Perverse market incentives: Federal government insures banks' risky behavior
It's Time To Bust Up the Big Banks
By Scott Rasmussen - March 22, 2013
Americans have a healthy respect for free market competition and are resistant to government interference — even when they don’t like what the market is up to. For example, 69 percent of Americans believe that large corporate executives are overpaid, but only 17 percent want the government to regulate their pay.
In that context, it’s remarkable that 50 percent of voters nationwide favor a plan to break up our nation’s megabanks. Just 23 percent are opposed.
There are more than 5,000 banks in the United States today, but 12 of them control 69 percent of the banking industry’s total assets.
Most Americans want these megabanks treated like any other. If a large bank reaches the point where it can no longer meet its obligations, just 25 percent support a bailout to keep it in business. But federal policy is just the opposite. The view from Washington, D.C., and Wall Street is that these firms must be propped up at all costs because their collapse would hurt the overall economy.
This provides what Richard W. Fisher, president of the Federal Reserve Bank of Dallas, calls “perverse market incentives.” It lets big banks engage in risky behavior knowing they can’t lose because the federal government will have taxpayers pick up the tab.
(More here.)
By Scott Rasmussen - March 22, 2013
Americans have a healthy respect for free market competition and are resistant to government interference — even when they don’t like what the market is up to. For example, 69 percent of Americans believe that large corporate executives are overpaid, but only 17 percent want the government to regulate their pay.
In that context, it’s remarkable that 50 percent of voters nationwide favor a plan to break up our nation’s megabanks. Just 23 percent are opposed.
There are more than 5,000 banks in the United States today, but 12 of them control 69 percent of the banking industry’s total assets.
Most Americans want these megabanks treated like any other. If a large bank reaches the point where it can no longer meet its obligations, just 25 percent support a bailout to keep it in business. But federal policy is just the opposite. The view from Washington, D.C., and Wall Street is that these firms must be propped up at all costs because their collapse would hurt the overall economy.
This provides what Richard W. Fisher, president of the Federal Reserve Bank of Dallas, calls “perverse market incentives.” It lets big banks engage in risky behavior knowing they can’t lose because the federal government will have taxpayers pick up the tab.
(More here.)
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