Financial Moral Hazard
For anyone who thinks I might be going soft because I used God’s name twice in the last entry, I have not. I still think that while government has a role to play during periods of financial crisis, the greedy bankers who created this mess need to be held accountable for their reckless business decisions.
Government (whether here in the UK or America) should not have to repeatedly bail-out these financial institutions (especially investment banks who do not take deposits) because it encourages continued excessive risk-taking. And by doing so, government is creating a moral hazard — as the banks believe themselves to be so important that government will not allow them to fail. That my friend, is just not fair – as it is you and I the taxpayer who will eventually pay.
Thus, while it sucks to see so many people lose their jobs, I think the government made the right decision when it came to Lehman Brothers. Perhaps now, in this new economic environment, financial institutions will realise that they will have to accept the consequences of their disastrous risk-taking decisions which should help us get to the bottom and ultimately lead the way towards recovery.