
Tuesday September 16, 2008
Officials are also acutely aware of the problem of "moral hazard."
Bailing out too many firms, the reasoning goes, would encourage more
risk taking in the future. That makes officials reluctant to be seen as
rescuing another institution. The Fed made a $29 billion loan to help
J.P. Morgan take over Bear Stearns. It's not clear that it would be
willing to do that for another firm.
Treasury Secretary Henry Paulson has said that institutions must be
allowed to fail and that markets can't expect the government to lend
money or support every time there's a crisis. "For market discipline to
constrain risk effectively, financial institutions must be allowed to
fail," Mr. Paulson said in a speech in July.