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Every bank everywhere all at once? [1]

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Date: 2023-03-13

But the ruling class - the "lords of capital" - are too moral for lectures, as deregulatory Trump policy made the failures easier. And whose moral hazard is it when such rhetoric (and game theory) applies differently for the poor. As Tom Nichols says, “it never seems to be the right time to talk about moral hazard, going all the way back to 2006”. Darn “woke-bank” red herrings.

Larry Summers Says Now Is Not The Time For ‘Moral Hazard Lectures’ About Bailouts - Via Matt Novak @paleofuture https://t.co/YBMqT8ZXj7

Exactly. The time for moral hazard lectures is for when we are proposing to help the poor and middle class, not when we are once again bailing out the banksters.

“More banks will likely fail despite the intervention, but we now have a clear roadmap for how the gov’t will manage them.”

(Reuters) - U.S. regulators may have stemmed a banking crisis by guaranteeing deposits of collapsed Silicon Valley Bank (SVB), but some experts warn that the move has encouraged bad investor behaviour.

Following a weekend of discussions over the future of SVB owner SVB Financial Group, banking regulators unveiled emergency funding plans for the bank. [...] Yet by guaranteeing that depositors would lose no money, authorities have again raised the question of moral hazard - removal of people's incentive to guard against financial risk. "This is a bailout and a major change of the way in which the U.S. system was built and its incentives," said Nicolas Veron, senior fellow at the Peterson Institute for International Economics in Washington. "The cost will be passed on to everyone who uses banking services." "If all bank deposits are now insured, why do you need banks?" Separately, officials said depositors of New York's Signature Bank, which the New York state financial regulator closed on Sunday, would also be made whole at no loss to the taxpayer. Also, the Federal Reserve made it easier for banks to borrow from it in emergencies. "... If the Fed is now backstopping anyone facing asset/rates pain, then they are de facto allowing a massive easing of financial conditions as well as soaring moral hazard," Rabobank bank strategists Michael Every and Ben Picton wrote in a note to clients. DEPOSIT INSURANCE Because only the first $250,000 of each deposit at a U.S. bank is insured by the Federal Deposit Insurance Corporation (FDIC), last week's collapse of SVB sparked concerns that its small-business clients would be unable to pay employees. Some 89% of around $200 billion in deposits held by SVB at the end of 2022 was uninsured, according to the FDIC. Regulators have now removed that risk. finance.yahoo.com/...

In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs of that risk. For example, when a corporation is insured, it may take on higher risk knowing that its insurance will pay the associated costs. A moral hazard may occur where the actions of the risk-taking party change to the detriment of the cost-bearing party after a financial transaction has taken place.

Moral hazard can occur under a type of information asymmetry where the risk-taking party to a transaction knows more about its intentions than the party paying the consequences of the risk and has a tendency or incentive to take on too much risk from the perspective of the party with less information.

en.wikipedia.org/…

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[1] Url: https://www.dailykos.com/stories/2023/3/13/2157748/--Every-bank-everywhere-all-at-once

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