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I actually think it's you that has misunderstood. when you say this: "they perform the valuable service of making risky investments that other people can't" W

I actually think it's you that has misunderstood. when you say this: "they perform the valuable service of making risky investments that other people can't" What do you mean by risky investments? If you mean the bank risks losing money on them, that's countered by the point the person you are responding to made here: "in this day and age we hardly ever let large companies suffer the consequences of a bad investment " What that means is, if you loan money and the business or person you loan to fails to repay, and the government bails you out by paying you the amount you were owed, did you actually risk anything at all? Mortgages are indeed the canonical example - it's why the bank bailout that paid the banks that took the risks and failed is a perfect example of just this kind of risk mitigation. It's worse, though, because on an individual level the banker has extremely minimal risk with their investments and loans. JP Morgan may or may not be at risk if they invest tons of money foolishly, but Jack the banker at JP Morgan has risked exactly $0 of their personal capital on the same bet. If the bet succeeds, Jack makes a million dollars. If the bet fails, MAYBE Jack gets fired. More often, he gets another crack at it because things don't always go well and the company has an appetite for this kind of risk.

SpicyLemonZest 6y ago
> What do you mean by risky investments? If you mean the bank risks losing money on them, that's countered by the point the person you are responding to made here: "in this day and age we hardly ever let large companies suffer the consequences of a bad investment " I kinda glossed over that under the assumption that it was meant as rhetoric regarding the 2008 crisis. It's definitely not true as a literal claim; banks quite regularly write off consumer debt that can't be collected or corporate investments that didn't work out. When you stop paying your credit card, or when WeWork ends up not being worth the price tag, the government doesn't step in to cover the bill. (They do step in for mortgages, and I agree they shouldn't.) > It's worse, though, because on an individual level the banker has extremely minimal risk with their investments and loans. JP Morgan may or may not be at risk if they invest tons of money foolishly, but Jack the banker at JP Morgan has risked exactly $0 of their personal capital on the same bet. If the bet succeeds, Jack makes a million dollars. If the bet fails, MAYBE Jack gets fired. More often, he gets another crack at it because things don't always go well and the company has an appetite for this kind of risk. This is definitely a real and important problem.
- ameister14 6y ago
  I can see why you would gloss it over as I agree, it's not something that happens more often than not. However, I do think there is a moral hazard to it in the first place, and I think you can start to see the results in the Chinese market today. >When you stop paying your credit card, or when WeWork ends up not being worth the price tag, the government doesn't step in to cover the bill. I would append "usually" to that. The government doesn't "usually" step in. They do sometimes. They've done it twice across major industries over the last 14 years that I can see at the federal level, and more often individually, the latter usually dependent on industry and business relationship with the government. The risk there is pretty massive each time, though, and I don't think people fully appreciate it. Even if it's more of a perception issue, it poses serious problems. For example, there are a number of people in this thread and millions nationwide that believe when a bank messes up the government will save the bank. That's an issue because it erodes confidence in the government while putting undue confidence in the stability of the banking industry. The more this happens, the worse the potential outcomes.

SpicyLemonZest 6y ago

> What do you mean by risky investments? If you mean the bank risks losing money on them, that's countered by the point the person you are responding to made here: "in this day and age we hardly ever let large companies suffer the consequences of a bad investment " I kinda glossed over that under the assumption that it was meant as rhetoric regarding the 2008 crisis. It's definitely not true as a literal claim; banks quite regularly write off consumer debt that can't be collected or corporate investments that didn't work out. When you stop paying your credit card, or when WeWork ends up not being worth the price tag, the government doesn't step in to cover the bill. (They do step in for mortgages, and I agree they shouldn't.) > It's worse, though, because on an individual level the banker has extremely minimal risk with their investments and loans. JP Morgan may or may not be at risk if they invest tons of money foolishly, but Jack the banker at JP Morgan has risked exactly $0 of their personal capital on the same bet. If the bet succeeds, Jack makes a million dollars. If the bet fails, MAYBE Jack gets fired. More often, he gets another crack at it because things don't always go well and the company has an appetite for this kind of risk. This is definitely a real and important problem.

ameister14 6y ago
I can see why you would gloss it over as I agree, it's not something that happens more often than not. However, I do think there is a moral hazard to it in the first place, and I think you can start to see the results in the Chinese market today. >When you stop paying your credit card, or when WeWork ends up not being worth the price tag, the government doesn't step in to cover the bill. I would append "usually" to that. The government doesn't "usually" step in. They do sometimes. They've done it twice across major industries over the last 14 years that I can see at the federal level, and more often individually, the latter usually dependent on industry and business relationship with the government. The risk there is pretty massive each time, though, and I don't think people fully appreciate it. Even if it's more of a perception issue, it poses serious problems. For example, there are a number of people in this thread and millions nationwide that believe when a bank messes up the government will save the bank. That's an issue because it erodes confidence in the government while putting undue confidence in the stability of the banking industry. The more this happens, the worse the potential outcomes.