Tuesday, February 10, 2009

Tuesday night

Almost time to take the melatonin, so I'll make this brief.

I think I over-did it at the gym last night and called in sick today at work. Still sore. I was doing exercises I hadn't done in a few weeks since I took my vacation from the gym when I had the cold. Plus I'm getting old (who isn't?). Just kidding.

Here's what The New Yorker has to say about "moral hazard," by the way.

Finally, the biggest reason that moral hazard matters less than it might is that it can operate only if people actively countenance the possibility that their decisions could lead to complete disaster. But it’s well documented that people generally, and investors particularly, are overconfident and significantly underestimate the chances of being wiped out. The moral-hazard fundamentalists argue that banks and other financial institutions will act recklessly if they think they’ll be rescued in the event of failure. But Wall Street was reckless because it never believed that failure was even a possibility.

The patchiness of the moral-hazard argument doesn’t mean that we should simply rubber-stamp another bank bailout; that may be both unjust and a poor strategy for whipping the financial sector into shape. But it does mean that the failure of Lehman Brothers was an unnecessary and costly sacrifice to moral-hazard fundamentalism. It also means that we should not sit quietly by because we fear that government action today will lead to reckless market behavior years from now. Moral hazard has its costs. But, so far, our fear of it has proved much more expensive.

This take on moral hazard doesn't surprise me. Lehman Brothers was a big institution in New York City. (Notice the use of the pejorative word "fundamentalism," which is used throughout the article.)

I don't even know whether I believe in moral hazard myself. I have fire insurance, for example, but I certainly don't want my house to burn down and see my cats killed and all my possessions destroyed. Also, I have health insurance but don't spend a lot of time at the doctor's office. I try to avoid going there (but sometimes I have to). Maybe I'm being charitable, but I just don't think people act irrationally just because they have some kind of insurance. (Or maybe I'm just insusceptible to moral hazard myself.)

Still, I have no sympathy for bankers who, for whatever reason, destroy their own banks and threaten our entire economy and make everybody else suffer for it, while they get bonuses and golden parachutes that make life easy for their offspring for generations to come.

But I think that's part of the culture of New York City, with its rich history of robber barons, like the Rockefellers. It was a sick system then, and George Bush revived it. And now we have another depression. Thank goodness Obama's trying to do something about it.

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