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Comment by junkscience2017 | Hacker News Reader

junkscience2017·

why stop at bankers? millions of Americans flipped homes, took out loans to buy baubles and then benefited when their loan papers became lost in the resulting chaos...and almost everyone knew damn well what they were doing

the government CHOSE to bail it all out, and they will probably be doing something similar one day for Uber, Bitcoin and maybe even Tesla.

we have CHOSEN the bubble/bailout cycle

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You can't sink a big investment bank with bad mortgages. not even securitized bad mortgages. Not even corruptly rated bad mortgage securities (and we are already far from the retail borrower's culpability).

To blow up the global banking system, you need a cascading set of bets that goes bad and creates orders of magnitude more counterparty risk than retail lending could possibly create.

I don't think most people realize that i.e. it wasn't the mortgages themselves that caused the crises - it was the wall street's bets on the mortgages that made things blow up.

What you need is any pool of securities that is devalued by more than the capital base of the company. It was the way that the post partnership, publicly traded investment banks were financed that ultimately led to their collapse. When you borrow short and lend long with 30X leverage you can never have a serious market correction. Otherwise your counterparties get nervous and their refusing to continue to lend becomes a self fulfilling prophecy. Its not the first time we have seen this and it won't be the last.

Of course you can. Your government simply takes it from its owners, without compensation and personally billing them any fine for fraud or whatever. Then it auctions a zero asset version of the bank, and pays for the rest of any protected debit.

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