Defaulting banks - where will it stop?

[David Guyatt]

Barofsky told Gawker.com:

"The incentives are all still in place for the TBTF banks toaccumulate dangerous amounts of risk in the quest for short-termprofits with the assurance that if their bets do not pay off, they(and most importantly from the perspective of market discipline)and their counterparties/creditors) [sic] will be bailed out by thegov't. Combine that with a lack of accountability forbad/fraudulent behavior, and you have a toxic cocktail that willbring about another crisis. Regulatory reform did nothing to changethose incentives."

Bloomberg News' Bob Ivrey in fact reportsthat, as of as late as May of this year, investors were back inVegas and happily doubling down on the big money tables, andbetting on more bail-outs, and the "too big to fail" strategy.

In other words, as Barofsky told an online audience at Gawker.comin a free-wheeling exchange withparticipants: "We're pretty f*cked."

I suppose this shouldn't come as a surprise. The days of "prudent" banking has long since passed. The genie is out of the bottle and can't be put back in without a complete change in the ruling creed of the US and the west.

Why should bankers care if the casino in which they play might go bust again? That's not their problem. All they want are their share of the chips and free access to to the tables. The bottom line is that it's not their money they're playing with - it's other people's money, from which they can leverage out their own personal fortunes, so why care?

The big danger for me, is if and when the reserve currency status of the dollar comes to a close - and I think it is certain it's a when rather an if. That will be the economic end to the US, when the time arrives for all those chips to be paid. It will be an equivalent of a nuclear explosion in NYC and Washington.