Robert J. Aumann, the Israel economist and mathematician who won the 2005 Nobel Prize for his work on conflict and cooperation through game-theory analysis said at a rabbinical conference in Jerusalem on November 1st that he thinks the Federal Reserve and the US government made a wrong, "not smart" move in bailing out big financial institutions.
"The intervention by the regulators to save the U.S. economy will lead to further bankruptcies of banks and insurance companies," said Aumann. "They are only encouraging institutions to take more uncalculated risks."
I think he is right. Some argue that after the government steps in to help "trouble" institutions, these “zombie” or “living dead” institutions will fail sooner or later, and it’s believed that they are even more inclined to take more risks because there is nothing else to lose. Your thoughts?
2 comments:
I feel like there is some thuth to what Aumann is saying here. I feel that saying that bailing out institutions will encourage them to take more uncalculated risks may be an exterem but i agree that the whole bailing out thing will definately not deter financial institutions from making uncalculated decisions. Is this the SBC in practice?
I definitely think that this is clearly an example of soft budget constraints. I can understand why the government needed to help out the financial sector, but this is just showing them that no matter how much they mess up, the government will still help them out, which isn't helping the citizens of the United States out at all.
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