From the OC Register on the subprime debacle:
"I think that for the moment, they should probably leave it alone," says Joseph Gyourko, professor of real estate and finance at Wharton, warning that bailouts can make people more reckless in the future. "We don’t want to introduce moral hazard …. We don’t understand this very well right now, so any regulation is probably going to be wrong or imprecise."
And another interesting quote:
Ken Thomas, a lecturer on finance at Wharton, argues that people and institutions that make risky choices are usually best left to suffer the consequences. "When we had the last big financial meltdown with stocks in 2001, did we consider bailing out those who lost money in the dot-com crash?" he asks. "We try to have markets regulate, not the government. Markets do a much better job."
These two quotes highlight very clearly the argument being made by many in the community who are on the sidelines of this event. While it sometimes seems harsh, the way to ensure this doesn’t happen again is to make sure that the lessons and ramifications are fully comprehended. That doesn’t occur when bailouts give people false security. The government has a job to ensure that the lenders acted responsibly. That is a big enough task right now. For more of my ideas see my post on enforcement vs. new legislation.
Last 3 posts by Morgan
- Subprime Bananas - June 28th, 2009
- Roubini: No confidence in government exit strategy - June 24th, 2009
- Goldman bonuses largest in firm's 140-year history - June 21st, 2009
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