Financial Crisis Will Deepen Until Trust in Free Market is Restored
The worldwide financial crisis isn't about the subprime meltdown, although it might have first surfaced there for all to see.
It is not even ultimately about derivatives, although derivatives are by the largest risk numbers-wise (indeed, the nominal value of derivatives dwarfs the size of the world-wide economy).
It is - at core - a crisis of trust.
As long-time financial writer Will Hutton says:
"Such was the break down in trust and sense of panic that some of the most familiar names in British high street banking would not lend to each other at all or, at best, just overnight. Instead, the Bank of England had to supply tens of billions to banks who found the normal sources of funds blocked.
***
Unless there is a radical and government-led change in ownership, structure, regulation and incentives so that the principles of fairness are put at the heart of the Anglo American financial system - proportionality of reward and fair distribution of risk - there is no chance of the return of trust and integrity upon which long-term recovery depends."
Princeton economist and former Secretary of Labor Robert Reich agrees that Wall Street's biggest problem right now is the collapse of trust:
The problem is, government bailouts, subsidies, and insurance aren't really helping Wall Street. The Street's fundamental problem isn't lack of capital. It's lack of trust. And without trust, Wall Street might as well fold up its fancy tents.
And as prominent economist Nouriel Roubini writes:
"It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this [bailout] plan is totally flawed."
In other words, the financial crisis is worsening because the government is offering proposals based on obvious lies, which will not actually fix anything. Paulson and Bernanke and company are lying - just like the scam artists on Wall...