Toro
Diamond Member
Because savvy businessmen like to go out of business? No, I dont think so. They might do that knowing Uncle is going to bail them out. That's what "moral hazard" is all about. And "too big to fail" is the ultimate moral hazard.
That's the theory. In practice, it doesn't always work out. If I give you the choice of making $50 million this year but your trades could put the bank out of business within the next three years, especially when you think your trade is relatively low risk, what choice are you going to make? Most take the shot at the $50MM.
You base this on what?
In actual fact that isn't what happens. Managers look out for their self interest. And that means continued employment.
In the distant past bank directors were personally on the hook for losses their banks incurred. That really cut down on risky lending.
I deal with these people all the time It's a classic agency problem. They are risking the shareholders money, not their own.
In investment banking and trading, you can make enough in three to five years to retire if you're good. Top guys literally make tens or even hundreds of millions of dollars in a very short period of time. Most of these guys do NOT stay in the business once they have made their bundle because it is a brutal business.
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