Beware the Moral Hazard Trivializers (Jörg Guido Hülsmann)

Jörg Guido Hülsmann on the financial "experts" who just don't get the fact that central banks and their printing presses create mass incentives for irresponsible behavior and are ultimately responsible for our economic woes:

Virtually all economists agree on the proximate cause of the current financial world crisis: institutionalized moral hazard in the financial industries. Banks and other firms operating as financial intermediaries have a tendency to behave irresponsibly. They display an exuberant bias in their investment decisions, often taking risks out of proportion with possible returns on investment. Most notably they have reduced their equity ratios to extremely low levels, typically to less than ten percent. Equity being the economic buffer for losses, it follows that financial firms are more vulnerable the smaller their equity ratio. If such vulnerable firms dominate the market — as is presently the case — then there is an increased likelihood of contagion, as the liabilities of any one firm are more than often the assets of other financial firms. The bankruptcy of just one sufficiently large firm can then trigger a domino effect of subsequent bankruptcies. The entire financial market melts down.

While economists agree on this basic fact, they disagree about its causes and remedies.

Read the rest