Why do bankers want “lenders of last resort” such as the Fed and the FDIC?
So they can lend more aggressively, get rich speculating with other people’s money and not have to bear the consequences of failure. The plan was that the Fed and the FDIC would always be there to bail out profligate banks. But the plan has a moral hazard: The safer potential lenders think they are, the more they lend, until the system is gorged with debt. We think the debt is so huge now that central banks and government institutions such as the FDIC will be unable to stop a systemic credit meltdown.