Moral Hazard

[ewx]

[Poll #1057683]

(FTAOD I'm not saying that the two situations are identical apart from the scale - I'd hoped 'actually' and 'potentially' would indicate that, if a hint was actually needed.)

Comments

[aardvark179.livejournal.com]

The two situations are a bit different. In NR's case you want to stop a run on the bank because you believe it can survive, so it won't actually cost you anything, and a bank collapsing could have serious knock on consequences.

[gjm11.livejournal.com]

What he said. The government isn't guaranteeing NR deposits out of concern for the welfare of NR customers. If NR goes under it'll effectively cost the government much more than this anyway, and by making the guarantee the government reduces the chance that it will happen. In most scenarios this ends up either neutral or saving the government money.

As for Farepak, I'm all for upping the government's spending on welfare and charity, but it seems to me there are more effective ways they could spend a few million to help people who'd otherwise be screwed than by compensating Farepak's customers. (Better that than nothing, I guess.)

[sidheag.livejournal.com]

Exactly.