The View From 1776


If we’ve been there before, supposedly our perception ought to be sharpened.

Unfortunately, not so.  Read this article from December 1998, more than ten years ago.

Posted by .(JavaScript must be enabled to view this email address) on 02/19 at 11:12 PM
  1. There must be an opposite to "moral hazard", that if you don't intervene in times of crisis, in a calculated manner, things can get really bad or worse. Let's call it a moral or ethical obligation.

    I think that is what happen in the housing bubble, that the opposite of a moral hazard moment was allowed to occur, which compounded and made things worse. For instance, if authorities had acted ethically, empirically, taken a more hands-on approach and done their duty, like protecting people from predatory lending, telling banks to capitalize themselves more or helped increase savings and applied common sense to the market, the economy would not be in the dire straights it's in today.

    As it happens, the collapse of Lehman Brothers was one potential moral hazard that wasn't encouraged, because it didn't get a bailout and was allowed to collapse, due to its own recklessness. Nevertheless, it sent repercussions throughout the whole financial system. Perhaps, though, it was good that this collapse occurred because it shone a bright light on the rotting timbers and toxic derivatives that were holding up the economy. However, would we have wanted similar collapses to occur, in order to avoid potential moral hazards, that could have put the entire economy into a 'nuclear winter'.

    It is good that we don't always create or feed moral hazards because some tend to occur again. A case in point: At the beginning of the decade Argentina went into default but was denied a bailout. In that case it was the right thing to do because a bailout would have perpetuated Argentine's proclivity for being a moral hazard. If Argentina had been bailed out again it would have compounded its bad habits and would have further hidden the disfunctionality of the Argentine economy. So in that case it was a good idea not to perpetuate the moral hazard Argentine was prone to be.
    Posted by .(JavaScript must be enabled to view this email address)  on  02/20  at  02:45 PM
  2. David, you are correct that this was brought on by "immoral behavior" in many places in banking, on Wall St. and in our government. People are suffering because of that.

    Stimulus intervention isn't the correct form though. It is already too late if that is needed. Sound monetary and economic policies are what is needed. Regulation before intervention is required is best to correct a condition that is unethical and taking advantage of people is but, when you actually intervene with the government in attempt restore people to wholeness, you also risk making things worse in too many cases.

    Moral hazard


    A risk to an insurance company resulting from uncertainty about the honesty of the insured.
    I actually don't think moral hazard is the best term but, let's say it is. I would prefer "unethical behavior" is a more apt term as the people who created our monetary system 95 years ago knew from the beginning they were going to game it.

    But, we have what we have and we can't put the genie back in the bottle and we are going to pay for it.

    For example, to make homeowners whole here, we risk the collapse of the dollar and/or increasing debt to the point we still have a collapse, only later.

    It isn't that the need isn't real but that the cure may kill the patient (the U.S. economy and currency for decades). That is why the "cure" needed to be made decades ago when we could have made the people whole again without risking the collapse of the currency and economy for decades.

    We have been a moral hazard as a nation because of our monetary and economic policy, for decades and now it has caught up with us. We used debt and easy credit as tools of manipulation not for the genuine good of the American worker but for the financial system itself, and financial manipulators and power brokers that game the system. We used debt to create an illusion of prosperity even while our infrastructure was decaying as we diverted too little tax revenue to other spending needs. What is worse is that the people, for the most part, that used that debt to create the illusion aren't who has to pay the debt, the American worker is.

    Decades of doing the wrong things are now catching up to us.
    Posted by JanPBurr  on  02/20  at  08:31 PM
  3. "Decades of doing the wrong things are now catching up to us."

    Perhaps that is the American way.
    Posted by .(JavaScript must be enabled to view this email address)  on  02/20  at  11:51 PM
  4. It wasn't that way for the first 120 years, although the banks tried for that entire period to gain control. They did get control a couple of times but were then beaten back.

    Remember this has roots in Great Britian's central bank that was controlled by Rothschild. The family has about $100 trillion in wealth it has accumulated over the last couple of hundred years through central banking. When you control the money supply you basically control the economy and can make it boom or collapse. When government doesn't regulate it properly, it can do that much more easily. One reason Canada hasn't had the same degree of problem with their banks is that it has regulated what they can do better.

    While it isn't the genuine "American way," it has become an "American problem" that was adopted by other nations. I say it isn't the American way because the citizens aren't allowed to do what the banks and financial system were allowed to do. If you tried to loan out 10 times what you have, you would be arrested and yet, we allow banks to do that very thing, for "growth."

    It isn't the "American way," but the "Bank's way" and many nations were convinced by central bankers that they could regulate money to avoid the pitfalls we saw like in 1907 and yet, they have failed time and time and time again to do what they promised they could do. They failed because they follow their own agenda and not what is best for the nation as a whole.
    Posted by JanPBurr  on  02/21  at  10:38 AM
  5. The central bank, fiat currency, centralization, social engineering through a tax on 'income', (is it a direct tax or an excise tax?), the abomination known as the 'payroll tax', keynesianism as policy, the direct election of the senate as an offering to the god of abstract 'democracy', and the growth of an unaccounatble bureaucratic/administrative state are all 'progressive innovations and are, in the main, on shaky constitutional grounds at best. What's occured in this country over the last hundred years or so is clearly not 'the American way', if history has any meaning, but the 'progressive way'. Progressivism = central statism whose cousins are absolutism, fascism, marxist/leninism and socialism of the nationalist or internationalist variety. Progresives like to take credit for things they had little to do with and are blind to all the damage they've caused. Those in power know what they're doing while their camp followers are simply naive (it's called demagoguery). Like an arsonist taking credit from the mob for extinguishing the fire which burned itself out as the town is destroyed by the other conflagrations he's set.
    Posted by .(JavaScript must be enabled to view this email address)  on  02/21  at  01:21 PM
Commenting is not available in this channel entry.

Next entry: Tooth Fairy Economics

Previous entry: The Long and Short of It