A Bailout for Madoff and Stanford Victims?

http://www.futureofcapitalism.com/2010/03/a-bailout-for-madoff-and-stanford-victims

Some arguments against a government bailout for victims of the Bernard Madoff and R. Allen Stanford schemes are made on the New York Times site by Peter Henning:

While an insurance fund sounds like a nice idea in theory, there are a number of problems with creating such a program. First and foremost, who will pay the premiums for the insurance fund? Various financial firms like banks, brokerage firms and investment funds could be tapped for the money, but as in any such program, law-abiding organizations would be forced to pay the price for the miscreants. Moreover, these firms will pass any insurance cost along to their customers in the form of higher fees, so the public ultimately will carry the burden...

An insurance fund could have the effect of encouraging risk-taking by investors because there would be some safety net if it turned out that the promised high return was in fact fraudulent. ... It would be ironic if individual investors were allowed to increase their risk by having a government-created program to bail them out of risky investments that turn out to be fraudulent.

Some of the same arguments can be made against federal deposit insurance for banks.

by Editor  |  Mar 12, 2010 at 10:59 am Related Topics:  Capital Markets Regulation, FDIC, Press receive the latest by email: subscribe to the free futureofcapitalism.com mailing list