Why Too Big to Fail is Too Outrageous to Accept

Imad A. Moosa
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Imad A. Moosa: RMIT

Chapter 7 in The Myth of Too Big to Fail, 2010, pp 124-138 from Palgrave Macmillan

Abstract: Abstract It is interesting that those who support and oppose regulation argue against TBTF—that is, against the taxpayers’ money-supported bailout of faltering financial institutions. Those advocating regulation say that financial institutions should be regulated in such a way as to avoid having to pay to save a TBTF institution. Those who oppose regulation, including believers in laissez faire finance, argue that the TBTF problem is caused by regulation and that if the government steps aside there is always a private-sector solution to the failure of financial institutions, that at the right price those institutions will find a buyer and the problem will be solved. Free marketeers argue that intervention to bail out financial institutions creates moral hazard of monstrous dimensions. Both parties, I think, are right.

Keywords: Moral Hazard; Federal Reserve; Hedge Fund; Large Bank; Investment Bank (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-0-230-29505-6_7

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DOI: 10.1057/9780230295056_7

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