NEWSMAX / BLOOMBERG: Moral hazard in the financial system “looms larger than ever before,” even after the Dodd- Frank law gave U.S. federal agencies tools to regulate institutions that may be deemed too big to fail, said billionaire investor George Soros.
“The evidence is overwhelming that the first priority of the authorities is to prevent a market collapse, and everything else has to take second place,” Soros, chairman of Soros Fund Management LLC, said yesterday at a conference in Bretton Woods, New Hampshire.
Paul Volcker, former Federal Reserve Chairman, challenged the notion that large financial institutions wouldn’t be allowed to collapse, and asked Soros whether the extra yield on Goldman Sachs Group Inc. bonds relative to Treasuries would widen if the firm gave up its bank license.
“Probably currently it wouldn’t go up very much, but it would go up,” Soros said… (more)
EDITOR: “Moral Hazard” refers to an implicit understanding by investors that the US government would intervene and prevent the largest of our financial institutions from going bankrupt. As a result, such institutions are able to raise money a costs almost comparable to that of the federal government. It also encourages risk investments. While they go well, the executives and stock holders profit mightily. When they wrong, the public pays for the losses.
“Heads I win; tails you loose”
