Friday, October 6, 2006

“Moral hazard” or ‘moral cowardice’?

Why the Bank of England should have raised rates

Economists call this 'moral hazard'. In effect, letting people believe that someone will step in to stop them from failing encourages them to take more risks. A good example was the decision to coerce private banks into helping out hedge fund LTCM in 1998 rather than let it collapse. That decision may have convinced some banks and funds that it's fine for them to take ever-larger, riskier bets on the basis that if they go wrong, they too will be deemed 'too big to fail'

Posted by converted lurker @ 10:52 AM (472 views)
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2 thoughts on ““Moral hazard” or ‘moral cowardice’?

  • The Capitalist says:

    Getting a wee bit tired of saying this but here goes: The BOE are increasing liquidity at the rate of 14% per year (for students that’s M4 money) so how on earth are they going to control inflation? Answer: fudge the inflation figures. As long as we remain awash with cash (via cheap credit and low IRs) I’m afraid HPI will continue…mind you my EA boss is saying confidence is waning amongst buyers.

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  • Article makes a good point, but did it need to be posted 3 times!
    What an absolute f****wit David Blanchflower must be to have considered a CUT in the last meeting!

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