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Politics : Ask Michael Burke
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To: Lymond who wrote (72046)12/17/1999 8:39:00 PM
From: Knighty Tin  Read Replies (1) of 132070
 
John, Moral hazard is a problem, but the entire magilla is not just moral hazard. By taking money from other parts of the economy to bail out the banks cycle after cycle, the Fed reduces investment in productive capacity until we have reached our current stagnant level. Also, regular bailouts encourage the banks to be highly speculative, as there has been little or no downside to being wrong and huge personal rewards when they are right once or twice a decade. And, of course, the amount of derivatives risk at the banks today are not an amount the Fed can fix when it goes bad.

Best,

MB
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