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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (54095)	2/17/2006 1:37:45 PM
From: gpowell	Read Replies (1) \| Respond to of 110194

Dismantling one set of regulations in a regulated industry is fraught with problems, as most regulations are finer adjustments to the unintended consequences of previous regulations. The questions should be: is deposit insurance consistent with a free market in money? I think, yes, it is. As such, an insurer is an aggregator of information about the credit worthiness of a particular bank, and would be part of a market process that limits currency expansion by any particular bank. FDIC, in the past, made no such risk adjustment and hence created moral hazard. It actually encouraged risky loan origination as there was no market process to discipline poor practices. It’s sister institution FSLIC, and the "too big too fail policy," is primarily responsible for the failure of the savings and loan system several decades back.