Moral Hazard Pays

October 12th, 2010at 07:22am Posted by Eli

This sounds like a pretty correct assessment to me.  In a nutshell:

[The financial] industry knowingly and deliberately creates standardized contracts that are either designed to circumvent the law or in some cases flatly illegal under current interpretations of the law, and then when a case involving the contract arises (which in many instances happens only long after the standardized contract has become an institution), the financial industry tells the court that the dubious or illegal contract is so widespread that the court would create systemic risk by enforcing the law.

Or, y’know, undertakes recklessly risky practices knowing that it’ll get bailed out because it’s too big to fail.

The free market and the rule of law are happy illusions that are quickly discarded the moment they become inconvenient for the wrong people.

Entry Filed under: Corruption/Cronyism,Economy


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