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Immoral Moral Hazard Police

HuffPost's Shahien Nasirirpour has his typical outstanding article today on the deal Bank of America and Feds are reportedly negotiating.  Most of the issues I already addressed in my previous post, but his article raises a new one that takes irony to a new level.

The core of the deal is that Bank of America would devote a lot of money to mortgage forgiveness and the Feds would give the bank and all its officers and employees immunity for all the unbelievably bad things they've done over the years, which is what necessitates the mortgage forgiveness in the first place.  Great deal if you can get it:  rip people off, break the civil and criminal laws, make tons and tons of money, when caught, pay back some of the money to "help" the victims your conduct created and you get to keep the rest of the money and you get total legal immunity, i.e., off scot free! Remember that all the money typically used in these cases are corporate funds - all the individuals that gorged themselves during the boom get to keep every penny they pocketed with zero accountability.

But, that's not even the irony.  In negotiating the terms of the deal, Shahien reports that they are structuring the mortgage forgiveness program to avoid "moral hazard" by the victimized homeowners.  Shahien says that's "a scenario in which people escape the consequences for their destructive activity, thus encouraging more destructive activity in the future."  Now, that's rich! The entire deal not only enshrines moral hazard by the banks, but guarantees it.  If you're a big enough bank or corporation and you have enough money, you get to buy your way out of civil and criminal liability for yourself and all your officers, directors and employees.  Thus, the banks, having escaped the consequences for their destructive activity, will be encouraged to do more of that very destructive activity in the future. 

Isn't THAT the moral hazard the Feds should be worried about rather than a few homeowners here and there?   After all, those homeowners (no matter how many) didn't cause a world wide financial meltdown and the worst economic conditions since The Great Depression -- financial institutions and their directors, officers and employees did. 

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