Moral hazard? It's the American way


One of the options for the United States as it addresses the toxic asset issue concerns potentially creating new banks.

New banks would be a major step toward healing injured credit markets that have constricted commerce, both in the U.S. and internationally, for more than six months.

Further, the new banks option may draw support from economic conservatives and market absolutists on ideological grounds, as it's closer than other options forwarded to-date to the pure capitalism model these groups favor. The old banks messed up? Then they deserve to fail, and should fail. Operate a business soundly and you reap the profits; operate a business recklessly and you're bankrupt. If the federal government intervenes to save failing banks or companies, it's then condoning bad business practices and encouraging reckless behavior -- moral hazard -- and that's something the nation cannot do, the economic conservatives say, if it wants a sound economy. The economic world is economic Dawinism -- survival of the fittest -- so let the banks that got in trouble fail, to ensure that only the fit survive.