DOES REGULATON BREED FINANCIAL ILLITERACY? “The lulling effect of regulation can take a number of forms. One involves removing the downside from certain financial decisions. Mandatory insurance of bank accounts guarantees a depositor’s balance up to a certain amount — $250,000 in the U.S., £85,000 in the UK — taking away any incentive to evaluate the creditworthiness of individual banks. Government guarantees of student loans and mortgages shift credit risk from debtors to taxpayers, rewarding carelessness on the part of both borrowers and lenders.”

The Peltzman Effect is everywhere.