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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
by 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 agoOh, 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 agoI’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 agoIndeed! 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...