Tyler Cowen’s essay on the inequality generated by the political economy of finance has received deserved attention. I think Tyler is exactly right that financiers are going short on volatility, that this is hard to detect and therefore regulate, that politicians have incentives to bail out the banks following increases in volatility, and that it [...]
Tags: banking, Cowen, dynamic inconsistency, finance, globalization, inequality, moral hazard, naked puts hypothesis, Too Big to Fail
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As politicians and pundits debate what regulations are needed to fix the financial industry, I want to draw attention to a neglected issue: an important factor in the stability of the financial sector is its degree of globalization. All the big American banks have some international dealings. But true globalization of banking would be an [...]
Tags: banking, diversification, dynamic inconsistency, finance, globalization, moral hazard, Too Big to Fail
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In a post on moral hazard in the banking system, Megan McArdle writes, Nor do I find the central story of how the FDIC induced this moral hazard very compelling. Supposedly, ordinary depositors don’t bother to check the soundness of their banks because they don’t actually have skin in the game. Anyone making this argument [...]
Tags: banking, Cowen, deposit insurance, FDIC, Kroszner, McArdle, moral hazard, mutual fund banking, Sumner
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