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Calvin & Hoppes's avatar

Can we also include the crony regulators in your proposed crusade against moral hazard? While I generally despise the regulatory orgs, if we are going to have them then they should also face ruin for their contributory negligence. The coziness and revolving door (ie regulatory capture) is a top contributing factor of systemic risk, despite their claims of regulating/mitigating it.

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Arthur Clarke's avatar

Ravi, you and Warren have it right. Asking depositors to carry the burden of moral hazard is impractical. Put the burden on those in charge. Charlie Munger likes to cite the practice of Roman engineers who were required to stand under the aqueduct as the scaffolding was removed. Or the Naval boat commander who is cashiered, if the boat is involved in an accident. Solomon and Goldman were managed quite differently when they were partnerships.

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