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Too big to fail leads to failure

In a recent speech in Edinburgh, Bank of England Governor Mervyn King said -

Why were banks willing to take risks that proved so damaging both to themselves and the rest of the economy? One of the key reasons. . .is that the incentives to manage risk and to increase leverage were distorted by the implicit support or guarantee provided by government to creditors of banks that were seen as too important to fail.

When they did fail, because they had no reason to be careful about the risks they took, British and US governments stood behind them. And who is going to foot the bill? Alas, the flames were also fanned by those who wanted to own homes and sell them for a profit without having the income to support their mortgage interest payments.

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