The AC'ers (and others) do have a point about fiat currency and its effects. Even though most of us do favor fractional reserve banking, it still matters what number is picked as the fraction. Unrestrained lending to people/companies with bad prospects has consequences, and ones that can ripple through the economy. When lenders and debtors can expect *absolutely no bailouts* by the gov't in *any form*, then the market can can operate better, if not perfectly. It seems to me that lenders, especially credit card companies and mortgage lenders, aren't incentivized to operate with more realisti c standards because history teaches they and their debtors can cry to mommy gov't and get relieved of suffering much of the consequences of their own actions.
A lot of mortgage lenders have gone belly up. CFC is on the ropes but they seem to be trying to attract more deposit money in their banking arm. Citi and others have had a lot of losses reported. Not sure how the Fed is exactly bailing these folks out. You're making the moral hazard argument and the Fed has provided more short term liquidity because some normally credit worthy borrowers are having trouble finding funds to borrow short term. That's basically a credit crunch. I agree that ceeding government the power over the currency is ceeding government a lot of power. Not sure though that there's a "moral hazard" with the Fed cutting it's rates at this time. I do think the economic impact of this will be to reduce recession chances.
Kind of had a funny thought here. The bond rating agencies were apparently flat out wrong about rating the bonds derived from many CMOs. The bond rating agencies are unregulated as far as I know. Perhaps that should change.