mathbabe

I wanted to share this link with you; it is both interesting and relevant to another post I’m working on (a follow up to this one) that will describe two ideas I’m contemplating regarding how to systematically change the way big banks are motivated to behave in the presence of the “too big to fail” guarantee.

Its goal is to describe how banks will behave in a given situation with a mortgage, but the thought process generalizes quite well to how banks behave in general, and in particular how accounting considerations trump utility to the depositors and even the long-term shareholders. It also explains, to those of us who were wondering, why Obama’s mortgage modification plan was never going to work.