Category Archives: Moral hazard

Quelle Surprise! New York Times Fails to Call Private Equity Looting by Its Proper Name

The New York Times tonight features a generally very good piece, “Buyout Firms Profited as a Company’s Debt Soared,” by Julie Creswell that falls short in one important respect: it fails to call a prevalent and destructive practice of private equity firms by its proper name. PE firms in the risk-blind environment preceding the credit […]

Guest Post: The Real Reason the Giant, Insolvent Banks Aren’t Being Broken Up

By George Washington of Washington’s Blog. Why isn’t the government breaking up the giant, insolvent banks? We Need Them To Help the Economy Recover? Do we need the Too Big to Fails to help the economy recover? No. The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent […]

Guest Post: Credit Default Swaps – Love ‘Em, Ban ‘Em, or Tax ‘Em?

(Yves should be back – and so the site should return to normal – tomorrow. If all goes according to plan, you’ll be hearing a lot less from me for a week or so. Yves’ book – Econned – will be quite valuable, and so well worth the wait. ) By George Washington of Washington’s […]

Guest Post: Why Concentration in the Banking Industry Threatens Our Economy

By George Washington of Washington’s Blog. As everyone knows, the big banks have gotten bigger and bigger. Noted economist Mark Zandi says we have an oligopoly of banks, and that “the oligopoly has tightened”. The TARP Inspector – Neil Barofsky – told Huffington Post yesterday that, because of the consolidation in the banking industry: I […]

Guest Post: William K. Black’s Proposal for “Systemically Dangerous Institutions”

By George Washington of Washington’s Blog. William K. Black, Associate Professor of Economics and Law at the University of Missouri – Kansas City, and the former head S&L regulator, has written the following fantastic new proposal concerning the giant, insolvent banks. Posted/reprinted with Professor Black’s permission. William K. Black Associate Professor of Economics and Law […]

Guest Post: Reflections on Blowups and Bailouts

By Thomas Adams, at Paykin Krieg and Adams, LLP Denial Was Rampant in the Buildup to the Financial Crisis. Arguments that Lehman Should Have Been Bailed Out Show that Denial Continues Today While this week marks the first anniversary of the shocking collapse of Lehman Brothers, it is also the second anniversary of the events […]

Guest Post: We Can’t Break Up the Giant Banks, Can We? Yes We Can!

By George Washington of Washington’s Blog. Top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion. Even the Bank of International Settlements – the “Central Banks’ Central Bank” – has slammed too big to fail. As summarized by the Financial Times: The […]

Guest Post: Top Economists Say We Must Break Up the Insolvent Banks (Government Says Let’s Make Them Bigger)

By George Washington of Washington’s Blog. The following top economists and financial experts believe that the economy cannot recover unless the big, insolvent banks are broken up in an orderly fashion: Nobel prize-winning economist, Joseph Stiglitz Nobel prize-winning economist, Ed Prescott Dean and professor of finance and economics at Columbia Business School, and chairman of […]

Party Time! Wall Street Back to Its Old Highly Levered Ways

Bloomberg reports that Wall Street is back to its free-wheeling, high-levered ways. This is a classic example of moral hazard in action. Why worry about blowing up the bank when you know the taxpayer will bail you out? From Bloomberg (hat tip DoctoRx): Banks are increasing lending to buyers of high-yield company loans and mortgage […]

Guest Post: A Plunge in Foreign Net Capital Inflows Preceded the Break in US Financial Markets

Served by Jesse of Le Café Américain The peak of foreign capital inflows into the US was clearly seen in the second quarter of 2007, just before the crisis in the US that has rocked its banking system and driven it deeply into recession. Are the two events connected? Had the US become a Ponzi […]

Rogoff Shreds "When in Doubt, Bail It Out" Policy

Grr. It was so obvious and it never occurred to me…:”When in doubt, bail it out.” I am jealous. Kenneth Rogoff, who among other things has (with Carmen Reinhart) has created a large dataset on financial crises through history, today takes on the exceedingly permissive posture the US has adopted to the banking industry, simply […]

New Stress Trial Balloon Floated

I am coming to realize there might be method in the seeming madness of changing dates and shifting sneak previews via favored members of the press as to what the stress tests might entail. Tire out the critics, numb the casual followers, and leave the boosters in firm control of share of mind. Let’s face […]

Guest Post: FDIC’s Insurance Commitments 34% Higher Than Reported

Submitted by Rolfe Winkler, publisher of OptionARMageddon. [Reader note: I thought it useful to add commentary around the FDIC data. Those that would prefer to skip straight to it, see the chart and read paragraphs 4-9]. Conventional wisdom says that financial companies are having trouble borrowing because credit markets are broken. This is dangerously wrong. […]

US Deviating Considerably From Swedish Banking Crisis Best Practices

A good article in tonight’s Financial Times gives useful detail about the Swedish response to its early 1990s banking crisis. As readers may know, Sweden (along with the less touted Norway) is considered to have been particularly effective in mopping up a banking crisis. We and others have observed that the US is engaging in […]

Guest Post: Moral Hazard Now Biting GM

Submitted by Lune This blog and many other authors have pointed to the large moral hazards that the federal government’s actions have created so far. It was typically expected that these moral hazards would play out in the next cycle of boom/bust, with financial players taking bigger risks for their own gain while expecting public […]