As the U.S. Federal Reserve rolls out trillions of dollars to blunt the economic fallout of the coronavirus pandemic, there's a notable difference to the last financial crisis: close to zero concern over 'moral hazard' - the sticky business of bailing out those whose dilemma is of their own making.
SAN FRANCISCO/WASHINGTON - As the U.S. Federal Reserve rolls out trillions of dollars to blunt the economic fallout of the coronavirus pandemic, there’s a notable difference to the last financial crisis: close to zero concern over “moral hazard” - the sticky business of bailing out those whose dilemma is of their own making.
Back in 2007-2009, policymakers voiced repeated concern that bailing out banks and financial markets more generally would reward them for having taken imprudent risks. The Fed also faced a political backlash from its congressional overseers for what some saw as extending its reach into the fiscal sphere and, in effect, picking and choosing winners and losers.
And while he emphasized the Fed’s role is to lend, not spend, staging an effective rescue means close coordination with Treasury and elected politicians, he said. “Financial stability is really something where we both have a stake and both have authorities ... we do work closely with them on these facilities and I’ll say that’s been a very productive relationship,” he said.
Economists at Citigroup Global Markets in a note last week said minutes of the Fed’s emergency meetings “predictably reflected a unified cohort of policymakers willing to use all available tools to support the economy, with little regard to second-order effects or moral hazard.” Even Bernanke, speaking to colleagues in September 2008 just after the Lehman collapse, said he was “decidedly confused and very muddled” by the tension between the fiscal and moral hazard costs of the rescue on the one hand and the potential for “severe consequences for the financial system and, therefore, for the economy of not taking action.”
France Dernières Nouvelles, France Actualités
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