It saved the overall economy from something much worse and for Wall Street, it saved them from complete ruin. The problem now is that because no strings were attached (even now, it's weak) Wall Street sleeps comfortably, knowing that no matter how crazy they behave, the US government will be there to back them up, again. The risky bets are back as are the fat bonuses courtesy of the expensive guarantee. Without risk, how cautious will Wall Street really be? A Congressional Oversight Panel is reviewing this issue though whether Congress will act is another question.
"This apparently positive outcome, however, was achieved at the price of a significant amount of risk," the panel said in the report. "A significant element of moral hazard has been injected into the financial system and a very large amount of money remains at risk."
Elizabeth Warren, the Harvard Law School professor who heads the Congressional Oversight panel, said the guarantees also produced significant distortions in private markets, drawing funds to assets that had backstops.
"The fact that there is no upfront cost is both the beauty and danger of guarantees," she told a conference call on the report. "They are perhaps too tempting."
