The immediate market response was that of relief, and rallies ensued. But what would be the medium and long term implications? I can think of several:
1. Moral Hazard to present and future risk takers;
2. Setting precedent to other struggling companies deemed too large to fail- e.g. motor industry;
3. Increase in money supply and higher long-term interest rates;
4. Delay for the adjustment mechanism to work through both the housing and financial markets.
1. Moral Hazard to present and future risk takers;
2. Setting precedent to other struggling companies deemed too large to fail- e.g. motor industry;
3. Increase in money supply and higher long-term interest rates;
4. Delay for the adjustment mechanism to work through both the housing and financial markets.
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