The Moral Hazard of Bailouts

Question: Would a triage solution, where healthy banks were left alone and unhealthy ones put through FDIC resolutions, have better managed the bailout? (Arnold Kling, EconLog)

John Allison: I definitely think it would’ve been feasible and I definitely think it’d have been better off in the long term. It’s difficult to argue about whether we’d have been better off in the short term, I think that’s a complicated question. But in the long term, it’d be much better off. In my career, Citigroup has failed three times, been bailed out by the government three times, and every time, they’ve gotten bigger and worse. There is a tremendous moral hazard to the government constantly keeping poor run institutions in business and it prevents a natural market correction process. So we shouldn’t have been in the situation if we hadn’t had the Fed over spending the money supply and what happened with affordable housing through government policy, we wouldn’t have been in the shape we were in. But given the situation, a triage solution would have really been a better solution.

How can we prevent companies like Citigroup from being continually buoyed by government funds while growing worse with each bailout? John Allison explains the long-term benefits of the triage solution to industry failures.

What is classical liberalism? | Classical Liberalism

As a moral and political philosophy, classical liberalism lays a framework for the good society.

Videos
  • The moral and political philosophy known as classical liberalism is built around a number of core concepts, including, perhaps most importantly, human dignity and individual liberty.
  • Emily Chamlee-Wright, president of the Institute for Humane Studies, introduces these two principles as forces that shape the liberal notion of justice. This applies to both individuals' treatment of others, as well as the government's treatment of individuals.
  • This just conduct contributes to the liberal ideal: the good society. By emphasizing the individual, liberalism encourages collaboration and cooperation while also offering the freedom to make choices and learn from failure.
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