John Doe Pays for Excessive Financial Institution Risk Taking
Let's take banks that are charted by state or federal government. The mechanisms for regulating excessive risk in such banks are actually in place. When auditors review lending practices and see for example that a bank has a large portfolio of high risk loans (for example: no-equity mortgages) they require the bank to set aside more of its mandated equity/capital base to offset this risk.
If the mechanisms are not implemented by regulators on a timely basis the bank(s) slip below their required assets to equity ratio becoming to a degree insolvent.
When the pyramid scheming financial types go on a binge that entails red flag obvious 'excessive risk' taking, then massive losses occur, financial institution' equity hemorrhages and then ( Big Point) interest rates and margins on interest rates must increase until the financial institutions replace the lost capital.
John and Jane Doe have to pay a greed tax and pay more for their car loans, their mortgages, their credit cards until the banks replace the capital.
Meanwhile the financial types have stripped a tenth of a point here and a half a point there from these capital flows, enriching themselves until the speculative 'excessive risk' schemes meet their inevitable ( and I might add repetitive) denouement. In 2006, a good year for speculation and mortgages, Wall Street stripped 25 billion dollars from capital flows in bonuses alone.
In a bad year, when capital and equity shrink the little guy has to pony up to replace the capital. It's a mugs game and trust me, if the only way to get the money out the door to consumers in order that the 'bankers' can put a piece of the action in their pocket is to ratchet up the risk, "Brother" consider it done.
Ps I realize that not all the sub prime players are chartered banks. I simply use that as a simple example to explain the concept.