Sixteen years ago, two economists published a research paper with a delightfully simple title: “Looting.”
“Looting” provides a really useful framework. The paper’s message is that the promise of government bailouts isn’t merely one aspect of the problem. It is the core problem.
With moral hazard, bankers are making real wagers. If those wagers pay off, the government has no role in the transaction. With looting, the government’s involvement is crucial to the whole enterprise.
If we don’t get rid of the incentive to loot, the only question is what form the next round of looting will take.
The human mind has a tremendous ability to rationalize, and the possibility of making millions of dollars invites some hard-core rationalization.
