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Regardless of whether China does it, bailing out the debtees and letting the debtor fails is what other countries should do in the future.
by Kinrany 5y ago
Regardless of whether China does it, bailing out the debtees and letting the debtor fails is what other countries should do in the future.
- littlestymaar 5y agoThat doesn't bring better incentives that bailing the debtor out: it still encourage to lend money recklessly.
- Kinrany 5y agoThis creates at least one agent that will directly suffer the consequences of the default they caused. Of course one can create two companies, make the first borrow from the second, make the second hide the money and default, get the first bailed out and pocket the hidden stash. But they'll be easier to go after.
- littlestymaar 5y ago> This creates at least one agent that will directly suffer the consequences of the default they caused Iif you think of companies as “agents”. But they are not, the agent causing the default is the human in charge. And those aren't often suffering a lot from their mistakes…
- Kinrany 5y agoSure, but it's easier to sue them if the company goes bankrupt.
- randlet 5y agoDoesn't removing the risk from debtees still encourage reckless investing/lending? edit: apparently littlestymaar and I are operating on the same wavelength this morning.
- dustintrex 5y agoChina applies different disincentives: it's virtually certain a lot of Evergrande top brass will end up in jail over this.
- thedudeabides5 5y agoIt’s not that simple. Sometimes that’s what you want to do and you trigger a lehman. No one really knows where the trigger line for systemic with these things is. Hence the weird financial regulations like Dodd-frank in US, MiFID in EU etc