AKERLOF ROMER LOOTING PDF

The story goes like this. Banks essentially bought insurance from AIG. A well-known phenomenon in insurance markets is adverse selection. When information is poor, or transaction costs are steep, those with the highest risk of […]. When information is poor, or transaction costs are steep, those with the highest risk of loss are more likely to buy and more likely to buy larger amounts of insurance.

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The story goes like this. Banks essentially bought insurance from AIG. A well-known phenomenon in insurance markets is adverse selection. When information is poor, or transaction costs are steep, those with the highest risk of […]. When information is poor, or transaction costs are steep, those with the highest risk of loss are more likely to buy and more likely to buy larger amounts of insurance.

Conversely — and intuitively — insurance can amplify risk-seeking, especially in the presence of disproportional losses.

And even more so when the losses in question are shared by society — where the result is a huge asymmetry in outcomes. A positive outcome results in private benefits, but a negative outcome results in public losses.

The presence of insurance when outcomes are asymmetrical massively dilutes incentives to act responsibly. The incentives that result are: heads, I win; tails, I still win. If I win a bet where costs might be imposed on everyone, I gain, and no one else does.

If I lose a bet where costs might be imposed on everyone, everyone pays off my losses but me. The point: there will be no incentive for banks to act responsibly now or in the future if a mega-insurer is setting the stage for adverse mega-selection.

The government will pick up the pieces after bankers loot banks. Yet, bankers are constrained in their ability to loot by the amount of deposits they can take in directly. Every bank can and will lend to and leverage every other bank, amplifying how much loot each takes in. Sound familiar? Yet, without the structural change of AIG not insuring their disproportionately risky behaviour anymore, nothing will change.

Propping up this toxic system is an act of economic violence, intellectual dishonesty, and moral bankruptcy. Capitalism 1. Looting is just a financial subset of these. After all — banks only looted their depositors. But Corporate America has been busy looting our environment, communities, health, and happiness for decades. Follow him on twitter umairh. Related Topics:. Partner Center.

JOSE SARAMAGO AS INTERMITENCIAS DA MORTE PDF

Looting 2.0 (Or, Why AIG Must Fail)

Skip to search form Skip to main content You are currently offline. Some features of the site may not work correctly. DOI: During the s, a number of unusual financial crises occurred. In Chile, for example, the financial sector collapsed, leaving the government with responsibility for extensive foreign debts. In the United States, large numbers of government-insured savings and loans became insolvent - and the government picked up the tab.

KALKULUS 1 FILETYPE PDF

The Looting of America’s Coffers

Scherer, F M, Yago, Glenn, James R. Barth, Full references including those not matched with items on IDEAS More about this item Keywords macroeconomics ; bankruptcy ; profit ; financial crises ; debt ; financial institutions ; Chile ; thrift crisis ; Statistics Access and download statistics Corrections All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bin:bpeajo:vyip

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