Comments: Bank Incentives

I look forward to reading it in light of the story I heard on NPR this morning of the "too big to fail" Icelandic bank which did, indeed, fail. Iceland bailed out all depositors who vote in Iceland, but none from foreign lands. Other European states are stepping up to bail out the depositors who vote in their land. Who loses? Taxpayers. Who wins? Unclear. Still waiting for Jon Corzine to remember where he put those missing $billions.

Posted by johngalt at February 1, 2013 3:36 PM

I still remember the day my mother explained depositor insurance to me as a young boy. "Even if the bank goes out of business, the government will make sure you get all of your money back." It seemed like a great reassurance to me at the time, but even then I did wonder where the government got the money to do this. More importantly though is the transference of risk that EE talks about. It's analogous to licensing a Fugu chef without first making him eat his own product. Someone may be harmed, even die, by his bad performance, but at least it won't be him. What's to worry about?

Posted by johngalt at February 3, 2013 12:42 AM
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