Our times are stuffed with daily ironies all pointing to the same grim reality: the failure of experts, particularly those in charge of the many systems that manage our lives.
And so we wake to another and very important instance of the same.
The Royal Swedish Academy of Sciences has awarded the 2022 Nobel Prize in Economics to former Fed chairman Ben S. Bernanke, along with theorists Douglas W. Diamond and Philip H. Dybvig “for research on banks and financial crises,” particularly citing the 2008 central bank response to the housing and financial crisis. The response consisted of saving the banks with “quantitative easing,” which is as much a euphemism as ”social distancing.” …
People say that if Bernanke had not acted in 2008, the financial system would have collapsed. That’s what they always say. What it really did was forestall an important teachable moment for market actors. It bailed out a whole range of institutions that had lost concern over risk and rationality. The result was a massive moral hazard that applies to banks, politicians, and policymakers generally.
A moral hazard occurs whenever a policy response reinforces and perpetuates exactly what it is designed to prevent. It is a reward for bad behavior. That’s exactly what happened, and the lesson echoed into the future and was picked up again in 2020.
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