[jonnathanson]

This, more or less.

Most of the profit in the banking industry comes from being able to take on massive risk, while simultaneously being cushioned from that risk by the government. Risky positions and derivatives are extremely profitable, but for most people -- those without guaranteed bailouts, or cushy borrowing rates -- the risk is too great. For investment banks, as we've seen, the risk is minimal to nonexistant (or at least the banks seem to function as though it is).

Traditionally, the role of the financial industry was to "provide access to capital," primarily by underwriting, facilitating, and assisting in the execution of large transactions and deals for corporate clients. This role is, ostensibly at least, productive to the overall ("real") economy.

Over the last 30-odd years, and especially over the last decade, the center of profit for the financial industry has shifted away from its traditional role (transactional facilitation), and toward the taking of proprietary positions in various capital markets. It's simply too tempting not to -- as Uncle Sam will lend you your leverage virtually free of charge, and he'll also be there to mop up your mess if you make one.

Imagine being able to gamble at a roulette table with free money, and being given more chips every time your bet busts.

[djm]

I'd like to add that responsibility for banks providing loans backed by the taxpayer ultimately falls on voters. This is what fannie mae/sallie mae etc are all about. Disconnecting access to credit from the ability to repay it inevitably results in loans that will default.

Politicians sold people stuff like fannie mae and people voted for it by electing them. And I guess voting in favour of such things is inevitable when not all voters are taxpayers. An extreme solution might be limiting votes to people who are paying taxes. This seems logical but is obviously politically impossible.

[jonnathanson]

"...I guess voting in favour of such things is inevitable when not all voters are taxpayers."

I get the premise of this logic, i.e., that poor people don't pay taxes and therefore don't care about spending taxpayer dollars. I've seen it presented hundreds of times. But I think, in all honesty, that such a theory is giving the poor too much credit. It assumes that the poor are making conscious decisions based on rational evaluations of their economic incentives. I'm not convinced they think that way. Furthermore, I'm not convinced that they're even informed enough to know what they're doing when they vote on such things.

Some of the blame lies on the voters for voting without understanding, sure. But the politicians -- many of whom are paid for by lobbies -- bear greater responsibility for selling bullshit to underinformed voters, and for coucing the bullshit in emotionally manipulative ways.

[onemoreact]

To back this up, well over 20% of people eligible for food stamps don't apply.