Paul Krugman: The Unthinkable Is Upon Us

Reaping what the Republicans have sown the past 8 years is almost too unfathomable to comprehend. Alan Greenspan's model was flawed, Phil Gramm's regulations incentivized risk, the markets did not correct, and morality was systematically removed form the financial world.

How bad is it? Krugman writes:

"So why has this zombie idea -- it keeps being killed, but it keeps coming back -- taken such a powerful grip? The answer, I fear, is that officials still aren't willing to face the facts. They don't want to face up to the dire state of major financial institutions because it's very hard to rescue an essentially insolvent bank without, at least temporarily, taking it over. And temporary nationalization is still, apparently, considered unthinkable."

The problem was letting companies get too big to fail. That notion made these large companies not worry about the risk, if things got bad, they knew the government would come in and bail them out.

And now that these companies have built up a derivatives market in the past 8 years valued at over $400 trillion that is unregulated and largely unknown to John Q. Public, things get exponentially worse as companies fail. The debt these failed companies default on was insured. It lives on like a zombie eating the flesh of other companies and our economy.

The bitterest pill to swallow would be maybe we let the big guys fail and out of that little guys pop up to fill the need. Isn't that capitalism?

Source: NYT