Between The Numbers

Ending the Off-Balance Sheet Charade

Tiny slice of equity and a pile of debt is a recipe for disaster. The biggest mistake by the government is not letting bank bondholders suffer the consequences for management's actions. Add in the moral hazard of guarantees and underfunded FDIC insurance, and the incentives are clear to anyone that banks will lever up and juice returns as much as they can - there is no downside to management or creditors.