Remember the entire concept of moral hazard in bailing out private institutions who done it to themselves? Remember how that backfired on Lehman Brothers?
bank employees and managers had asymmetric compensation structures
Second, shareholders had the same payoff structure
creditors had only limited incentives to watch over major banks
Then, they continue with proposals for financial reforms:
If the Obama administration is serious about preventing a future financial crisis, it will have to address these three forms of moral hazard. However, its proposals may not be adequate to the task.
U.S. President Barack Obama pledged $275 billion to a program that includes cutting mortgage payments for as many as 9 million struggling homeowners and expanding the role of Fannie Mae and Freddie Mac in curbing foreclosures.
The plan will help as many as 5 million homeowners refinance loans owned or guaranteed by Fannie and Freddie, the president said. Treasury will buy as much as $200 billion of preferred stock in the two mortgage companies, twice as much as previously promised, he said.
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