10. Riding the Bubble

What we have reviewed are several ways a banking system can be abused in financial transactions with some private good but no public good. Private good is when some economic agents earn wealth; and public good is when private gain benefits the whole society as well. Abuses of the public good occur in two kinds of banking corruption, individual corruption and institutional corruption. The case of Libor was deliberate corruption of the index by a group of individual traders, lying about the index. The case of mortgage securitization in the 2007–2008 Wall Street collapse was deliberate corruption by investment banking institutions, selling off rents from capital assets and thus destroying their future liquidity (toxic assets).