Wall St to get away with it again, world waits for next meltdown, Yi spooges

[crazy canuck]

So what sort of a plan of action are you suggesting?

Regulation should concentrate on punishing misconduct, instead of going several steps further, conserving the status qup. This should be in an effort to create a level playing field, where established big fishes can go bust.

I am fully aware this is not easy, but even having it as a guiding principle would be a step forward compared to the seriously non-level field we have now.

Before one punishes for misconduct the misconduct needs to be defined and that is, of course, one of the roles of a regulatory regime.  But punishment is not the main purpose of regulation.  The main purpose is to set out rules by which people should and do conduct themselves.

[Admiral Yi]

No of course not.  My example is exaggerated and there are plenty of institutions whose managers sincerely care about their long term health.

But banking is a tough enough business even if played straight it doesn't take that many bad apples to cause a lot of trouble when the cycle turns down.  It can be dangerously easy even for the more honest types to go on the path of least resistance when that is the the path where misaligned incentives lead them.  "We're still dancing."

I still think "path of least resistance" is overstating the tendency, but do agree that there is a negative externality with financial institution failure. 

The question then is what to do about that externality.

[The Minsky Moment]

So, why do "casino" (yes I know it is highly pejorative and not very accurate as a term) banks exist then?

In part they exist because depositors are getting a good deal overall.  Thus they deposit and don't worry about whether the bank is sound or not. 
The casino mentality persists because there is no sufficiently powerful force to counteract it. 

[crazy canuck]

JR, check your PMs 

[HVC]

This thread went weird, but minsky agreed with me and that's all that matters

You didn't pay attention.  He rubbished too big to fail.

Can't you just let me have my moment

[Valmy]

Can't you just let me have my moment