Is it an LOLR? No, It’s a Trap. And you should be mad.

Pic from AIER

Banking regulators set a trap for bankers, depositors and taxpayers back in 2008 into which they're all falling, explains Michael Munger in this guest post. And now the trap is sprung, we're up to our pocket-books in moral hazard and "too big to fail." What those regulators failed to fully understand is the proper role for the Lender of Last Resort (LOLR) ...

Is it an LOLR? No, It’s a Trap

by Michael Munger

In the 1983 film Return of the Jedi, Admiral Ackbar turns to the officers on the bridge and says what everyone already knew: “It’s a trap!” It had seemed a little too easy to be able to destroy the main threat, permanently and with no risk. Of course that turned out badly for the Alliance; they shouldn’t have been fooled.

Dodd-Frank and other post-2008 banking regulations were supposed to have fixed the banking system, permanently and without risk. But once again that was too good to be true. Turns out that all that new regulation did was to set another trap, Not intentionally (although the benefits to large firms are at least partly intentional). The solution to effective banking regulation however is to understand the role of the “Lender of Last Resort,” and to commit to doing nothing more, no matter what. As Richard Salsman and I argued more than a decade ago, the alternative, “Too Big to Fail,” has proven disastrous.

The Way to Regulate Banks: The Lender of Last Resort

Banks, and many other financial institutions, are brokers, mediating transactions between people who have money — depositors — and people who want to secure loans to do things with the money — borrowers. Brokers generally don’t hold on to the money that is deposited with them; the value of brokerage is connecting that money with an investment. In fact, the banking business was long described as a sleepy-but-safe activity, one that followed the “3-6-3 rule”:

• 3 percent — the interest you pay on deposits
• 6 percent — the rate you charge on loans
• 3 pm — your daily tee time on the golf course, because this business runs itself

Banks package and sell a product called “liquidity.” Liquidity is a measure of how quickly and cheaply an asset can be used to buy something else. Importantly, liquidity is not money, but a measure of the demand to hold cash balances, rather than holding wealth in some other form. Still, cash is liquid. It is easy to agree on a price, and transferring ownership is cheap. Loans are (usually) illiquid. Loans (such as mortgages) are contracts that bind one party to another, requiring payments that are secured by an asset. In the case of a mortgage, for example, the loan is secured by the value of a home, meaning that it is possible to negotiate a much-lower interest rate than on an unsecured personal loan, because the risk to the lender is smaller.

It is possible to buy and sell loans, or stocks, or other equities, but it is much more expensive than paying cash. (This illiquidity was part of the reason that mortgage-backed securities seemed like such a good idea back pre-2008, because in theory at least those were liquid; in fact, it appears that mortgage-backed securities were pretty liquid, and held their value better than is sometimes described). Another form of loan is called a “bond,” which is a promise to make periodic payments for a term of time, and then repay the full amount of the loan, the principal, at the end of that term. Ten-year US Treasury bonds, for example, have a face value and an implied interest rate paid to the buyer of the bond.

As I said earlier, banks are brokers. They take in deposits, and then use those deposits to “buy” loans. The bank might be the originator of a loan, as in the case of many mortgages. Or the bank might literally buy bonds or other securities, financial instruments that generate a higher rate of return than just holding money.

The problem is obvious. There can be a mismatch in liquidity between the bank’s liabilities (depositors put in cash, and they want to be able to take cash out) and assets (loans, bonds, other securities of various kinds). It is easy to imagine situations where a bank will be technically solvent — i.e., the total value of all its assets exceeds the value of all its liabilities — but the bank can’t convert enough of those valuable assets into cash fast enough to let everyone pull out their money right now. And when everyone does want their cash, right now, that’s called a bank run.

A bank run is dramatic, and has been used in movies from It’s a Wonderful Life to Mary Poppins. (It can be fun to use these movies in class, as illustrations!) The reason folks hurry to get their money is that there isn’t enough, and if you snooze you lose. The policy problem is that there is enough value, there just isn’t enough cash, today. That’s why the Lender of Last Resort (LOLR) function is so crucial. All that is required is a short-term loan so that there is enough cash today.

The cool thing about the Lender-of-Last-Resort solution (and note that the Lender of Last Resort could be either a private central clearinghouse, or a store of cash that maintains value in liquid form for immediate disbursal) is that if people believe the Lender of Last Resort will act immediately and effectively, then the Lender of Last Resort entity never has to act at all. If I know that I can get my money out, today, or for that matter tomorrow or the next day because the bank won’t run out of money — it cannot run out of money — then I don’t try to get my money out in the first place.

Walter Bagehot (Lombard Street, 1873) made the very sensible argument that many financial crises are not problems of insolvency, but only of illiquidity. And illiquidity is only a problem if literally everyone wants to take their money out of the bank at the same time. That problem is that “everyone wants to pull their money out at the same time” is literally the definition of a bank run, where depositors rush to get their cash while there is still some cash left.

Bagehot (pronounced “BADGE-uht”) claimed that the Lender of Last Resort must be fully committed to do three things, and never to do more than these three things:

1. Lend as much money as necessary directly to troubled (temporarily illiquid) banks; 
2. At a penalty rate (far above the market interest rate) 
3. But only against good collateral, as offered by a technically solvent bank.

Since there is immediate, unlimited cash available, there will be no bank runs. 

Since the interest rate is high, loans that are made will be very short-term. 

And since the bank has sufficient assets to cover its liabilities, there is no problem securing longer-term loans if that is necessary. Loaning to provide liquidity is cheap and effective, but it is not a bailout, because the bank has equity, it just lacks liquidity.

The Way NOT to Regulate Banks: Become the Insurer of Last Resort

The drawback with relying solely on Bagehot’s Lender-of-Last-Resort solution is that it does nothing to address “financial contagion,” when problem banks suffer not just from a liquidity shortage but from full-on insolvency. I learned about “contagion” as part of my professor Hyman P. Minsky’s theory of “fragility” in a financial system, so I tend toward his definition of contagion as a cascade of failures, animated by one or more financial institutions failing to make good on its commitments. When these assets become worthless, other banks immediately become technically insolvent also, though they were solvent an hour ago. The failures propagate like falling dominoes, quickly causing massive financial failures.

The reader will likely notice that the US has abandoned the Bagehot rules in favour of trying to limit contagion. Our present-day Lender of Last Resort, a composite of the Federal Reserve and the Treasury Department, routinely and wilfully misuses the discretion afforded central bankers. In their defence, though, the Bagehot criteria are not politically viable, because failing banks that lack good collateral are just as contagious, and maybe more contagious, than banks that have good collateral.

If the job of the Lender of Last Resort is to prevent contagion — and that is how the regulatory authorities describe their job — then it is logically impossible to hold to Bagehot’s third rule, lending only to banks that are solvent but need liquidity. But that changes everything. Without the constraint of requiring good collateral, the Lender of Last Resort becomes instead an insurer of last resort — a backstop for depositors who have no reason to consider risk when deciding where to place their funds. This problem has been massively exacerbated by the “deposit insurance” guarantees, which have now been extended far beyond the statutory $250,000 limit for despite protection, to have become essentially unlimited.

And that’s what happened for the depositors of Silicon Valley Bank, and Signature Bank (and, by the time this appears, possibly more banks). All of the deposits were guaranteed by taxpayers, even though the banks were insolvent, not illiquid. The usual story has been that the deposits were guaranteed by “the government,” but that’s nonsense. Money is being taken from taxpayers and used to support depositors who made a bad bet about where to put their money.

Since our regulatory practice has gone beyond making loans to illiquid-but-solvent banks, to paying back all the deposits of insolvent banks, the result is that there is no reason for depositors to care about whether their bank is taking excessive risks. This is called “moral hazard,” because it encourages the very risk-taking that regulators are later asking taxpayers to pay for.

The problem of moral hazard sounds arcane, but it’s a trap. In the case of Silicon Valley Bank, the risks in the bank weren’t even intentional, but revealed an astonishing lack of knowledge of basic financial principles regarding the capital value of bonds in times of inflation. To be fair, the stockholders of the bank itself have been punished by market forces (maybe, unless the Treasury loses its nerve, and succumbs to political pressure from union and state pension funds. Stay tuned!), because their equity is worthless. But the depositors should have been more careful. And they would have been more careful, except that deposits are insured by taxpayers who have no say in rewarding foolish risks. Worse, the fact that deposits of greater than the $250,000 statutory limit are now being covered by taxpayers means that the signal to all other depositors is that they need not look at their own banks, because taxpayers will cover those deposits, too.

The reason this is infuriating is that we are being told that taxpayers should be willing to double down, to reimburse even-more-careless depositors for their negligent inattention to risk. And I suppose you can see why, given that this dangerous assumption is now baked into expectations about how regulators will behave.

As Obi-Wan said to Luke, also in Return of the Jedi: “What I told you was true, from a certain point of view.” But Luke was mad that he had been lied to, and you should be mad, too.

 

Michael Munger is a Professor of Political Science, Economics, and Public Policy at Duke University and Senior Fellow of the American Institute for Economic Research.
His degrees are from Davidson College, Washingon University in St. Louis, and Washington University.
His research interests include regulation, political institutions, and political economy. he is the author of the 2021 book Is Capitalism Sustainable?
His post first appeared at the blog for the American Institute for Economic Research.

“Deposit insurance is a cancer at the heart of the capitalist system..." [updated]

“Deposit insurance is a cancer at the heart of the capitalist system, destroying its ethical foundations. Rich depositors should not be able to secure returns, in the good times, for investing in fundamentally riskbearing activities (which fractional reserve deposits are, by their nature) but then be bailed out by the government when times are tougher. And banks are the largest allocators of capital in the economy – so this fundamental injustice gets spread across the entire economic system.”
– Andrew Lilico, from his post 'The post-2008 banking reforms are now being tested – and they are failing'

Hat tip Johnathan Pearce and readers at Samizdata, who point out both the moral hard here -- and that a further large problem here is that  investors and depositors being bailed out, such as those who were via Silicon Valley Bank, or Credit Suisse, etc, is that they tend to be politically connected. Essentially creating three tiers of banks: 

• those "too big to fail"; 
• those too politically connected to fail; and 
• those about whom no-one in power cares if they fail.

UPDATE 1:

"[US Treasury Secretary Janet] Yellen, in the meantime, continues today to reassure everyone that the US banking system is sound — because she has to. Her reassurance claims the present situation is nothing like the banking bust in ’08 on the basis that 2008 was all about solvency in banks due to their taking on low-quality mortgage-backed securities, whereas the present crisis is merely due to “contagious bank runs” ... the [same] kind of thing that plunged the world into the Great Depression...
    "We ALL already know that the runs at these banks were created by a completely systemic bond-value-reduction that was caused by the Fed for all banks. We all know this bond devaluation by Fed policy effectively rendered those 'safe-haven' instruments  [i..e. long-term Treasury bonds] just as un-tradable for banks as junk mortgage-backed securities were in ’08. While they are a different kind of supposedly safer instrument, they have been substantially devalued all the same. Because that imperils the reserves of all banks, the Fed had to create a new loan programme available to all banks. Now, we appear to have, additionally, another systemic bank-run issue percolating beneath the surface being caused by the rescue programme because it gave sweeping depositor insurance to ONLY the top-tier banks."

~ David Maggith, from his post 'Janet Yellen: Creature of Chaos'

UPDATE 2:

Describing Yellen's haphazard defence of the bailout political preference programme to Congress, blogger El Gato Malo describes it as "Too Big to Flail," aka "Yellen Into the Void."

 

"Moral hazard played no role with Silicon Valley Bank"? Nonsense.

"I am continually amazed at the amount of nonsense that I’ve been reading on the subject of moral hazard. Here are a few examples:

1. Moral hazard played no role with Silicon Valley Bank because the shareholders and bondholders were wiped out. (nonsense)
2. Moral hazard isn’t an issue because average people don’t think about the safety of a bank when making deposits. (nonsense)
3. Moral hazard isn’t an issue because average people are unable to evaluate the risk of various banks. (wrong)
4. A run on bank deposits could cause a recession. (wrong)

"If you see anyone making the first two arguments above, just stop reading. They literally do not know what moral hazard is....
    "Some other misconceptions:

“Federal Deposit Insurance Corporation (FDIC) fees are not a tax on the public.” Yes, they are.
“We aren’t bailing out bank executives.” No, [they] are not bailing out Silicon Valley Bank executives, but [they] are (implicitly) bailing out their competitors."

~ Scott Sumner, from his post 'The Wrong Way to Think About Moral Hazard'

How the Central Bank's Easy Money Killed Silicon Valley Bank [updated]

 

The second-largest collapse of a bank in recent history would not have existed if not for ultra-loose monetary policy, as Daniel Lacalle explains in this Guest Post. SVB made one big mistake: follow exactly the incentives created by the central bank's loose monetary policy and banking regulations: its lending and asset base read like the clearest example of the old mantra “Don’t fight the Fed.”
[Since this piece was written, of course, we've had the disgraceful announcement by the dumbarse in the White House and from the former Fed chair who helped blow up the tech bubble, of what is effectively a bailout-to-infinity for depositors. UPDATE: David Stockman, Reagan's former Budget Director, calls it A Bailout Most Crooked. "They have done it again [he comments], and in a way that makes a flaming mockery of both honest market economics and the so-called rule of law. In effect, the triumvirate of fools at the Fed, Treasury and FDIC have essentially guaranteed $9 trillion of uninsured bank deposits with no legislative mandate and no capital."]

How the Central Bank's Easy Money Killed Silicon Valley Bank

by Daniel Lacalle

THE SECOND-LARGEST COLLAPSE of a bank in recent history (after Lehman Brothers in 2008)  could have been prevented. Now the impact is too large, and the contagion risk is difficult to measure.

The demise of the Silicon Valley Bank (SVB) is a classic bank run driven by a liquidity event, but the important lesson for everyone is that the enormity of the unrealised losses and the financial hole in the bank’s accounts would not have existed if not for ultra-loose monetary policy. Let me explain why.

According to their public accounts, as of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. Their top shareholders are Vanguard Group (11.3 percent), BlackRock (8.1 percent), StateStreet (5.2 percent) and the Swedish pension fund Alecta (4.5 percent).

The incredible growth and success of SVB could not have happened without negative rates, ultra-loose monetary policy, and the tech bubble that burst in 2022. Furthermore, the bank’s liquidity event could not have happened without the regulatory and monetary policy incentives to accumulate sovereign debt and mortgage-backed securities (MBS).

Silicon Valley Bank’s asset base read like the clearest example of the old mantra “Don’t fight the Fed.” Silicon Valley Bank made one big mistake: follow exactly the incentives created by loose monetary policy and regulation.

WHAT HAPPENED IN 2021? Massive success that, unfortunately, was also the first step to demise. The bank’s deposits nearly doubled with the tech boom. Everyone wanted a piece of the unstoppable new tech paradigm. Silicon Valley Bank’s assets also rose and almost doubled.

The bank’s assets rose in value. More than 40 percent were long-dated Treasuries and Mortage-Backed Securities. The rest were seemingly world-conquering new tech and venture capital investments.

Most of those “low risk” bonds and securities were held to maturity. Silicon Valley Bank was following the mainstream rulebook: low-risk assets to balance the risk in venture capital investments. When the Federal Reserve raised interest rates, Silicon Valley Bank must have been shocked.

Its entire asset base was a single bet: low rates and quantitative easing for longer. Tech valuations soared in the period of loose monetary policy, and the best way to “hedge” that risk was with Treasuries and Mortage-Backed Securities. Why bet on anything else? This is what the Fed was buying in billions every month. These were the lowest-risk assets according to all regulations, and, according to the Fed and all mainstream economists, inflation was purely “transitory,” a base-effect anecdote. What could go wrong?

Inflation was not transitory, and easy money was not endless.

Rate hikes happened. And they caught the bank suffering massive losses everywhere. Goodbye, bonds' and Mortage-Backed Securities' prices. Goodbye, “new paradigm” tech valuations. And hello, panic. A good old bank run, despite the strong recovery of Silicon Valley Bank shares in January. Mark-to-market unrealised losses of $15 billion were almost 100 percent of the bank’s market capitalisation. Wipeout.

As the bank manager said in the famous South Park episode: “Aaaaand it’s gone.” Silicon Valley Bank showed how quickly the capital of a bank can dissolve in front of our eyes.

The Federal Deposit Insurance Corporation (FDIC) will step in [and has - Ed.], but that is not enough because only 3 percent of Silicon Valley Bank deposits were under $250,000. ['So what,' said Janet Yellen, the former Fed Chair ho helped blow up this bubble- Ed.]  According to Time magazine, more than 85 percent of Silicon Valley Bank’s deposits were not insured. [But this has not bothered Yellen, who has now ignored her rules, rewarded this failure, and further ignited the financial industry's glaring moral hazard - Ed.]

It gets worse. One-third of US deposits are in small banks, and around half are uninsured, according to Bloomberg. Depositors at Silicon Valley Bank will likely lose most of their money [or should have - Ed.], and this will also create significant uncertainty in other entities [or should have - Ed.].

SILICON VALLEY BANK WAS the poster boy of banking management by the book. They followed a conservative policy of acquiring the safest assets—long-dated Treasury bills—as deposits soared.

Silicon Valley Bank did exactly what those that blamed the 2008 crisis on “deregulation” recommended. Silicon Valley Bank was a boring, conservative bank that invested its rising deposits in sovereign bonds and mortgage-backed securities, believing that inflation was transitory, as everyone except us, the crazy minority, repeated.

Silicon Valley Bank did nothing but follow regulation, monetary policy incentives, and Keynesian economists’ recommendations point by point. It was the epitome of mainstream economic thinking. And mainstream killed the tech star.

Many will now blame greed, capitalism, and lack of regulation, but guess what? More regulation would have done nothing because regulation and policy incentivise buying these “low risk” assets. Furthermore, regulation and monetary policy are directly responsible for the tech bubble. The increasingly elevated valuations of unprofitable tech and the allegedly unstoppable flow of capital to fund innovation and green investments would never have happened without negative real rates and massive liquidity injections. In the case of Silicon Valley Bank, its phenomenal growth in 2021 was a direct consequence of the insane monetary policy implemented in 2020, when the major central banks increased their balance sheet to $20 trillion as if nothing would happen.

Silicon Valley Bank is a casualty of the narrative that money printing does not cause inflation and can continue forever. They embraced it wholeheartedly, and now they are gone. [Or should be.]

Silicon Valley Bank invested in the entire bubble of everything: Sovereign bonds, Mortage-Backed Securities, and tech. Did they do it because they were stupid or reckless? No. They did it because they perceived that there was very little to no risk in those assets. No bank accumulates risk in an asset it believes is high risk. The only way in which banks accumulate risk is if they perceive that there is none. Why do they perceive no risk? Because the government, regulators, central banks, and the experts tell them there is none. Who will be next?

Many will blame everything except the perverse incentives and bubbles created by monetary policy and regulation, and they will demand rate cuts and quantitative easing to solve the problem. It will only worsen. You do not solve the consequences of a bubble with more bubbles.

The demise of Silicon Valley Bank highlights the enormity of the problem of risk accumulation by political design. Silicon Valley Bank did not collapse due to reckless management, but because they did exactly what Keynesians and monetary interventionists wanted them to do. Congratulations.

Author:
Daniel Lacalle, PhD, economist and fund manager, is the author of the bestselling books Freedom or Equality (2020), Escape from the Central Bank Trap (2017), The Energy World Is Flat (2015), and Life in the Financial Markets (2014).
He is a professor of global economy at IE Business School in Madrid.

His post first appeared at the Mises Economics Blog.

"Remember 'no more bailouts?' Especially money market funds? And here were are, one week into it and airlines are too big to fail and money market funds need the Fed to stop from breaking the bank." #QotD

"Second, isn't there a bit of moral hazard here? Now, you may say, nobody asks about moral hazard in a foxhole. But at some point we have to address the moral hazard. Half of these interventions were things done in 2008, and we said no, never again, we'll pass a mountain of regulations to control moral hazard. Remember 'no more bailouts?' Especially money market funds? And here were are, one week into it and airlines are too big to fail and money market funds need the Fed to stop from breaking the bank."
      ~ John Cochrane, from his post 'Financial Pandemic'
.

Moral hazard at Australia’s Top End

We welcome our irregular roving Asian correspondent, Suzuki Samurai, who files this report from in hiding somewhere near Darwin, Australia…

Drive 1200km from Darwin along the northern right-hand coastal tip of the Northern Territory of Australia,¹ and you will end up in the purpose-built mining town of Gove.

The general area (and sometimes the town) is also known as Nhulunbuy. It is still called that by the Aboriginals and the more historically minded—and Null-And-Void by cunning linguists. It is a surprisingly nice place to look at, blessed with a blue sea the colour of the Skype icon, and sandy beaches as clean and fine as Cate Blanchett's face.

Of course there is a down side. This is Australia, so everything wants to kill you: everything from buffalo, crocodiles, spiders, snakes, sharks, & jellyfish to things you’re bloody sure have still not even been named. So think Whangamata, stuck inside a zoo, and very much closer to the sun.

The bauxite mine & refinery  are operated by Rio Tinto (a sister facility to Tiwai Point you could say), and have been in operation for near-to forty years. Rio leases the area from the local aboriginal clans in exchange for a quarterly royalty which appearances suggest they spend on beer and pizza.

Anyway, Gove has been in the news in the last week both here and in NZ due to the announcement that the refinery will start to shut down and 1500 jobs are to be lost. Added to ancillary losses this will likely reduce the town's population from 4000 down to 1500 or so, the folk remaining likely being a mixture of the retired and retarded; bureau(rats), cops and doctors, and a few (a very few) retailers.

The reason for winding things down is the same as it was in Invercargill: Rio has been losing money here for years – and lots of it.

The good folk here however are pissed off to say the least about the golden goose leaving town, bleating about “destroying our community,” “taking away our children's future...” “This is our town” blah blah blah. No doubt the Aboriginals felt the same way when these white fellas arrived forty years ago.

As you'd expect this is a heavily unionised town, so they are whining about things like a reincarnation of Arthur Scargill². What’s unusual however is the aren't screeching at Rio Tinto. Instead, they’re laying all the blaming on the Northern Territory government, Chief Minister Adam Giles to be precise.

Why? Because Rio said they'd stay if they could get a cheaper form of fuel, but said they were in no position to pay themselves for the 600km pipeline necessary to deliver this cheaper fuel. (Stop me if you’ve head something like this before.) So they kindly suggested, in cahoots with some tame politicians, that if the government were to pay for the pipeline “then we might be able to stay.” (This should be sounding awfully familiar to Bill English about now.)

So, after more than a year of negotiating, a deal was finally reached. And then is wasn't. And then it was. And then wasn't again. Anyway, Rio has finally decided that they can no longer burn any more capital on this dead loss and they’re taking up their bed and walking away.

Why am I telling you all this?

Well, being a resident here (and in hiding after writing this post) I've watched first hand how moral hazards become expectations, how expectations become entitlements, and how when things go wrong for some folk everyone expects the government will fix whatever it is that's wrong—and go batshit crazy when they don’t³.

Moral Hazard, by by the way can be defined as 

a situation in which a party will have a tendency to take risks because the costs that could result will not be felt by the party taking the risk.

In business terms you might say it’s the direct consequence of inviting businesses to privatise profits and socialise losses. In this sense, Australia is now built on moral hazard.

Holden can't make money from shit cars? Government will give them enough money so they can continue making shit cars to keep incompetents in work.

Banks are illiquid because they did stupid things? Government will bankroll their losses, fill them with cash, and demand they do the stupid things again.

Your arse is broken? Government will pay you to rest it.

You can't stop breeding? It's ok, the government will pay for you to have more.

Rio can't operate their mine? Hell, get the government to fund a nine hundred million dollar pipeline  so they can keep operating (that’s a nine with eight taxpayer-funded zeroes behind it), just so that people who are comfortable in their lifestyle can remain so.

What started with the expectation of profits being privatised and losses being socialised ends with the creation of the sort of leisure class even John Kenneth Galbraith would be surprised to meet.

And it is this moral hazard of government trying to make everything risk-free that makes people believe they can stop thinking, stop planning their lives, and stop taking responsibility for their own decisions.

It becomes for them an automatic assumption that regardless of what happens, regardless of the morality involved, regardless of the size of the already gargantuan government debt⁴, government will always make everything better.

Well, on this occasion they can't. And the proletariat everywhere, both white- & blue-collared, had better start getting used to it—because governments everywhere are running out of Other People’s Money.

Having been summarily ejected from China for offending his hosts, Suzuki Samurai is now in hiding at an undisclosed but reportedly very hot and sweaty location in the Northern Territory. Keep up with his (ir)regular reports here at NOT PC.

NOTES:

1. The Northern Territory? Well, ask an Australian to list all eight states, and it will be the one they forget about.   The one where dentists go bankrupt, residents think health cover mean buying crocodile insurance—and pedants point out that technically it’s not a state at all. But who cares about pedants.
2. No, Arthur hasn’t actually died yet. But he is completely braindead.
3. Mind you, those Australians who could find Northern Territory on a map often define the place as “the place where batshit crazy people go to die.” So some/many/all (pick one) residents may have already been batshit crazy before moral hazard arrived.
4. At a public meeting here in Gove an unusually sane NT government minister told the crowd that the government is already “well into the billions” in debt. At which point a screeching harpy responded that “government debt doesn't matter.” For which she received a round of applause.