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In this particular case tax payers would not have to cover any losses at all. The actual losses are relatively small and depositors can and should be asked to t
by fauigerzigerk 4y ago
In this particular case tax payers would not have to cover any losses at all. The actual losses are relatively small and depositors can and should be asked to take a haircut if necessary. The critical issue here is timing. You don't want viable companies to run out of money just because a temporary liquidity issue cannot be resolved quickly enough.
In general, I disagree that it is never sensible for tax payers to act as insurance of last resort provided that the insurance premium in the form of business taxes is adequate. It can be the least worst solution for society as a whole in case of a domino effect. But this is not (yet) what's happening here.
- ashwagary 4y ago>The critical issue here is timing. You don't want viable companies to run out of money just because a temporary liquidity issue cannot be resolved quickly enough. The market already has adequate solutions, while these shortcut intervention ideas have moral hazards. Why cant other companies that see the opportunity take the required risk? There has been a massive inequality exacerbating bull run with record profits but the beneficiaries want to avoid even the slightest downside of that risk-taking. If my understanding is correct, this kind of behavior is trading short term instability for potentially massive long term tail risk.