Instead of bailing out the institutions, why didn’t the government just let them fail and give the money directly to the people hurt by the bank’s mismanagement? Why were the banks’ protected? Doesn’t this kind of protection incentivize banks to act recklessly in the future?
In: Economics
Well keep in mind that banks are levered entities on fractional reserves, so if we let the whole thing collapse it would basically wipe out everyone.
But you make a fair point. The moral hazard is ultimately a bad thing and we should let risk fail and help the most vulnerable in society while encouraging opportunities for newcomers with clean slate.
Latest Answers