A moral hazard occurs when a party insulated from risk may behave differently than it would behave if it were fully exposed to the risk. Looked at from another angle, moral hazard exists when an individual or institution will not take on the responsibilities of its actions thereby leaving another less informed or innocent party to deal with the damage.
Despite the recent shot across the bow of Goldman Sachs, you have to wonder how far the Obama administration and leading Democrats are willing to take this.
According to "The Big Short" author Michael Lewis and New York Times columnist Thomas Friedman on Sunday's Face The Nation, the answer appears to be: not far enough.
Here's Friedman:
The incentives are for both parties to milk Wall Street for massive campaign contributions. Therefore, they're on this knife edge between the interests of the voters - which is to regulate, bring transparency and some kind of limits to the banking system - and their own party interests, which are to milk this industry for all they can.
Agree or not with Friedman's metaphor, Goldman Sachs and JPMorgan Chase each posted first quarter profits of $3.3 billion and Citigroup announced profits of $4.4 billion.
According to Michael Lewis, that doesn't bode well for a healthy economy. Asked if things have changed for the better, Lewis replied:
Oh, God, no, nothing has changed. In fact, almost built into the bailout was the assumption that nothing would change for a while. We've been in the system for 18 months now where essentially the government is gifting the banks out of their problem. The last thing it wanted to do is to attack these firms' revenues with financial reform, [as] financial reform, if done well, will reduce the profitability of these enterprises.
So what should leaders of change do when their party members are faced with the prospect of losing their seats in November? What choice should the Obama Administration be making when they know the Supreme Court has gifted corporations with the option to spend at will on political ads?
What if instead of taking small pot shots at behemoths of Wall Street the Obama Administration went for true reform? Would voters notice and reward it? Would we citizens and taxpayers -- who could well find ourselves once again bailing out banks -- vote in another Democratic majority if they were actually to do the right thing?
If the Democratic Party leadership bets the nation wouldn't have their back, does that somehow make the right thing in financial reform the wrong thing? Wrong, that is, in the societal risk that would ensue from Republican control of two-thirds of the federal branches.
Is it okay to wave a finger of indignation through the front window at the too-big-to-fail bankers collecting their huge bonuses -- but later swing by the back door to take that tainted money for political campaigns? Isn't there a clear right answer here?
Answering this question may prove the Obama administration's moral hazard as ultimately they will be praised or blamed. And the way things are going, if we're to believe Lewis, Friedman and our own eyes, we will pay for the wrong choices for generations to come.
Dr. Reardon also blogs at bardscove.
Those sheep would do well to stop following Obama blindly and start exerting pressure on him for being too chummy with the "savvy" Wall Street crooks. That's because only so many people are willing to drink the Kool-Aid, but the rest of us want RESULTS in exchange for our vote/support. And if Obama doesn't start producing those results for us soon, results that absolutely do not involve balancing on a knife edge, we won't feel too bad when Republicans take over everything again, because there will be no difference between Obama and Republicans.
Is there such a thing as moral hazard in a fascist government?
America once had a President who inspired us to fight Fascism.
Starting with Reagan America has had presidents who
embraced or closed their eyes to Fascism.
Under George Bush the United States became the leading
fascist state on the planet. Where are we now?
I say we are still the leading fascist state.
Just look at healthcare reform and now Wall Street reform
and there is no question that moral hazard is being suppressed.
If we do not put Americans to work at decent wages, our cities will become even a greater battleground than drug prohibition has made them today. I do not know what changes in bank regulation will put Americans to work. I do not hear anyone talking in those terms. Yet I feel certain that ought to be the guiding principle for all decisions. How is it that we have enormous profits and no work? It is only a matter of time before people with nothing to lose begin to take what they need. Just open your eyes and look around. It is time for radical economic changes.
I'm not going to step up and replace Goldman's contributions. I would suggest the federal government appoint independent prosecutors to enforce the law. They are obligated to do so. Can you imagine a local sheriff who won't arrest a guy who robbed the bank because the guy's mom is the mayor? This is the same thing: corruption.
When enough people perceive our government as completely corrupt, with rich people getting everything they want, politicians taking bribes, and everybody lying to the citizens, then nobody will obey the laws. The basis for a civil society is an agreement and understanding that we will all act according to the law. When our leaders don't, soon nobody will. Then we will simply have anarchy.
Brilliant! Can I use that?