From Nontando Frans
I thought that this article was interesting as I’d never heard the “Bad Incentives” argument before. It was interesting reading about a Federal Reserve official taking some of the blame off of the financial institutions. But I don’t think he said anything new. From my view-point, financial institutions saw the ‘gaps’ in the system, and motivated by their desire to make more money (greed?), they decided to exploit the opportunities that they had identified. Greed still seems to be the starting point of everything. But at the end of the day, I wonder whether wanting to make a little more money is such a bad thing? What can be defined as greed?
This relates well with Riane's contribution. Let's start from the assumption that "greed" is nothing more than the "profit maximization" of our economic models. when is greed a problem? When it generates behaviours that go against social welfare. Regulation is implemented in any market system to create good incentives that channel greed towards "good" behaviour. The regulation (or lack of) of financial markets was creating bad incentives - thus channeling the search for profit in activities which were increasing the risk of crisis. The problem is not greed itself but the context of rule and institutions that characterized a specific market or economy. Thank you
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