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Right...but a real problem is, or course, moral hazard, ie "if they did it before (bailed us out), they will almost surely do it again, so what incentives do we
by cubano 11y ago
Right...but a real problem is, or course, moral hazard, ie "if they did it before (bailed us out), they will almost surely do it again, so what incentives do we have to alter our risky behaviors that are currently making all of us rich?"
All I was trying to point out is that the idea that the US market is devoid of any government manipulation and shenanigans is fiction at best.
- jfoutz 11y agoThe assistance had a pretty hefty price. First, the weakest died. it's not like the fed jumps in at the first sign of trouble. Second, companies had to take losses first. They take the first billion (or more) before any fed help kicked in. Third, they got nationalized. Nobody wants that, and everybody bought the government back out as quick as they could, or died. I don't want to dismiss your argument, moral hazard obviously had an effect - http://www.federalreserve.gov/pubs/ifdp/2012/1043/ifdp1043.pdf http://www.federalreserve.gov/pubs/ifdp/2012/1043/ifdp1043.p... But, again, the beauty of our system is we have an idea about how the major players will act, it's not totally opaque and unpredictable like China. If there's another little bubble, it's pretty clear the fed will just let that industry die. If it's huge, at least some players will die. The rest, can either suffer on their own, or suffer as a nationalized entity.