Does the IMF Create Moral Hazard?
Representative Thornberry. . . . Do you agree that other investment decisions will be made, in part based upon how the IMF treats this situation today in Asia? Mr. Geithner. They will. I think it is an important risk, the moral hazard risk you are referring to. It is something we worry quite a bit about. We design the programs to try to minimize it, but you can’t eliminate it. . . . * * * Dr. Calomiris . . . When the crisis has passed, the big winners are the wealthy, politically influential risk takers, and the biggest losers are taxpayers in countries like Mexico, Indonesia, or Korea. . . .If risk taking bankers know future gains from taking on risks will be private but losses will be borne by taxpayers again, that amounts to a government subsidy for risk which thereby encourages excessive risk taking, the so-called “moral hazard problem”. . . . . .What can explain this epidemic? Not shocks of unprecedented magnitude like oil price hikes, wars or global downturns in demand, since suc
