How to fix the financial system - make banks more like hedge funds

If banks were more like hedge funds - where there is genuine competition, real consequences to excessive risk-taking, but less regulation and government interference - we might not be in the mess we are in now.

At MoneyWeek we've been pointing out for years that the root cause of the credit crisis and our bubble economy in general is 'moral hazard' the notion that if you protect people or institutions from the negative consequences of their actions, then they'll take more risks.

In recent years, Federal Reserve chairman Alan Greenspan (dubbed the 'Maestro' before the credit crunch annihilated his reputation) raised the creation of moral hazard to a fine art form, by slashing interest rates every time a sniff of danger threatened US stock prices. This became known as the 'Greenspan put'.

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.