Since the public is basically bailing out “the financial system”, then: the public should, in some sense and to a substantial extent, be given “ownership” of the financial system. I don’t mean just ordinary individualized market participation (which they already have, however mangled) or just “the government” acting as a government (especially considering that the G. is largely, effectively owned by the same sort it is bailing out the most.) I mean literally “as” the public, in a communal effective way similar to what being in a genuinely employee-owned company is like. Reflect on that and hash out what it should consist of in particular, the thrust of it cannot morally be denied. The people should demand it, they will if they appreciate what happened to them and respect their interests.

The more accurate biological example is of a population depleting its resource base and crashing, which is a matter of measured inevitability, rather than potential failure. The paper bubble was being inflated and each tear was papered over with ever thinner paper. It wasn’t a change in circumstance, but reaching the limits of the circumstance.

Neil,

The irony is delicious. After years of privatizing every possible public asset in the name of “greater efficiency,” while squeezing out every drop of profitability, the “free markets” rejoice when the mess is nationalized. Fear and greed are all that really matters.

Another serious problem is Wall Street’s deeply ingrained tendency to push the envelope. (Richard Lowenstein put it exceptionally well in his book Origins of the Crash: “Finance has its own Peter Principle, by which a successful model will be adapted to progressively riskier causes until it fails.”)

In this habit of fighting for every inch of profit, Wall Street is like a self-evolving animal overquick to embrace the particulars of its immediate environment. The more precisely an animal is attuned to a particular “fitness landscape,” the better that animal can thrive… in the short term at least, as long as everything stays just so. To be exquisitely adapted (as opposed to robustly adapted) is to be vulnerable to the slightest change.

Thus when the fitness landscape does change—as it inevitably will—the heavily specialized competitors tend to get crushed (if not go extinct). If a strategy-gone-sour broadsides a large enough group of market participants, the entire financial ecosystem can be thrown into turmoil. When the turmoil from this upheaval spills into the broader economy, wreaking havoc in its wake, the “demon” spoken of in the book’s title is unleashed. (As this reviewer interprets it anyway.)

http://news.yahoo.com/s/ap/20080916/ap_on_bi_ge/bank_deposits_safety

Federal bank insurance fund dwindling

By MARCY GORDON, AP Business Writer Tue Sep 16, 7:49 PM ET

WASHINGTON – Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the taxpayer may be the lender of last resort.

The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation’s largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.

…