Alte posts on finances from a quite Roman Catholic position — the market should be free within limits. She referred to this article, from Zero Hedge, but I am quoting the paragraphs that follow from what she quoted. She ended with the first sentence of this passage..

If the lender is foolish enough to extend huge quantities of credit to a poor credit risk, then it’s the lender who should suffer the losses when the borrower defaults.

This is the basis of bankruptcy laws–or used to be the basis.When an over-extended borrower defaults, the debt is cleared, the lender takes the loss/writedown, and the borrower loses whatever collateral was pledged. He is left with the basics to carry on: his auto, clothing, his job, and so on. His credit rating is impaired, and it is now his responsibility to earn back a credible credit rating.

The debt is discharged and the borrower must live within his means without relying on credit. But he is also free of the burdens of servicing the debt.

If the lender is forced into insolvency due to the losses, then so be it: lenders that cannot differentiate between good and bad credit risks should go under and disappear: that’s what happens in a competitive, transparent capitalist economy. Fools who create credit and extend it to poor credit risks must be eliminated from the system as quickly as possible lest they destroy more capital in the future.

Let us go back a few years. The US decides to over regulate the mortgage market, using two federal owned entities — Freddie and Fannie — to prop the market up. It encourages companies to take riskier loans.

It all comes crashing down.  At this point Bush (and Obama, for McCain had just lost) were told that these banks were too big to fail.  A few trillion dollars of printed money later (sorry quantitative easing) and we are looking at Greece defaulting, the euro imploding, and the US either inflating its way out of debt or losing its reserve currency status.

Because the US can no longer pay its debts, and its money is no longer seen as good.

Now if the banks had failed, as Barings Bank was allowed to, there would have been pain.  Those to pander to the suits in the city of London would have sold less Porsches and Aston Martins. But banksters recover. The city would have bounced back. And the general public, would have rode it out

Instead we are reliving the 1970s. We have over regulation, increasing inflation (and thus pressure on wages). The savers and those on pensions and benefits are hurting. We can no longer prop up any institution that was feckless enough to lend to marginal states. We have to let them fail.

If this means that the average person goes back to cash, so be it. A cash economy is sustainable. But we have now built a moral hazard into the system — for if a company is too big to fail the state has insured them against any risk.

And that will increase the tendency to seek profits regardless of risk. If the marked was free, it would destroy such banks. Let the market do this: for at the moment our governments, who should regulate companies to minimize the pain to their citizens, are regulating their citizens to minimize the pain to the corporations.

You see, Companies do not hurt. People do.