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Managers might have been fired and equity wiped out but they still have all the rent and bonuses that were extracted during the high risk high reward activities
by maxilevi 4y ago
Managers might have been fired and equity wiped out but they still have all the rent and bonuses that were extracted during the high risk high reward activities.
That’s why it’s a morale hazard and the fed taking over it doesn’t solve it.
- acjohnson55 4y agoI don't see how letting the depositors get hosed while the bank gets taken over is any better than bailing out the depositors. Either way, the rents have been extracted. Why does the $250k limit make a difference to bank management behavior?
- yipbub 4y agoThey don't stand to lose much if their risky behavior fails, but they stand to make a lot if it succeeds.
- watwut 4y agoIt makes difference in where people put money into. Despite VCs and startups not using it, you can buy insurance over $250k limit and spread accounts into multiple banks. It is actually standard product. Basically, VCs did not wanted to pay for that and were rewarded. They advised or forced their startups to not insure money too. Also, before someone makes that point, these are supposed to be highly sophisticated operators. They are supposed to have know how. The people being bailed out are not Johny-the-cleaner working on his small busines.
- gnicholas 4y agoYou've just coined a new term, "morale hazard". Perhaps this is when there is a moral hazard problem that affects morale?
- maxilevi 4y agoHaha that is hilarious, I can't edit my comment but thanks for pointing it out