This is the Kado Daily Podcast for Thursday, February 4th, 2010.

I'm Caleb Brown.

President Obama's planned bank reform includes giving regulators the power to bail out banks on a seemingly regular basis.

What's that mean for banks and taxpayers?

According to the Cato Institute's Director of Financial Regulation Studies, Mark Calabria,

it's a fiscal hazard for taxpayers and moral hazard for banks.

This is the interesting thing about this is that the president did repeatedly say,

I mean, despite his own vote as a senator for it, he's

repeatedly said, you know why I think the tarp was the right thing to do, I hated

doing it and I hated supporting I hated voting for it. You know yet when you look at the proposal he's put forward to

reform our financial system, it's essentially a permanent tarp. Under both the

House passed bill and the plan that President Obama has put out,

yes, the regulators have the ability to impose losses, but they also have the ability to bail

everybody out. So you know what the president says is he's essentially ending bailouts by the

regulators you're going to catch it next time, but if they don't, then they'll be able to bail

out. How does that change the incentives for banks? It creates a massive amount of what economists call moral hazard

which is you know these is because the banks know that somebody will be there to

catch them when they fall you know they will take greater risk even more importantly

in this case is that their creditors will take greater risk. Even more importantly in this case is that their creditors will take

greater risks. The people who lend these banks money have less incentive now to do due

diligence on the banks themselves because the creditors will feel like, well, you know, if I lend

goldman money, Goldman might go down and their shareholders might get wiped out, but hey, I want the money

...