Monday, February 2, 2009

Hazardous Materials? Jim Surowiecki on overblown moral-hazard concerns.

From Felix Salmon:

"
Extra Credit, Monday Morning Edition

Why stimulus spending should go to public art

Bailouts for Bunglers: Paul Krugman on why the government should nationalize.

Hazardous Materials? Jim Surowiecki on overblown moral-hazard concerns.

OpenTable files for IPO, finally: And it might actually make sense, even in this market.

Me:

"The patchiness of the moral-hazard argument doesn’t mean that we should simply rubber-stamp another bank bailout; that may be both unjust and a poor strategy for whipping the financial sector into shape. But it does mean that the failure of Lehman Brothers was an unnecessary and costly sacrifice to moral-hazard fundamentalism. It also means that we should not sit quietly by because we fear that government action today will lead to reckless market behavior years from now. Moral hazard has its costs. But, so far, our fear of it has proved much more expensive."

I agree about Lehman, but not about moral hazard. It's very important. However, it must be swift, explicitly expected, principled, and onerous. We've had none of these. Lehman was free market policy for the hell of it. Read a chap named Bagehot. Pronounced Sinj'n.

However, by nationalizing some banks, we can both do the right thing and scare the hell out of the bankers. A moral hazard enema, if you'd like. And if you would, see a therapist.

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