because you can't lasso the intangible

"Mises -
au contraire - moral hazard is an essential part of the system - or should we go back to sending failed entrepeneurs to debtors prison?

Don't talk in absolutes when you really mean to talk in relatives.
"

huh?

i mean there should be no government backing of banks or investment firms insufficient reserve holdings.

what is it that you mean?

"I mean that not punishing mistakes too hard is part of what created the creative system we have. You need to careful not to throw the baby out with bathwater."

we're not only not punishing them, we're encouraging the mistakes.

but in general there are zero good reasons politically connected banks or investment firms should have their insufficient reserve holdings systemically made whole. it fosters a poor economic and moral situation.

for the most part they should be punished harder too. not only should they be forced in to bankruptcy etc., but in many cases fraud and criminal activity should be prosecuted.

"I don't necessarily agree in this particular case, but I don't think it holds in principle. In fact, I think restrictions on leverage for limited liability firms are a better approach to take."

there is no right number to limit their leverage by. i'd rather adjust firms ability to limit their liability. and further cut off money supply injections and explicit and implied guratnees to prevent enabling such dangerous leverage.

in general though i see no reason firms shouldnt be able to take a lot of risk, assuming there is no fraud. the problem with our system is most of the risk taken is fraudulent. people keep balances at the bank, and a hold a receipt for cash at par, but the bank doesnt have cash, they have a cdo cubed. an individuals money cant be held in a cash balance AND invested in a cdo cubed simultaneously. this is just stupid accounting and most often is fraudulent at heart.