Citigroup Remains 'Too Big to Fail' - Ron Paul Right About Moral Hazard of BailoutsSubmitted by We the People on Thu, 01/13/2011 - 19:41
When Ron Paul warned of the moral hazard of bailouts, he was correct:
Citigroup Remains 'Too Big to Fail'
NEW YORK (TheStreet) -- Citigroup remains "too big to fail" and federal regulators still do not have a comprehensive system in place to prevent another bailout from being needed, according to a report issued today by a government watchdog.
"While the year-plus of Government dependence left Citigroup a stronger institution than it had been, it remained, and arguably still remains, an institution that is too big, too interconnected, and too essential to the global financial system to be allowed to fail," according to a report issued by the Special Inspector General for the U.S. Treasury's Troubled Asset Relief Program (TARP).
According to the report, the U.S. government's success in saving Citi has increased the "moral hazard" around the banking system that will encourage executives to take risks similar to what created the two-year old financial crisis.
"When the Government assured the world in 2008 that it would not let Citigroup fail, it did more than reassure troubled markets -- it encouraged high-risk behavior by insulating risk takers from the consequences of failure," the report says.