Daily Adams

The true cost of bailouts

In reply to a 12.21.12 Washington Posteditorial on the costs of a government bailout, a reader to that paper correctly replies that the costs are higher than the WaPo imagines:

One of the largest costs of bailouts is the moral hazard they induce by shielding imprudent investors from the consequences of risk by not allowing them to fail. Such precedents only lay the groundwork for even greater imprudent risk-taking, especially as enterprises deemed too big to fail grow in size, subsidy and political connections.

Indeed.

Via The distortions of bailouts.

Leave a Reply

Your email address will not be published.