matters worse, the government had insured people's deposits and thus banks were bailed out by the government. This in itself is a moral hazard; the taxpayer is paying for the costs of the risks taken by the banks, which may only encourage further malinvestments.

To summarise, the financial system got drunk, because the government spiked the punch bowl. What we felt afterwards and now is the hang-over from an irresponsible cheap credit binge. No matter how loud leftists shout, capitalism was NOT to blame. Quite the opposite was.

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