Soleron said:
Yeah, I keep saying this. Where is the incentive to change how you operate, if the current practices mean you get huge bonuses during the boom and then unconditionally bailed out when it crashes? |
"Too big to fail" means that, you are so needed by the economy that having you fail will take down the economy. So, end result is you need to get propped up. What had happened is that the "too big to fail" got that way because everyone merged with everyone else and got real large, and created all these dependencies. Then there was a form of groupthink that came over folks to think they could take excess risks and get away with it. Heck, if you see other guys doing gangbusters, you have to compete to. So everyone takes too many risks, because if you don't keep up with the Joneses, you are out the door. This madness happens when even rating agencies can't properly evaluate companies properly.
Thing is that the individuals on the high levels get golden parachutes they are paid in case they are let go. So, they are just thinking in terms of maximizing profits. There isn't incentives for them to factor in risks, because their jobs are risky to begin with, thus the golden parachutes. Bailouts are for the companies involved, not the management that makes the decisions.
