I do not think most of my Readers possess the economic technique sufficient to understand all of this Post–I don’t! The graphing of moral hazard leaves something to be desired, counting as it does a constant Public reaction under financial risk. This variable reaction can alter the shifts in MR and MC, as both MR1 and MC1 are actually a sonic wave pattern. Government policy can also be perceived as a wave pattern as well, with sudden shifts in temperament. Ex-ante constraints will always be suppressed by the financial industry itself, and not rigorously enforced by government regulators under constant pressure. Mark Thoma does possibly not realize it, but he has proposed the only solution to apply constraint to shadow banking. This cannot be Insurance, and cannot be in-line failures, and must not be firm failures. The only Answer left is immediate Takeover of all shadow banking firms upon loss of liquidity by Government regulators; assets never to be returned until all liabilities are paid, and Government Costs are subtracted. Mark will contest my implying that Insurance is impossible, but it remains so when the amounts at risk cannot be formulated at any level than that of the shadow bankers’ desire to draw percentage Profits from the deals.
I do not agree with Mish at all on this one, but it stands as more coherent than the entirety of the Right. Here is my stance: Higher Taxes will not further slow the economy, or will it impede further Gains in the Private sector; the high-paid, heavily-pensioned Government Workers should go, I stand with Mike on this, but massive employment of Workers at the Minimum Wage level will produce much needed Income for Households especially if it covered by health care insurance bought by the Government as bargain rates; Business needs no further re-balancing of Spreadsheets, myself firmly opposed to Business welfare, they need to bear normal Risk in order to earn those Profits they acclaim; and finally, there is real need to turn the health industry semi-Public through a Surtax on all Profits above 10% annually to pay for Welfare health Costs which are unfunded. The problems of Cost Over-runs on public projects should insist that Business absorb the same Cost as the Public; on Public projects, Business need a tax equal to the percentage Over-run incurred mandated and collected–this to assure that the Real Costs are integrated into the Bids.
I will not go further Today, imaging that most Readers will be like me, and bored to Death to all the Solutions out there to a limited number of Problems; none of which is likely to work. I would like to create a mandatory Political Court, where every official and elected person must endure periodically; the entire idea is that the individual must pay a $2500 Fine for every Lie or Misrepresentation he has made Publicly, after which he did not fulfill the implied Promise made to the Public. Americans can take a ‘No Comment’ or Bad News, but We tire of the bull—. No one thinks like myself, though, because of the huge increase of Unemployment which would probably occur. lgl