On September 2008, the most major financial breakdown in the history broke out in United State. Numbers of blue chip company has filed for chapter 11. Lehman Brother had fallen during pre-financial crisis hit. Bear Stearns had been take over by JP Morgan at 2 dollar a share. The America flagship financial system has finally created the biggest creative destruction tools in the market - derivatives. Since year 2000, financial institutions had been creative in selling myriad type of derivatives to investor, touting how easy the laissez faire market enable people to make money. It was a great marketing, and great success sales. The concept is selling orange juice from orange. CDS - credit default swap is the best exemplar in the concept. People can hedge against mortgage pool that they actually do not involve or own. The banks was happy, since premium coming in from the CDS, and they think that people are betting against something that will not failed. But as usual, the "invisible hand of Adam Smith" always at operation and its always works in the laissez faire market. Greed set in, and those financial institutions start to sell more "orange" in order to sell more "orange juice" to the market. People who are no credit record can buy 200k worth of property. Maids can suddenly owned 3 houses across the street. And the bubble is on the way to growth. Like the law of gravity, you cannot defy the law of natural. Tree could not grow to sky, that is the time it die and come back to the ground. The bubble burst. And panic set in. The financial market is not at the brink of collapse. The effect is market oriented. It is the burst cycle after the boom. Yet, human nature always defy the bad side. Claims on the imperfections of market oriented economy system is the major factor of such break down. Too big to failed? Government then step in to prevent social economy problem. Government then start to bail out the problem company, or so called victim such as Citibank, BOA, AIG and GM. The new idea of save the bank and you shall save the market. But the truth is, once the money is given to the bank, the bank do not effectively liquid the fund to the market. They are on the path on protecting their own interest first before the market itself. Even on the time of recession, big bonuses are being paid out from those bailed out companies to their top executives. And, government again has to do something. More interventions are necessaries. New rules and policies is being imposed and restructured. Doff-Frank act was signed on July 2010 by president Obama to protect the consumers and investors in wall street. There are virtually no pure investment banking in United State after the event. Quota had been set on the allowable volume of derivatives. Transparency is the top priority. It is like everything you do or did, you need to ask for permission from the government. Capitalism had evolved into social capitalism. We had come to learn that central planned policies do not do any good to the economy growth. What is failed shall let it failed. What the government did is taking away the best lesson the market could learn during the crisis. They are in the sense of pushing the problem forward to the future generations. People are tend to repeat the same mistake because they know the government will save them. They never learn the lesson since they never actually fall down. Such manner of market behaviour will definitely bring the market to another crisis. The questions is, how many times the government can save it? And who going to pay for that?
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