>There seems to be a lot of talk about relaxing various regulations bought in after the 2008 crash. Did we learn nothing?
"relaxing regulations" =/= not "highly regulated". We can quibble about what the exact amount of regulation is ideal, but I don't think the core concept of "the economy benefits from a banking system that is backstopped by the government, and the government should regulate banks to ensure the backstop isn't being abused" is controversial, contrary to what the parent poster was trying to imply with his "Unless it is a bank, in which case it gets bailed out" comment. Similar thing happens in insurance. If a ship sinks in rough waters the owner gets reimbursed by the insurance company, nobody makes snarky comments about how ship owners are being "bailed out".
>If a ship sinks in rough waters the owner gets reimbursed by the insurance company, nobody makes snarky comments about how ship owners are being "bailed out".
The ship owner paid the insurance company a premium.
It isn't clear to me that banks are doing anything comparable. They are paying some tax, but so is every business.
For a bank the calculation seems to be heads I win (trebles and massive bonuses all round) tails you (the tax payer) lose. Given this situation, from a game theory point of view, why wouldn't they take reckless risks, if the regulations allow them to?
>The ship owner paid the insurance company a premium.
>It isn't clear to me that banks are doing anything comparable. They are paying some tax, but so is every business.
From wikipedia: "The FDIC charges premiums based upon the risk that the insured bank poses."
Moreover even if the government provides this for "free", it's hardly the only example where the government provides an implicit subsidy to some group by not levying direct taxes. For instance Louisiana probably gets more FEMA aid than Idaho, but when was the last time you heard someone making snarky comments about how Hurricane Katrina victims got "bailed out" by the federal government?
>For a bank the calculation seems to be heads I win (trebles and massive bonuses all round) tails you (the tax payer) lose. Given this situation, from a game theory point of view, why wouldn't they take reckless risks, if the regulations allow them to?
That's exactly why the regulations are there for, to mitigate the moral hazard. The same exists for insurance, which often comes with various provisions the insured has to follow. For buildings it might be having working sprinklers and annual inspections of fire alarms. For restaurants it might be training/inspections that are over and above what the local jurisdiction requires. Of course, just like banks the insured are also incentivized to do as little as possible to comply with the regulations. Nobody is going be inspecting their fire equipment once a month, even though that'd probably reduce the fire risk by some non-zero amount. Any sort of insurance is going to have this issue.
