Category Archives: Moral hazard

Credence Goods: The Unique Economics of Health Care

Why health care will never work as a market good – there are extreme information asymmetries between the providers and the patients. That means, among other things, we need to recognize the inability of patients to know if they are getting good care or not (beyond a basic level of attentiveness) and the ease of getting them to believe that a lot of treatment, as in overtreatment, is tantamount to “good care”.

Read more...

SEC Official Describes Widespread Lawbreaking and Material Weakness in Controls in Private Equity Industry

At a private equity conference this week, Drew Bowden, a senior SEC official, told private equity fund managers and their investors in considerable detail about how the agency had found widespread stealing and other serious infractions in its audits of private equity firms.

Read more...

Bill Black: Jamie Dimon’s $10 Million Raise is a “Common Sense” Fraud Reward

Yves here. This has been such a busy week that I’ve been remiss about commenting on how Dimon’s board rewarded him despite the London Whale fiasco and the revelation of pervasive regulatory abuses. Clearly, they thought he bought the bank’s way out of trouble on the cheap, disproving the wailing in the financial firm toadying media that the Morgan bank had been ill-treated by the Administration.

Read more...

Amar Bhidé on How Following Hayek Leads to Regulating Banks Like Utilities, Looking Askance at Liquidity and Securitization

I highly recommend this short interview by John Authers of the Financial Times with Amar Bhidé, a professor at Tufts, in which he argues that a proper reading of Friedrich Hayek would lead to considerable skepticism about whether most of the changes in finance over the last three decades actually represent progress.

Read more...

Bill Black: Why do Conservatives Oppose Prosecuting Elite Corporate Frauds?

There are at least four principles that virtually all conservatives purport to support – except when the potential defendant is socially elite. I have written previously about two of these principles on several occasions – the need for accountability and “broken windows” theory that calls for the prosecutors to make the prosecution of even minor street crimes a high priority if they have, even indirectly, a material effect on the community.

The third principle is that it is vital to punish in order to deter crime. Gary Becker, the very conservative Nobel laureate in economics, emphasized this point (again, in the context of street crime). Under Becker’s theory of crime our current practices of allowing elite banksters to become wealthy through leading the “sure thing” of accounting control fraud with immunity from the criminal laws will predictably lead to new, larger epidemics of fraud that will continue to cause our recurrent, intensifying financial crises. It is rare, however, to find a prominent conservative who is demanding a priority effort to prosecute the elite bank officers who ran those frauds. I know of no conservative member of Congress publicly making that demand today. Senator Chuck Grassley has previously criticized the Obama administration’s failure to prosecute elite bankers.

Read more...

Robert Prasch: The “Lessons” that Wall Street, Treasury, and the White House Need You to Believe About the Lehman Collapse

Five long years have passed since the demise of the once venerable firm of Lehman Brothers. To mark the occasion, Wall Street, the United States Treasury Department, the White House, and their several political proxies and spokespersons have taken to the mass media to instruct the public in the “lessons” to be drawn from the financial crisis of 2007-09. Regrettably, we are witnessing the propagation of several self-serving falsehoods in the hope that the public can be induced to embrace them now that the immediacy of the events in question is in the past. Some of the lessons are so flagrantly false that they demand immediate correction.

Read more...

What the Orgy of “Lehman Five Years On” Stories Missed

One of the reasons I haven’t weighed in with the obligatory Lehman five year anniversary piece is that so many of them are variations on a limited range of themes. So it may be more instructive to discuss the stories that it would have been nice to see instead.

Read more...

David Dayen: Regulatory Apparatus To Provide Full Employment For Chroniclers of Future Bailouts, as Useless Mortgage Origination Rules Introduced

There’s no way to possibly count the various ways in which Dodd-Frank rules have been watered down, even from their already waterlogged original intent. But we got another example of it yesterday, the product of a corrupt bargain between the mortgage industry and so-called “progressive” housing groups.

Read more...

Wolf Richter: When Flight Safety Gets Outsourced To China

Aircraft maintenance was a highly paid blue-collar job that required education, training, manual skills, and brains. It was one of the perfect American middle-class jobs with generous healthcare, retirement, and vacation benefits; and free flights! They were working for icons like Delta, American Airlines, Continental, TWA, or Pan Am. Icons indeed!

Read more...