Must-read. Seminal paper on moral hazard: Looting

This fantastic quote from the 1996 paper Looting by George Akerlof and Paul Romer describes the economic underpinning ("moral hazard") that created our current financial crisis:

"…the normal economics of maximizing economic value is replaced by the topsy-turvy economics of maximizing current extractable value, which tends to drive the firm's economic net worth deeply negative. Once owners have decided they can extract more from a firm by maximizing their present take, any action that allows them to extract more currently will be attractive--even if it causes a large reduction in the true economic net worth of the firm.  A dollar in increased dividends today is worth a dollar to owners, but a dollar in increased future earnings is worth nothing because future payments accrue to the creditors who will be left holding the bag."

The paper was a study of several economic crises of the 1980s, but totally nails current problems.  If only policy-makers had paid attention!  (They still can!)
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