Playing monetary games has done nothing to eliminate moral hazard.
If we step back and look at the past six years since the global financial meltdown of 2008, we see that in terms of financial and political power, nothing has changed–and that’s the problem. If nothing has changed structurally, then none of the problems that caused the meltdown have truly been addressed.
All that’s changed is the vast expansion of monetary games has masked the dysfunctional reality that the same old vested interests that had a death-grip on wealth and power in 2008 have tightened their death-grip in the past six years.
Here’s the problem facing every nation and trading bloc:
1. Vested interests institutionalized moral hazard, separating their gains from the consequences of taking risks. This is also known as privatized gains, socialized losses: vested interests reaped the gains from risky speculative bets, but then passed the staggering losses onto the central banks and taxpayers while keeping the gains.
2. The vested interests control the machinery of governance, so there is no way the central state will force the vested interests to absorb the losses that are rightfully theirs. Instead of de-institutionalizing moral hazard, governments have spewed thousands of pages of complicated regulations, in effect, grudgingly nudging the barn door half-closed after the horses of systemic risk galloped away in 2008.
3. With moral risk still institutionalized, nothing has changed: all the gains from subprime auto loans, selling sovereign bonds issued by insolvent governments, etc., are private, and all the risk is being transferred to the central banks and taxpayers.
The money-printing of quantitative easing–central banks printing money to purchase sovereign bonds and mortgages–is actually a form of money-laundering, as all this expansion of central bank balance sheets, debt and liquidity enables the vested interests to expand their control of the financial and political power centers at the expense of everyone else.
Full article: Nothing Has Changed – And That’s The Problem (Zero Hedge)