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I really don't understand the moral hazard here. The people making risk decisions - ie, the SBV staff - should absolutely be wiped out. If there's a legal way t

I really don't understand the moral hazard here. The people making risk decisions - ie, the SBV staff - should absolutely be wiped out. If there's a legal way to claw back the proceeds from the stock sales they made in the run up to the last few days, I wouldn't have a problem with that either.

wpietri 4y ago
It's sort of like federal storm insurance for beachfront property. If you make it too cheap for people to take risks, they will take too many risks, costing the government money. So you have to make sure risk and reward are balanced. When people choose where to bank their millions of dollars, they are making a market-based choice. Markets only work when, on balance, good choices get good results and bad choices get bad results. If people can make risky choices and still make money because other people bail them out, that creates a moral hazard.
- wpietri 4y ago
  Oh, and that isn't a hypothetical example. Thousands of federally insured houses have been rebuild 10 times or more: https://www.nrdc.org/experts/rob-moore/flood-rebuild-repeat-need-flood-insurance-reforms https://www.nrdc.org/experts/rob-moore/flood-rebuild-repeat-...
  - bombcar 4y ago
    I’ve always been of the idea of the feds are insuring something, they should have a buyout option (something similar to what FDIC just did). FDIC doesn’t wait for the bank to call them, they monitor and step in.
    - wpietri 4y ago
      Indeed! And I believe that for floods, the FEMA buyout program is something like that: https://www.fema.gov/case-study/flood-buyout-eases-homeowners https://www.fema.gov/case-study/flood-buyout-eases-homeowner...
blackoil 4y ago
> I really don't understand the moral hazard here. It incentives ignoring risks from grey/black swan events. Weak analogue, a CTO comes in who removes redundancy/backups from the system, saves huge costs and gets huge bonuses. Once every 5 years system fails and data is lost, CTO loses bonus but on average he is making more.

wpietri 4y ago

It's sort of like federal storm insurance for beachfront property. If you make it too cheap for people to take risks, they will take too many risks, costing the government money. So you have to make sure risk and reward are balanced. When people choose where to bank their millions of dollars, they are making a market-based choice. Markets only work when, on balance, good choices get good results and bad choices get bad results. If people can make risky choices and still make money because other people bail them out, that creates a moral hazard.

wpietri 4y ago
Oh, and that isn't a hypothetical example. Thousands of federally insured houses have been rebuild 10 times or more: https://www.nrdc.org/experts/rob-moore/flood-rebuild-repeat-need-flood-insurance-reforms https://www.nrdc.org/experts/rob-moore/flood-rebuild-repeat-...
- bombcar 4y ago
  I’ve always been of the idea of the feds are insuring something, they should have a buyout option (something similar to what FDIC just did). FDIC doesn’t wait for the bank to call them, they monitor and step in.
  - wpietri 4y ago
    Indeed! And I believe that for floods, the FEMA buyout program is something like that: https://www.fema.gov/case-study/flood-buyout-eases-homeowners https://www.fema.gov/case-study/flood-buyout-eases-homeowner...

blackoil 4y ago

> I really don't understand the moral hazard here. It incentives ignoring risks from grey/black swan events. Weak analogue, a CTO comes in who removes redundancy/backups from the system, saves huge costs and gets huge bonuses. Once every 5 years system fails and data is lost, CTO loses bonus but on average he is making more.