BERNANKE'S VIOLIN

“Strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves to achieve this aim.”

Ben Bernanke-March 9, 2009

Mr. Bernanke should know better. By rescuing AIG and CITI, Mr. Bernanke’s policies have encouraged the market to continue to lend and transact business with giant, opaque and uncontrollable financial juggernauts because Uncle Sam can be counted on to bail them out when they fail. The bigger the better. That’s the lesson of Bailout 101.

By eliminating the negative market stigma and economic punishment for of reckless management and financial failure, Mr. Bernanke and company leave us no alternative than to rely on policy wonks and brain dead regulators to pull the levers of financial restraint.

Moral hazard has been relegated to a quaint but outdated idea.