Thursday, January 13, 2011

Squirrels: What Blizzard?

Squirrels are hibernators, they sleep through the winter, say the textbooks. The squirrels don´t care. You see them now in the streets of New York, in the parks, on the fire escapes and before the windows of the tenant buildings. Even after the evil blizzard, which spillaged Manhattan for some days, the squirrels were everywhere. What blizzard?

The squirrels changed their behaviour because the people feed them in winter. They nurture the animals in the parks or put food before their windows, intending to feed the birds. Squirrels don´t care, they like bird food.Therefore they don´t need to hibernate anymore to survive in winter. More time to live.

Feeding the squirrels in winter compares somewhat to bailing out the banks. Ben Bernanke and other central bankers rescued the big financial institutions in the crises of 2008, otherwise many banks wouldn`t have survived the harsh banking winter.

Critics complain that this leads to moral hazard, a term coined by insurance economists. If someone doesn`t have  to deal with his own risks & misbehaviour, because other people (for example the insurance company) bails him out, he doesn`t care about risks. Hence he takes too many risks and misbehaves. Bailing out banks means rewarding them for taking too much risks and guids them to continue their mistakes, say the critics. Therefore the whole economy may suffer, because the banks invest too much in hazardous adventures.

Maybe. But the bailed out squirrels don´t care. They seem to enjoy their new behaviour and bring more life and nature to the streets of Manhattan. It seems also that the banks are flourishing again and with them the whole economy. Time will tell.

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