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The Economists’ Forum: A Debate On Moral Hazard

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The Financial Times has an interesting discussion on moral hazard, its part in the current economic conditions, and how to best maintain the economy (whether that is creating a moral hazard or otherwise). This discussion involves three economists: Ricardo Caballero, Charles Wyplosz, and Martin Wolf. They all present interesting ideas, but I believe I fall in with Wolf, who flatly states:

If we are talking about government rescues of shareholders in insolvent institutions (and surely that is what we are talking about here), we are not talking about capitalism at all. After all, these are already limited liability companies whose shareholders are, or should be, highly diversified. If they can’t lose their investment in the biggest housing bear market in US history, I really don’t understand what sort of economic systems we are discussing. But whatever it is it is not a market economy.

As stated before, the others provide valuable points, which all make for some interesting–if not mentally taxing–reading.


Written by walonline

July 22, 2008 at 9:46 am

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