... and now this.

Add the moral hazard created by Dem hacks who insist that Trump needs to kill Russians to show that he's not in cahoots with Putin. The result: watch WW3 on Pay TV.

@enoch I'm not hostile towards those who disagree with me, but towards those who intentionally misrepresent me. I'm guessing you once met some fundamentalist hard-headed fox news republican whatever, and you think I'm that guy. I'm not. So, please stop misrepresenting me, it's really annoying.

You suggest letting government/society burn? Sure, maybe that's what we're headed to anyways. I don't treat politics as discussing "what should we do", that's irrelevant if you and I can't agree on what's actually wrong. To me, it's more about understanding the problem.

@dag The problem I see in how you're using examples outside of America is that what you suggest as a solution in another country can just as much be an example of another country's success despite what you're pointing out as the solution.

"we tax the rich a lot in Australia and everything is better over here". Ok. What if Australia would be better off if you didn't tax the rich so much? Then you'd be just proposing we do what's not helping Australia to help America, all the while overlooking whatever is actually working in Australia.

It does seem somewhat obvious that taxing the rich would forcefully reduce wealth inequality, but then we wouldn't be looking at what's causing the inequality, just trying to punch it out of existence with taxes, and possibly establishing more social injustice in the process. To me, it seems quite unfair to tax someone more just for being richer, a moral hazard even (punishing productivity?), but moral concerns are passé and don't seem to bother anyone these days.

@shatterdrose I treat a smaller government solution as something like a paradigm shift. You see government doing things right in country X, Y or Z, and I see them as, most likely, taking credit for what they're not fucking up. I mean, seriously, don't you know governments do that all the time?

There are plenty of people who unfairly benefit from government, but government is mostly not a net benefit to society, and those people will lie through their goddamned teeth about how much good they do, usually taking credit for anything working in society. There sure are plenty of suckers who believe them.

Wanting less government is not snap judgement, it's not dogma, it's quite often what no one ever considers.

Wanting more government is the convenient way out, governments are the agents of every social planner's wet dreams. In their minds, governments always have "unlimited" resources, they're always above any law, they're never morally wrong, and they're always run by honest uncorruptible people.

I love your "get involved" answer to criticizing government. What you don't seem to realize is that I'm criticizing how much government IS involved. That can hardly be changed from the inside. People who run for government always want a bigger piece of the pie, they're not likely to win on a "we want less pie" platform.

@rbar Welcome back. You present a good definition of coercion, but how did you deduce that it applies to any situation where one has a "higher degree of power"? Did you miss the word "force" in there? Also, "threats" usually refer to "threats of force", the Oxford dictionary defines threat as a "a statement of an intention to inflict pain, injury, damage...", which sounds pretty violent to me. I don't think it was referring to threats like, "I'm not talking to you anymore!" or even, "I will fire you!". However harsh it may be to get fired, it doesn't involve violence.

Even if your idea of coercion has nothing to do with violence, I'm sure if you look hard enough though, you will find broader and more convenient definitions, but they won't escape the notion of denying rights.

Now, apparently you think an employee has a right to a job or is "entitled to something". What if no one needs what an employee has to offer, what then? Are the unskilled, the incompetent, and the dispensable, therefore, automatic victims of coercion?

If anyone with "power" can coerce, can you be coerced by a child's psychological manipulation? What about a person you're in love with, can they *coerce* you by leveraging your feelings towards them? What about a guy who is more qualified for a job than you are, is he coercing you out of that position?

If we just throw the word "coercion" around willy-nilly, we can pretty much justify anything a government can do to punish those perceived as coercive, and this punishment usually involves the use of force. So, instead of correcting social injustice, we'll likely end up causing more of it if more force is being used.

I need to refresh your memory on this talk of laziness, it was in objection to your statement that "all people always want to improve themselves", which you used to dismiss my concern about incentives and moral hazards in society.

I'm sure people give up laziness when their survival is threatened, but that's not the point of laziness. Rising above the petty needs of survival doesn't compel one to reach for the utmost excellence, that's where laziness comes in, people don't "always want to improve themselves", specially if they can live on a comfortable level by using force to solve their problems, imposing their costs on others. It's the lazy way out, get it?

Instead of increasing their power by becoming more competent, more useful, more productive, employees could argue that they are being coerced and use laws to forcefully remove the choices of employers as a way of giving them, the employees, more power. Having the choice of using force to solve their problems, would harm the incentive to improve themselves and that would establish a moral hazard: trying to do the hard thing, like becoming more productive (it's not easy!) would be punished by its very cost, while doing the easy thing, which is to rely on force to solve your problems, would be rewarded.

@renatojj The distinction between no and bad choice or even good choice depends on the point of view and in that regard I agree with you, it is arbitrary in both directions. I argue that 0 or 1 choice (good or bad) = no choice. I argue that sometimes even more choices are no choice. Would the ability to vote for 3 presidential candidates be no choice, a choice or multiple choices if all 3 are extreme right and there is no other option? I argue that 3 x extreme right = same choice = 1 choice = no choice. Without any good choices, if all options are bad, there really isnt any choice, even if there are many bad choices. If employers were to offer 1 euro per hour in Spain to those unemployed, that is below the minimum required to live. You can say that is a good choice in economical terms as it is more than 0, but I doubt the employees would agree. It is the same as not offering salary so again not an option. Now the question is which viewpoint should you take? I would say the idea is to protect the less powerful against the more powerful and maximize the total amount of choices for the total group.

There is something interesting to note here: Where government makes laws protecting employees from certain hardships (against unfair dismissal, discrimination, too low pay etc) arguable limiting the choices of employers, it also makes laws that limit the employees (for instance setting higher pension ages.)

"When will that someone or a group ever be satisfied with their choices if we give them the choice of removing the choices of others forcefully? "
Exactly! In a world where the powerful can set their own rules with no one there to stop them, what incentive have they to do the right thing? That is exactly what we have seen go wrong time and again in fully free markets. There are so many examples of this. You believe government is the one removing choice? Look at monopoly markets and see what happens to prices there.
You believe government only sets rules one way, always against a group. That is not the case. The idea is that policy makers try to find a middle ground between the freedom of one group vs the freedom of another group. That is a fine line to walk and continually needs to be adjusted but it is a much more ethical line than simply giving a group with power full control in the hope that they will do well because of "the market".

"If you mess with the incentives for people to get out of their own undesirable situations, people end up imposing their costs on those who instead made an effort of having more choices, thus establishing a moral hazard (good being punished, evil being rewarded)."

Do you have an example? Maybe I am missing your point. In my mind, its not about the incentives as all people always want to improve themselves. Its about the amount of choices they can have. If you leave it to a part of the people who have reason to take control and coerce another group, they will.

"It's easy to see any economic problem being directly solved with laws, but not so easy to see the consequences. Even worse, the moral hazard leads to people misbehaving, and that ends up being invariably blamed on the concept of a free market, specially where there is no actual free market to speak of, like when you talk about Spain."

Spain is not a free market? In what way?

About the charity: No I dont think charity is pointless You cant compare charity to employment because in employment there is an exchange, hours work for pay, which creates mutual dependence and a relationship. In the case of charity there is none. Though the person in the unfortunate situation may depend on charity, he or she is not giving anything in return. Without this exchange, there is no relationship between giver and taker, which means no power over anything as there is no economic reason to give. If the giver demanded something for it, it is pay and not charity and a true mutual dependence with possible coercion would appear.

@rbar I think I made a fair distinction between no choice and a bad choice. Yet, you argue that the line is arbitrary. So, when we say someone has no choices, aren't we being arbitrary as well?

When will that someone or a group ever be satisfied with their choices if we give them the choice of removing the choices of others forcefully? More importantly, What will be their incentive to increase their own choices through other means if they can just rely on increasing them through force?

If you mess with the incentives for people to get out of their own undesirable situations, people end up imposing their costs on those who instead made an effort of having more choices, thus establishing a moral hazard (good being punished, evil being rewarded).

It's easy to see any economic problem being directly solved with laws, but not so easy to see the consequences. Even worse, the moral hazard leads to people misbehaving, and that ends up being invariably blamed on the concept of a free market, specially where there is no actual free market to speak of, like when you talk about Spain.

One other thing, if I can't compare charity to employment because you say there is no economic reason to do charity, I can't tell whether you're saying that a charity is pointless or if people who receive charity don't need it. Probably neither, but I wanted to understand your statement. Can't a person in an unfortunate situation have her life depend on charity just as much as a desperate man who needs a certain job to survive?

Don't get me wrong, I think a lot of crimes shouldn't be, like drugs and the like. But there isn't a first world country of western values (so I am leaving out japan here), close to the size of the US. Things don't always scale how you would suppose (lineally). I still think you are right to suppose we do lock up to many people here, I would agree. But I think to compare fairly, you would need to do so with a comparable sized country, of which there isn't really a suitable one. Entropy is a real thing in many other biological instances (especially population densities), it might also apply to cultures...and the corresponding social/economic factors as a result. Once again, not a justification, just perhaps and explanation that if other countries were as large they would experience the same whoas.

Also, I would tend to expect more people in jails where freedom abounds, ironically. What I mean is, when freedom is cheap, people will tend to push the boundary of what isn't free (moral hazard) moreso than if they were afraid to practice certain freedoms. Moral hazard is a newish word that gets thrown around a lot now, but I think there is merit in the concept. When you are given leeway, you take all that you can get...and perhaps a bit more. Resulting in the ironic position that practicing extreme liberty results in many who have restricted liberty because of violations. Life is funny that way. And once again, I think we go overboard here on what is legal and illegal. (soon, it is going to be illegal for me not to carry health insurance for example, and it is already illegal for me to do certain unapproved drugs. I don't imagine it much time before it is illegal to be fat, or any type of burden on someone else's view of utopia.)


>> ^raverman:

America has some of the highest rates of crime and imprisonment of most developed nations per capita.
I bet most Americans don't even know that... or believe that the freedom and democracy makes the US a safer place to live.
but why?
Culture? Too much sense of individualistic entitlement?
Guns? How might criminality be linked psychologically to arming individuals that suggests a constitutional entitlement to personal violence?
System? Does Imprisonment reduce re-offending? are long jail time sentences better than rehabilitation? Are sentences appropriate to crimes committed?
Everyone's focused on reducing crime and not asking if the cycle of punishment may be part of the problem.

>> ^xxovercastxx:

Do you believe that the demand for cars would have decreased if the big 3 went under? If so, please explain how and why.
I think, if the big 3 tanked, people who would have bought those cars would still need cars and would have bought cars from other manufacturers. That means increased business for those other manufacturers which means they place more demand on the material manufacturers, the parts suppliers, etc. Some of that demand would have manifested overseas, but I believe much of it would have gone to the same businesses that Ford, Chrysler and GM use. After all, as I said above, there's lots of other manufacturers that do assembly here and it's easier and cheaper to have your suppliers nearby.
No, like you say it's mostly a supply-driven story, not demand-driven. My point is that dismantling the Detroit-centered auto manufacturing infrastructure would be a huge shock to the American economy.

Like you say, eventually the economy would readjust, but even in a good economy it'd take a long time for it to adjust to a shock of that size. In a time where the financial markets had just gone into a crisis of historic proportions, it might've taken more than a decade.

A decade in which that circular flow is moving more slowly, dragged down by all the human and industrial capital that we leave idle as workers in Detroit look for new jobs, and while we wait for the prices of Toyotas and Hondas and BMW's to rise in response to the decline in supply, then wait for those price increases to build up as excess capital to the point where those companies decide to invest in opening new factories to meet the demand.

In the long run, the circular flow of our economy would eventually get back up to the rate it was at before, but in the long run we are all dead.

Or instead we could spot 'em 50 billion and avoid taking that kind of hit. Unless of course, you think there are inherent insurmountable problems with Chrysler and GM that can't be fixed with new management and some debt forgiveness?
>> ^xxovercastxx:

All the independent analyses that I read back in 2008 concluded that the cost of the bailouts vs letting the big 3 tank was close to a wash.

I'm not sure if the analyses you looked at were talking about the overall macroeconomic effects, but I bet not. I bet they just looked at "will it increase the government's debt load?" That's all most investor analyses do in situations like this.

The analysis I'm talking about would be comparing GDP forecasts with the bailout vs. without.
>> ^xxovercastxx:
There's also a cost to other businesses that comes with these sorts of bailouts that is rarely mentioned. I used to work at a small property insurance company. When the economy got rough, they played things smart. They minimized their risk, invested heavily and were one of the only companies of their kind to maintain a profit through the whole debacle. AIG, on the other hand, bet on high risk business and lost fortunes. They got a government care package and put themselves back together and now, as a result, are destroying the insurance market. My old company is struggling to stay in business (next year is their 100th anniversary) and AIG is swimming in ill gotten money.

The smartass in me wants to say "what's the cost?" After all, both companies made a profit. What's wrong with that?

But seriously, you're talking about "moral hazard". Believe me, that's not some topic nobody talks about, it's what right-wing economists and business journalists scream as loud as they can whenever there's talk about government stepping in to stave off major disruptions in the economy.

The my answer is that bailouts shouldn't be no strings attached, like the bailout of AIG was. The management of the companies that get rescued should lose their jobs, and be stripped of all their personal wealth. Depending on their actions, maybe tossed in jail too.

That way the value of company itself is preserved (and not liquidated), while there's a strong disincentive for the management to make a business plan that centers on expectations of being bailed out if the shit hits the fan.
>> ^xxovercastxx:

So the question I pose (and I know we can only speculate on the answer) is what effect have the bailouts had on Toyota, Honda, etc? Or do we not care because they don't employ as many Americans as the domestics?


Since this comment is approaching an epic length already, I'm just gonna say that it wasn't really about foreign vs. domestic ownership, but about minimizing the number of years we stay below trend in GDP during a severe recession. If you want to view it as a region vs. region dispute, it was also about keeping the perfectly good Detroit manufacturing cluster from being needlessly dismantled and rebuilt elsewhere.

>> ^ghark:


Yes I agree that he's consistent, but consistency only matters so much, his tax policies would widen the already-disastrous income maldistribution problems in America, the consequences of his education policies would further destroy the education system - go research Chile's education system if you want to see how much of a disaster privatizing an education system is. And that's just the beginning. He's a trojan horse my friend.


Well, his tax policy is mostly "less taxes", which seems like a good idea for a battered economy. Why would you use taxing to solve "maldistribution of income"? What is maldistribution of income anyways? Is income something supposed to be distributed? In a market, aren't people usually paid on a supply/demand basis or depending on how productive they are to society?

I'm guessing you're a progressive taxation guy, which I happen to think is not a very fair tax policy. Whenever you tax the rich by a larger percentage, you discourage or punish them for being more productive to society, which is a moral hazard and bad economics (according to austrians anyway).

What I could gather from Chile's education system (Wikipedia) is that it's pretty hybrid, a lot of private and public schooling and many gradations in between, mostly with state funding of education at many levels. I don't think Ron Paul is proposing anything to that effect.

To my knowledge, he'd probably shut down federal student loans as a way of directly lowering college tuition costs. While in Chile, everything education, whether public or private, seems to be state funded. So I fail to see the comparison sorry

Don’t Blame Capitalism for Wall Street’s Corruption and Lawlessness:

When Mahatma Gandhi was asked what he thought about Western civilization, he answered:

I think it would be a good idea.

I feel the same way about free market capitalism.

It would be a good idea, but it is not what we have now. Instead, we have either socialism, fascism or a type of looting.

If people want to criticize capitalism and propose an alternative, that is fine . . . but only if they understand what free market capitalism is and acknowledge that America has not practiced free market capitalism for some time.

...

People pointing to the Western economies and saying that capitalism doesn’t work is as incorrect as pointing to Stalin’s murder of millions of innocent people and blaming it on socialism. Without the government’s creation of the too big to fail banks, Fed’s intervention in interest rates and the markets, government-created moral hazard emboldening casino-style speculation, corruption of government officials, creation of a system of government-sponsored rating agencies which had at its core a model of bribery, and other government-induced distortions of the free market, things wouldn’t have gotten nearly as bad.

According to this, HARP helps people with a loan to value of over 80%. This means if somebody's house goes down in value, your loan-to-value will actually increase (mortgage/appraised worth of home). Cenk is saying HARP does the opposite of that. Either I'm confused or he is confused.>> ^NetRunner:

And for those who want to read the actual text of the announcement from the FHFA on this change, here you go.
I'm not a lawyer, but I have been reading a lot of this kind of stuff lately (because I'm underwater on my mortgage now too!), and all they're really doing is widening the pool of people who they're going to allow to do refinances by letting people who are less screwed participate.
Here's their response to the "moral hazard" argument I alluded to in my earlier comment:

Are you concerned that eliminating seller and servicer representations and warrants on HARP loans will force the Enterprises to take on additional risk?
We anticipate that the package of improvements being made to HARP will reduce the Enterprises credit risk, bring greater stability to mortgage markets and reduce foreclosure risks – each of which is an important statutory mandate for FHFA.
Nearly all HARP-eligible borrowers have been paying their mortgages for more than three years, and most of those for four or more years. These are seasoned loans made to borrowers who have demonstrated a capacity and commitment to make good on their mortgage obligation through a period of severe economic stress and house price declines.
Reps and warrants protect the Enterprises from losses on defective loans; typically, such defects show up in the first few years of a mortgage and so the value of the reps and warrants decline over time. By refinancing into a lower interest rate and/or shorter term mortgage, these borrowers are recommitting to their mortgage and strengthening their household balance sheet, thereby reducing the credit risk they already pose to the Enterprises. Therefore, FHFA has concluded that eliminating the reps and warrants that may have discouraged industry participants from taking greater advantage of HARP to-date will be good for borrowers, housing markets, and the Enterprises and taxpayers.

And for those who want to read the actual text of the announcement from the FHFA on this change, here you go.

I'm not a lawyer, but I have been reading a lot of this kind of stuff lately (because I'm underwater on my mortgage now too!), and all they're really doing is widening the pool of people who they're going to allow to do refinances by letting people who are less screwed participate.

Here's their response to the "moral hazard" argument I alluded to in my earlier comment:

Are you concerned that eliminating seller and servicer representations and warrants on HARP loans will force the Enterprises to take on additional risk?

We anticipate that the package of improvements being made to HARP will reduce the Enterprises credit risk, bring greater stability to mortgage markets and reduce foreclosure risks – each of which is an important statutory mandate for FHFA.
Nearly all HARP-eligible borrowers have been paying their mortgages for more than three years, and most of those for four or more years. These are seasoned loans made to borrowers who have demonstrated a capacity and commitment to make good on their mortgage obligation through a period of severe economic stress and house price declines.

Reps and warrants protect the Enterprises from losses on defective loans; typically, such defects show up in the first few years of a mortgage and so the value of the reps and warrants decline over time. By refinancing into a lower interest rate and/or shorter term mortgage, these borrowers are recommitting to their mortgage and strengthening their household balance sheet, thereby reducing the credit risk they already pose to the Enterprises. Therefore, FHFA has concluded that eliminating the reps and warrants that may have discouraged industry participants from taking greater advantage of HARP to-date will be good for borrowers, housing markets, and the Enterprises and taxpayers.

Uhh, Cenk really needs to source his info, because he's wrong about a few things.

For one, HARP is only offered to people whose mortgages are owned by Fannie and Freddie. No Bank of America mortgages are eligible.

Second, all of Fannie and Freddie's loans are guaranteed by the government. Pre-crisis people assumed that was the case, and post-crisis that's been explicitly stated by the government.

Third, "loan guarantee" doesn't mean you can commit fraud. One can make a moral hazard argument, and say that loan guarantees will encourage banks to make loans it thinks are likely to fail, but it doesn't make actually doing so legal. It also ignores that Congress has always been fastidious about Fannie and Freddie's lending standards for exactly this reason.

If I didn't know better, I'd guess Cenk got this from some sort of right-wing spam e-mail, not from actual due diligence research.

@Winstonfield_Pennypacker

You're addressing two separate issues with one broad stroke.

The housing credit bubble was caused just as much by certain public institutions as it was private. The error on behalf on the parties involved was in misjudging expected defaults and in the moral hazard of entrusting mortgage brokers who had every incentive to lie to secure commissions.

Securitization is in and of itself not a bad idea and by your own admission it was a private invention (by investment banks). With the right due dilligence and management of risks, loans can be offloaded from commercial bank balance sheets to investors and the banks can then make additional loans (to credit worthy individuals) which generally benefits everyone.

The separate issue from all of this is how much you want to provide to citizens as a basic right. Personally I think this should extend extensively into basic food, shelter and medical assistance. Whether it's publicly or privately provided should be on a case by case basis. Some naturally monopolistic industries will gain nothing from being private as the competitive pressure that makes capitalism work will simply not be there.

If you don't agree with this that's fine but let's not conflate the two issues or pretend as if the GFC is somehow justification for the latter.

@quantumushroom the response you'd get from modern Keynesians like Krugman is that the New Deal wasn't a big enough fiscal stimulus to fully end the depression and bring the country back to full employment, but it did help.

Look at unemployment during the Great Depression: http://en.wikipedia.org/wiki/File:US_Unemployment_1910-1960.gif

It rose starting in 1929, and kept going up while Herbert Hoover implemented tight monetary policy, fiscal austerity, and refused to interfere with the banking sector out of concern for creating moral hazard. The peak closely coincides with FDR's New Deal taking effect. After that, it fell fairly rapidly. As spending grew, GDP went up, and unemployment went down. The reversal happened in 1937 when they decided that the depression must be over, and switched to trying to reduce deficits, and tighten monetary policy again (to return to the gold standard). The economy crashed in response. So they resumed it, and the economy started getting better again.

What happened at the end? Well, the giant fiscal stimulus (and not incidentally, the near total socialization of the American economy), known as World War II, which brought us back up to full employment again.

Those data points all support, not discount, Keynes's General Theory.

@NetRunner

Actually, it is completely subjective to say "the suffering caused by denying marriage to gay people outweighs the discomfort you feel when you see them get married". You simply can not compare two different sets of feeling from 2 different frames of reference. Who are you to say that someones suffering isn't at great as someone else's, you have the burden of proof, and it is completely subjective. It is important to understand what I mean by subjective. It might be objective that someone is feeling a feeling; that a person is feeling something and that experience is real. But as to the depth of the feeling, it is immeasurable because it is contained entierly in the mind of the feeler. It pertains only to the individual.

You are making a HUGE claim next, that ALL actions need to be justified in the greater scope of humanity. Which also have the flaw scope being very near sided. The advancement of technology that developed the atom bomb would be a moral hazard to all scientists that helps science make it, or technologies that help make technologies that made it, or people that helped people make those technologies that made those technologies that made those technologies. In other words, the morality of consequence is failing to take in relevant information because it can't possibly obtain relevant information about long sweeping events.

Me eating cheetos and having a soda would also not be justifiable under this moral situation. How can I know the long term ramifications of such an event? Every seemingly mundane events in life can have profound effects. It is an intractable position. Even if consequentialism were a valid moral dogma, it fails to be readily applied in beings that are mortal and can only factor in very very limited scopes.

Consequentialism would be a good description of it I guess, though. As such, I find the terms all redundant. You don't need 5 terms to talk about 1 basic idea. Progressive doesn't tell us anything more than liberal or even more rootly, consequentialism.

In that, I have considered consequentialism in my recent inquiring. I have subsequently rejected it on it being based in "things that feel good" is very poor justification. I would have to be convinced that happiness is the one, most important aspect of reality.

Thanks for the lengthy replies .