There's an old academic joke that goes, 'Put two economists in a room and you have a conversation. Put three economists in room and you have enough for a new world order, or disorder.'
One of the topics that came up at a recent economists chat attended by yours truly concerned not the global economic order, but the state of corporate America and moral hazard.
Is 'gov' insurance encouraging corporate abuses?
Most economists agree that banks and comparable financial institutions (FI) critical to the financial system should be backstopped by the U.S. Government, at least to some degree. A backstop is particularly critical if a bank failure would create systemic risk, i.e. jeopardize the financial system. The recent bank rescue and AIG (NYSE: AIG) takeovers are two examples.
More recently, however, a push has been made by various lobbies (corporate, labor union, regional states, among others) to rescue key industrial institutions, with the ailing auto companies, General Motors (NYSE: GM), Ford (NYSE: F), and Chrysler being front and center. Moreover, the logic of an auto sector rescue is reasonable enough: the economic and social consequences of a failure by one or more auto companies would be far worse than the costs of a government rescue.
One of the topics that came up at a recent economists chat attended by yours truly concerned not the global economic order, but the state of corporate America and moral hazard.
Is 'gov' insurance encouraging corporate abuses?
Most economists agree that banks and comparable financial institutions (FI) critical to the financial system should be backstopped by the U.S. Government, at least to some degree. A backstop is particularly critical if a bank failure would create systemic risk, i.e. jeopardize the financial system. The recent bank rescue and AIG (NYSE: AIG) takeovers are two examples.
More recently, however, a push has been made by various lobbies (corporate, labor union, regional states, among others) to rescue key industrial institutions, with the ailing auto companies, General Motors (NYSE: GM), Ford (NYSE: F), and Chrysler being front and center. Moreover, the logic of an auto sector rescue is reasonable enough: the economic and social consequences of a failure by one or more auto companies would be far worse than the costs of a government rescue.
During the recent testimony by Fed Chairman Ben Bernanke, Treasury Secretary Hank Paulson and SEC Chairman Christopher Cox, it has become increasingly clear that the Federal Reserve will be forced at least in the near term to extend a financial lifeline to any and all U.S. financial entities that are too big to fail. This refers to entities whose failure cold endanger the U.S. economy and in some cases the global financial markets.
There are days when the 
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