Re: Bank of America and moral hazard

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(email exchange)

>   On Wed, Jan 14, 2009 at 9:29 PM, Morris wrote:
>   Comments
>   1. So LEH was ok to let fail?? What a ridiculous scenario–why were MER
>   shareholders more valuable than LEH? Thank you Mr Paulson
>   2. BAC- just nationalize C and. BAC and get it over with- this is getting absurd.

They don’t seem to have the following guiding view, so, they keep getting it all confused:

From a moral hazard point of view, it’s OK for the most part of institutions are too big to fail, as long as shareholders can fail, and creditors can lose.

That’s where the market discipline comes in.

The institution can be evaluated separately from a public purpose point of view without adding materially to moral hazard risk.

Also, the government can take senior positions for ‘compensation’ if it deems it valuable for public purpose, without taking common shares.