Anat Admati: Heavy borrowing is addictive

  • The intense conflict of interest between bankers and the rest of society is captured well in a passage from Traders, Guns and Money, a book written by former banker Satyajit Das:

“Traders risk the bank’s capital [money from investors, including shareholders] … If they win they get a share of the winning. If they lose, the bank picks up the losses … the money at risk is not their own, it’s all other people’s money. … Traders can always play the systemic risk trump card. It is the ultimate in capitalism — the privatisation of gains, the socialisation of losses. … Traders are given every incentive to take risk and generate short-term profits.”

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Borrow

Debt addiction is especially intense in banking, and this addiction is not properly countered by market forces in part because banks tend to have passive creditors. Photo / Getty Images

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