The Inimitable Tiff

…The financial system is shot through with moral hazard problems stemming from financial rescues of the recent and more distance past. Much good would come of efforts to restore market discipline by allowing investors to take their lumps. Still, there seems to be another plausible narrative lurking within the stories told in the pieces quoted above. It’s one in which governments support the financial sector not simply to protect against harm in the real economy, but because of the political power of the financial sector. This story is one of a plutocratic cycle, in which the rich write their own financial rules and become richer still, and in which well-meaning public figures are co-opted by the enormous sums available to those willing to embrace the Wall Street worldview.

In this telling, it isn’t the power of Washington that’s the problem (even a much weaker federal government would have had the wherewithal to bail out the big banks). Rather, it’s the power of Wall Street. And the solution to the problem might well be a highly progressive system of financial regulation and taxation. …