Ah, to be among the behemoths deemed too big to failI DON'T know too many economists who get confused with preachers. But there are times when they talk about virtue and temptation as if they were free-market holy rollers.
Consider the phrase that has been popping up all over the Bear Stearns debacle: "moral hazard." No, Moral Hazard is not the name of a country and western singer.
It's the phrase economists use to explain why people shouldn't be protected from the consequences of their actions. In The Wall Street Journal's definition, moral hazards are "the distortions introduced by the prospect of not having to pay for your sins."
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The same language of morality has been used by economic fundamentalists who don't want to help homeowners who got subprime mortgage loans and found find themselves in deep foreclosure weeds. Mike Huckabee once said that it "is not the purpose of government to prop people up from every poor decision they make. ... It creates an enabling co-dependency." And as recently as last weekend, Treasury Secretary Henry Paulson insisted that government actions to prevent foreclosures would "do more harm than they would do good."
I grant you that moral hazard is not a myth. But most of the sermons railing against the harm of helping others are directed at the poorer pews.
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Is there a Sunday school lesson here? Economic fundamentalists preach that the market — that wonderfully anthropomorphized creature — needs absolute freedom to operate. As Jacob Hacker, author of The Great Risk Shift, says, "We've had this massive shift of economic risk from government to people. We got blinded by the idea that economic innovation benefits all of us. It's not true." The unregulated creativity to buy and bundle mortgages made many of these firms a real bundle. But when the scheme tanked, they too ran for help. If we're going to rescue, we have to regulate.
And before we wrap up the sermon, a last word. If a financial firm is "too big to fail" — a status I've always aspired to — why aren't homeowners? They too are on the brink of destroying not only themselves but their communities. At the very least, Frank and Sen. Chris Dodd have introduced homeowner bills that would contain and share the damage.
Houston Chronicle