Taking candy from a baby

There is a saying in poker that if you don't know who the sucker is at table then it's you and nothing applies so well to the US government (with other governments like Ireland joining the sucker division) in this case. Taking advantage of this sucker of course is Wall St behaving like a child turned down in the toy store after seeing the denied money going back into the parents purse. It dived 1.2 trillion dollars on Monday to show the government what will happen if the free bag of money already priced into the system does not materialise. Then the following day, like a child trying the softly, softly approach it shows what gains will be possible if the bill is passed. The new magic trick is to buy something that is low due to its high risk and then use the tax payer to remove the risk and hence increase the price.What's more important to point out is not that the banks and worthless toxic assets are being nationalised but that the government is being 'marketised'. In other words the actions of the government are becoming more and more part of the market and the market intentions are determining government action. As the government is sucked into this game there is an ever increasing by-product of moral hazard leading to even more wealth destruction via the inefficient allocation of scare resources. If you spare the rod you spoil the child and when the child starts to run your life, as every parent will tell you, it's a bad road to be on. In the marketplace, where the government and Wall St meet, the end of that road is where there is no surplus money left for Wall St to extract to bail out high risk investments that went wrong or the government simply refuses to play the game. In light of the lobbying and vested interests of Wall St in Washington the former is more likely. Market efficiency will return when the government is bankrupt and government action is completely ineffective on investment decisions. Then the only way left to investors to make a return on capital will be to make prudent investment decisions through the provision of capital to companies that are producing desired goods and services. Spoiling the child just makes growing up to maturity a longer and more difficult process - assuming the child hasn't been completely ruined in the first place and its not impossible that Greenspan, Bernanke and now Paulson have given in to the tantrums just too many times.