The Age-Old Problem of Moral Hazard in Banking

Imagine you couldn’t take another breath because oxygen disappeared. You gasp for air until your body shuts down. Money provides oxygen to our economy. When the money flow slows, so does the economy. If money stops circulating, the economy seizes. Like your body deprived of oxygen, it shuts down. That’s why banking crises freak out people. Banks are the lungs of a thriving economy, oxygenating everything with money. Silicon Valley Bank collapsed recently, a debacle that exposed fault lines running beneath a legendary financial ecosystem. But it was just one bank. Since then, though, other banks have run into trouble. Sitting atop that uncertainty is the Federal Reserve, the powerhouse that sets interest rates – and thus governs how easy it is for money to course through the economy. To help solve that mystery, Tim spoke with Paul Davies, a financial columnist for Bloomberg Opinion and somebody steeped in the chaos that can happen when banks and money collide with human frailty – and the power of the Fed.

Corrects audio to remove reference to Peter Thiel in discussion about the run on Silicon Valley Bank. 

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