Paul Krugman

@paulkrugman ↗

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Last Checked Oct. 27, 2022

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Mon Oct 10 13:33:00 +0000 2022

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Paul Krugman @paulkrugman

Another answer is deposit insurance, which reassures people that their money is safe. However, both answers create moral hazard — a temptation for banks to take on excessive risk, and/or engage in fraud 7/ — PolitiTweet.org

Posted Oct. 10, 2022

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Paul Krugman @paulkrugman

This can force banks into fire sales, and make fundamentally solvent institutions go bankrupt — and bank runs can be contagious. What's the answer? One answer is to have a central bank — which can't run out of money bc it prints it — lend to cash-short banks in a crisis 6/ — PolitiTweet.org

Posted Oct. 10, 2022

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Paul Krugman @paulkrugman

So if you're going to have a financial safety net, you also need effective financial regulation; if you don't, you can get massive moral hazard-driven losses like the S&L crisis. You see what I mean: Diamond and Dybvig made a huge range of stuff comprehensible 8/ — PolitiTweet.org

Posted Oct. 10, 2022