Holders of Tokyo Power Debt and Homeowners Near the Failed Fukushima
Power Plant Should All Be Allowed to Sink
by Robert Wenzel: The
Fed Explains Why It Is Great
Prime Minister Naoto Kan on Friday said
that it will be necessary for the Japanese government to provide
aid to Tokyo Electric and Power Company. TEPCO is the owner of the
failed nuclear power plant as Fukushima.
Such a bailout
will protect those who financed the power plant including international
bankers, and depending on the structure of any bailout, most likely
will also result in funding for homeowners near the plant and quite
possibly help TEPCO shareholders.
all be allowed to sink.
It is simply
Japan's version of too big to fail, if Japan attempts any bailout.
Those banks who financed TEPCO's Fukushima power plant misscalculated
the risks, as did TEPCO shareholders and those who chose to live
near the plant. In a free market, they would all suffer heavy losses,
but in the current world of government as security blank, where
huge losses are absorbed by the government (that is the taxpayers),
they are unlikely to suffer losses.
will continue to grow in industrialized countries throughout the
world that grand risks can be taken and, if they fail in spectacular
fashion, the government will step in to socialize the losses. It
is creating a world where major risks will not be calculated into
an equation. Projects will become more risky in the outlier world
of huge projects. It will be moral hazard to the 10th degree.
providing a security blanket, the Japanese government should allow
the losses too occur. It will teach a lesson to all grand risk takers
that they need to consider the risks of their projects carefully.
It will bring risk taking back in line with real risks, as opposed
to a world where the grand risk is ignored. On major projects of
any kind, the more risk evaluators the better. Governments by coming
to the rescue on such projects merely cut down on the number of
those evaluating and considering the great risks. It should be the
opposite way around, the greater the project, the more important
it is for those who face losses from such a project to know that
they will indeed suffer the losses. Those who choose to take part
in a grand risk should suffer the losses of any failures. It is
the only way to get people to pay attention to risk. Otherwise,
spectacular unchecked risks will continue to grow globally.
with permission from Economic
Economic Policy Journal
Best of Robert Wenzel