But risk can’t be eliminated from market transactions altogether- indeed rightwing analysts have a whole host of insult terms for the very idea of attempting to do so. The key words are ‘Moral Hazard’ which is A Very Bad Thing Indeed, apparently. Now you and I might think Moral Hazards might, just possibly, include a situation where c40% of all UK Footsie 100 gross profits over the last decade went to the financial sector, and 60% of this was paid out in bonuses to executives and traders. ( I quote from a poster on CentreRight blog). But, no, that’s not what’s meant at all, or at least not primarily (though Stumbling and Mumbling does go on about the ‘principal-agent’ problem at lot it must be admitted). Moral Hazards are things which stop the market working according to the pristine theory, when winners Win and losers, er, Lose.
So any regulation has to be scrupulously careful not to encourage Moral Hazard. Possible ways of introducing Moral Hazard it seems, include ‘rewarding failure’, or hinting at bail out possibilities, or supporting ‘markets’- such as the housing market - with explicit or implicit political guarantees. In other words, it seems to me, almost all centrist or Leftwing policy responses might count as Moral Hazards.
Bollocks. Whose risk has been minimised by all this fancy dan ‘financial innovation’? Not mine, not Bradford and Bingley’s staff’s, not the holders of sub-prime mortgages. Our risk remains and we’re gong to pay for it, so little Moral Hazard there. No, it is bankers getting off scot free with their golden eggs who face a Moral Hazard risk. In truth in any kind of morally ordered world they would now be cowering in their mansions listening fearfully for the approach of the mob with pitchforks and burning brands...
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