We have just experienced the consequences of excessive risk taking by financial enterprises, real estate speculators, and overstretched homeowners fueled by the expectation that taxpayers would cover their losses if risky bets failed. Washington’s response to the financial crisis has confirmed these expectations and is thus compounding the problem for the future. Recovery of the U.S. economy and of the financial sector that finances it requires stabilizing the rules of the game and restoring market discipline of risk taking. Washington must give up the conceit that it can reliably micromanage socially desirable outcomes successfully. Regulatory rules must return the cost and reward of risk taking from the taxpayer to the risk taker. The moral hazard of financial risk takers taking the profits and tax payers bailing them out when their bets fail has seriously corrupted our financial system. It will not be easy to put that genie back in the bottle, but it can be done. (more)
WASHINGTON — There is no U.S. government guarantee to protect the largest financial firms, a Treasury Department official said Thursday, as a congressional watchdog criticized the $45 billion in government aid provided to Citigroup Inc. (more)
Lending by the banking industry fell by $587 billion, or 7.5 percent, in 2009, the largest annual decline since the 1940s, the Federal Deposit Insurance Corp. reported Tuesday. (more)
In the banking industry these days, failure can be good news. (more)
Five former Treasury secretaries urged Congress Sunday to bar banks that receive federal support from engaging in speculative activity unrelated to basic bank services. (more)
If AIG, the insurance giant bailed out by the U.S. government, had failed a large number of assets such as mortgage-backed securities would have lost their insurance against losses (called credit default swaps) causing their value in the market to fall. (more)
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