Sunday, March 7, 2010

U.S. Locked in Doomsday Cycle Due to Lack of Reform and Moral Hazzard by Banks

by Matthew Jaffe

"Even as many Americans still struggle to recover from the country's worst economic downturn since the Great Depression, another crisis -- one that will be even worse than the current one -- is looming, according to a new report from a group of leading economists, financiers, and former federal regulators...."

"The report warns that the country is now immersed in a 'doomsday cycle' wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management -- and when the risks go wrong, the banks receive taxpayer bailouts from the government.

"'Risk-taking at banks,' the report cautions, 'will soon be larger than ever.'"

"Without more stringent reforms, aanother crisis -- a bigger crisis that weakens both our financial sector and our larger economy -- is more than predictable, it is inevitable,' Johnson says in the report, commissioned by the nonpartisan Roosevelt Institute."

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