For the past 20 years or so we have perfected a highly impersonal and unstable financial system.

Traditional banks held and serviced the loans that they made. They had every incentive to make sure that borrowers were credit worthy and, when a borrower got into trouble, they had every incentive to work it out so that the borrower was not ruined and they got most of their money back.

This system was not go go enough to move vast quantities of consumer credit onto an unsuspecting populace and it was necessary to push this debt onto the populace in order to sustain monetary stimulus. See here for further discussion of this issue.

In the new system banks make loans to anybody who comes along, pass off the servicing of the loans to specialized companies and then sell the loans to someone who packages them into complex securities that are sold to investors and hedge funds and so on. The people who make the loan have no incentive to check out the borrowers and the people who hold and service the loans have no incentives to work things out if you get into trouble.

Worse still, the markets for securities are notoriously unstable, subject to bubbles, crashes and other messy events that destroy lives and wealth.

This system suffered a well deserved failure in the last quarter of 2008.

So just before going to bed Wonks Anonymous checks out the NY Times online and sees that the Obama administration wants to have the FED and the Treasury revive this system with loans and guarantees to hedge funds and other financial manipulators who buy debt backed securities. Story here.

This is more of the same and Wonks anonymous cannot believe in it.