This is the reason why it's not just a few bad apples:
"Moral hazard is insidious. It lurks in people's minds and stealthily causes them to make ever riskier, and less principled, decisions. It also fosters Gresham's Dynamics. A Gresham's Dynamic describes an environment in which unethical behavior crowds out ethical behavior. For example, analysts in ratings agencies prior to the crisis had to decide whether they would inflate their ratings to please their customers. Those agencies were, and are, paid for their ratings by the financial institutions that are seeking to have their products rated as highly as possible. The result was that analysts that gave inflated AAA ratings were promoted. Analysts that refused to inflate, were fired. Gresham's Dynamics were omnipresent in the institutions that brought our economy crashing down.
Here is what we now face:
- The structural problems and Gresham's Dynamics in our political economy have been preserved and reinforced.
- The same people that drove us to the brink are still, for the most part, our decision makers.
- We have infused enormous moral hazard into all levels of our economy.
- The majority of politicians and regulators - regardless of party affiliation - are complicit.
It's the first time I've run across the term "Gresham's Dynamic"; it very clearly captures a concept I've been trying to explain to explain in my own words, albeit applied to a wider topic. Is the use of the phrase limited to discussions about economies?
Heh... I've noted an example of a lemon market recently: blenders.
Try buying a consumer-grade blender. It will break in under a year. You have to buy commercial grade (e.g. Vitamix) or don't bother. All the consumer-grade blenders on the market are junk.
"Moral hazard is insidious. It lurks in people's minds and stealthily causes them to make ever riskier, and less principled, decisions. It also fosters Gresham's Dynamics. A Gresham's Dynamic describes an environment in which unethical behavior crowds out ethical behavior. For example, analysts in ratings agencies prior to the crisis had to decide whether they would inflate their ratings to please their customers. Those agencies were, and are, paid for their ratings by the financial institutions that are seeking to have their products rated as highly as possible. The result was that analysts that gave inflated AAA ratings were promoted. Analysts that refused to inflate, were fired. Gresham's Dynamics were omnipresent in the institutions that brought our economy crashing down.
Here is what we now face:
- The structural problems and Gresham's Dynamics in our political economy have been preserved and reinforced.
- The same people that drove us to the brink are still, for the most part, our decision makers.
- We have infused enormous moral hazard into all levels of our economy.
- The majority of politicians and regulators - regardless of party affiliation - are complicit.
http://www.capitalismwithoutfailure.com/2011/02/lawyers-view...