Institutionalized Risk Reassignment
… the knowledge among lenders that their money will ultimately be returned, no matter what, clearly brings a terrible downside. It keeps the lenders from asking tough questions about how their money is being used. Looters — savings and loans and Texas developers in the 1980s; the American International Group, Citigroup, Fannie Mae and the rest in this decade — can then act as if their future losses are indeed somebody else’s problem.
Do you remember the mea culpa that Alan Greenspan, Mr. Bernanke’s predecessor, delivered on Capitol Hill last fall? He said that he was “in a state of shocked disbelief” that “the self-interest” of Wall Street bankers hadn’t prevented this mess.
He shouldn’t have been. The looting theory explains why his laissez-faire theory didn’t hold up. The bankers were acting in their self-interest, after all.
- The Looting of America’s Coffers by David Leonhardt
for the New York Times
Leonhardt goes on to describe how the lowest common denominator of action became the modus operandi for financiers like AIG – even if the practice “sounds a bit like a conspiracy (and in some cases, it surely was)”. The balance of power inevitably shifts from public to private interests wherever specialization develops and the number of compromised individuals required to subvert a system diminishes.
