— by Inya Ivkovic, MA
The current economic meltdown and its causes exemplify how far-reaching and deep the consequences of reckless risk-taking are. Yet, a moral gamble in today’s environment somehow ended up penalizing those who played by the rules and subsidizing those who didn’t, because the latter group was deemed too important to fail. Of course, we can be upset by these morally faulty premises all we want, as these blatantly obvious double standards will remain, because they simply must.
Why? If there were any other way to put it, I would, but there isn’t, so, here it goes: it was mostly government policies that spawned the U.S. subprime mortgage mess. How so? For example, it was government policy to promote the heck out of a slogan that every American should own a home, whether he/she could afford it or not. On top of that, U.S. lenders gave the borrowers little recourse: they could simply walk away when house prices collapsed, as many did. Homeownership, a noble idea, by all means; but you cannot promote an affirmative action type of policy and run a capitalist society at the same time. These things are often mutually exclusive and, when forced one on another, often lead to disastrous results, as already evidenced.
Unfortunately, gambling with what is morally right continued right down its disastrous chain. Mortgage brokers made more money as they sold more valuable homes and sold complicated, yet crazy-cheap mortgages to people who often couldn’t afford them, but only after convincing them that they can walk away if they default. And then this shaky concept of homeownership was packaged into something called “mortgage-backed securities” and was sold to unsuspecting investors who thought they were buying top-rated securities, because independent credit-rating agencies said so, based on their faulty analyses.
And then, as the Wall Streets of the world began unraveling under the weight of their own folly, the greatest moral gamble in economic history occurred. Governments around the world decided in unison to dump trillions of taxpayer dollars into global financial and credit systems to bail out mostly the very people who not only created this mess, but who also still managed to profit hugely from it.
That was the end of 2008 and beginning of 2009. Now, jumping right to July, we’ve learned that most of those bailed-out financial institutions have posted quarterly profits and, after repaying the Troubled Asset Relief Program (TARP) money, were free again to pay bonuses to their employees, in some cases averaging a million dollars per person, as in the case of Goldman Sachs. But what is so irksome is that, had not the government bailed out the troubled insurer AIG, for example, Goldman Sachs’ second-quarter performance would have been quite different, after having to account for billions of dollars of losses in the broker’s exposure to AIG.
And the game gets even more tangled up. Many on Wall Street have posted profits for the recent quarter. But the true irony of this moral gamble is that most of those profits came from trading the so-called credit and interest rate products. And what are those? That would be a rather misleading name for the plain vanilla Treasury Bills. But why on earth would a mover-and-shaker like Goldman Sachs trade actively in U.S. Treasuries? Well, someone has to return the favor and finance the government’s multi-trillion-dollar deficit after the latter was kind enough to absorb all those toxic assets, and opened up its purse ever-so-gallantly, all the while facing significantly lower tax revenues.
So, the most daring and the most morally suspect case of the Prisoner’s Game ever played will most likely yield no repercussions to the culprits. Profit will be privatized by the troublemakers, while risk will be socialized by those footing the bill. Bailed-out financial institutions look good again, feeding the engine of the global economy. Government looks even better; the hero that saved the day. Everybody wins except the taxpayers, of course, who, if they lost their jobs, will have no one to bail them out or cure them of their folly of having faith in the system.
I’ve always been torn about these bailouts. Sort of darned if you do, darned if you don’t. And that kept me on the fence and is still keeping me on the fence. But there is one thing I’ve learned a long time ago: first, if you don’t pay for your mistakes and, second, if you learn nothing from them, the ultimate result is moral anarchy. This proverbial slope is a slippery one, and in a society that has condoned and paid for such a huge moral gamble, it feels like we’re sliding right down it.