I preached today (for a long time, actually) on the above subject. I happen to think this is important, and I don't think we speak about the subject often enough from a Biblical perspective. If you'd like to hear what I said, click here. You'll see it at the top of Recent Posts along the right side.
Mr. Parker. Jonathan Golightly here. Had a sort of Greek related question for you; do you have an email address I can contact you at? If you want to just email me and I'll reply, mine is philistinefool@yahoo.com. Thanks!
I'm sure you think you know what a "moral hazard" is -- but maybe not. Actually, it's a technical term, a primarily economic concept that I learned in college. (My undergraduate degree is in economics.) Simply put, it refers to what happens when people don't have to bear the consequences of their actions. (Wikipedia has a good entry on it, if you are curious to know more.)
Moral hazard is the fundamental reason that communism doesn't work. Since all are supposed to receive "according to their need," it turns out that very few actually give "according to their ability." And so, communist (and to a substantially lesser degree, socialist) countries are basket cases.
Suppose management runs a company with excessive amounts of debt, maximizing short-term profits when the economy is booming. Management is compensated with huge bonuses (and stock options, which they promptly liquidate so that they don't have to hold the stock long-term) as long as things are looking good. Furthermore, they finagle these "golden parachute" contracts providing that they get millions more in the event they get fired. (They usually wrangle such things by hinting that they will quit if they don't get them, and after all, these guys are geniuses, and the company is making money hand over fist!)
Management, in this case, owns very little stock in the company. Few complain about the outlandish pay during the good times. But one day, for reasons that are usually complex, the chickens come home to roost. All of a sudden, all that borrowed money stops generating large profits. But the lenders still have to be paid, while the company has no money with which to pay. What do you do?
Well, you fire management (they've been making millions, plus they get millions more for the privilege of being fired, so don't worry about them -- they won't have to give up the house in the Hamptons or the Ferrari). Then you declare bankruptcy. The lenders don't get fully repaid. The stockholders get nada. Management gets rich. And since they are "experienced" management, a year or two later they probably get another great job with the opportunity to do the same thing again! (But even if they don't, remember that they started with plenty, anyway.) Maybe the lenders and the stockholders will learn something from this incident, or maybe they won't. But all management will learn to do -- is to get out before things fall apart! (Remember moral hazard?)
But is there anything else you could do? Maybe you could get Congress to bail you out! And if you can convince Congress that you are "too big to fail," or that the entire system may come crashing to the ground if you fail, then they just might do it.
And that's where we are. Will there be significant dislocations, and a good bit of suffering, if Wall Street is allowed to fail? Without a doubt. Should it be allowed to happen, anyway? That's a different question, one that will generate differing answers based on differing points of view.
One point that must be made, however, is that the moral hazard that contributed to getting us into this predicament will probably be compounded if bailouts occur (which they surely will). Careful thought should be given to ways to keep this from happening -- but it probably won't. About the only thing we've heard so far is a backlash (quite justified) against golden parachutes. That's a start, but more is needed, because it isn't just management that needs to learn to bear the consequences of its own actions. Lenders and stockholders don't need to expect that government (read: taxpayers) will come to the rescue if they get in trouble. But they probably will.
Count on this: the U.S. will continue to move (if not RUN) toward socialism. And as we do, incidents of moral hazard will become more and more frequent. If the government insulates me from the economic consequences of my risk-taking, why not take the risk? That's just the nature of sinful man. If I don't have to bear the consequences of a certain type of behavior, I will surely engage in more of that behavior. It's unfortunate, but it's true.
And when we don't stand up and shout, "Enough!" we become enablers, ourselves.
^^In a so-called "democracy," elected officials, at the very least, whether in our letters or in our votes. Perhaps in letters to editors. In conversations with friends (where it is most certainly a metaphorical shouting!). In other words, in all our spheres of influence.
As of today, the house did not pass this bail-out, as they seem to be listening to the many voices calling "Enough". We will see how long it continues this way. Thanks for the great in-put. Very well said.
It's a very small world. I should have wondered about the Barget connection before now. They are so sweet and inspiring. I'd love to reconnect with you sometime--we live in Bulverde now. All the kids are nearby--Zach and Molly share an apt. in San Marcos, Griffin and his wife Christie live in New Braunfels, and only Payton is away at TAMU. BTW, we met Phil at the Georgetown singing thing this summer!
I say we throw the bums out and get a new set of bums. Congress' only redeeming feature is that they often get nothing done at all. Think about it, what would happen if they actually cooperated? We would have no freedom left at all. As for the execs, you need to channel your wrath at the Board of Directors, they are the once that grant the contracts that, as you pointed out, lead to the moral hazards.
If you haven't seen the film "Bella," you should consider doing so.
It is as poignant, eloquent a pro-life statement as you are likely to see -- and it makes its point without preaching. Such is the power of real art. It "speaks" what words cannot.
Invest a couple of hours and find out. Prepare to be moved.
If anyone out there thinks the National Education Association (NEA) is just a trade association that works on behalf of teachers, think again. Phyllis Schlaffly discusses some of their positions in this column.
One could be excused, I would think, for finding it a bit out of place for a teacher's association to be advocating for nationalized health care and abortion on demand. Somewhere along the way they lost focus and wandered onto the far left-wing reservation.
If you are a teacher, you might want to look a little further for a trade association that stays a bit more "on point."
Thanks for the information in short order and short form. It is surely another source of danger to us in many ways, yet we accelerate in our trade policies and US companies expanding there.
It's China, I'm amazed they have any Internet at all! It should be intersting when it gets down to them and us and not enough oil for everybody. Then their 6 to 1 population advantage will be interesting.
