So, does the failure of Lehman and the failure of Bear and the savvy sale of Merrill teach everyone a lesson and remove the hazard of allowing people to take risks that they aren't going to pay for?
I wouldn't bet on it.
Letting some firms fail near the turn of the century (2008) isn't going to change the short-term nature of the brokerage business or its culture (even American culture), is it?
No one is going to put liquidity managers and risk managers into positions with as much clout as "top producers", etc. No CEO is going to accept a smaller market-share, so that he can conservatively manage the firm's risks "in the long term".
I'm not saying that backstopping institutions is a sound policy or even a necessary adjunct to casino capitalism. I'm just saying that those "selling" "free markets" as a "get" are very, very much overstating the case. The odds-on bet is that the firms that grow in the wake of these failures will not be more risk-adverse. You don't get paid for that, on Wall Street, at least in that part of the business...
Tuesday, September 16, 2008
Moral Hazard, Fallacy Pertaining Thereto
