Tuesday, 7 September 2010

Moral Hazard

No need to revisit old arguments, but the Deborah Hargreaves piece in the guardian really grates. On Bob Diamond's appointment to head Barclays she writes:

Diamond's rise to the top is a remarkable endorsement of his risk-taking: lucrative investment-banking activities now account for more than 80% of Barclays' profits. It is also a sign of an industry's renewed confidence in its ability to take on the government and face down cries for banks to be broken up.

Its really simple. If you bail out bankers with taxpayers money you create Moral Hazard. Why on earth wouldn't they continue to operate as if nothings happened and pay themselves huge bonuses when they know any mistakes will be paid by the taxpayer?