Monday, March 16, 2009
this is a difficult subject. on the one hand, it is very hard to accept part of its premise of the paper which leonhardt adopts -- that large financial companies were operating in the rational expectation of painless bankruptcy. far more likely, looting provides a framework that approximates the fact pattern left in the wake of a speculative mania, which is not at all rationally motivated but behaviorally. the fundamental question at the heart of leonhardt's point is whether insurance promotes the taking of excessive risk -- and this is obviously does do. moral hazard is a real problem; witness the construction of homes on flood plains and fronting hurricane-prone shorelines. however, one has to ask if the speculative banking system which arose over the last thirty years expected to be made whole in the event of a collapse and bailout. did it? the answer there in the main must be no -- and that was the correct assessment. ask any former banker of bear stearns, who had been paid for years mostly in company stock. or any former lehman brothers banker.
but change the focus from companies to individuals more explicitly than did leonhardt -- cast the leadership individually, as opposed to the financial institutions and the junior bankers they led, as the looters of not only the government but the institutions themselves. many executives of these companies have walked away massively enriched while leaving a gutted carcass of a firm being propped up at incredible expense by the government in their wake. this is where moral hazard was truly operative. the essence of the predator state lies not in the weakening and looting of government alone but in the weakening and looting of institutions generally. it is terribly misleading to rage against AIG -- the abstraction serves to obfuscate responsibility. there are men with names that should be the objects of social anger and corrective action.
why are not these men sitting in chicken-wire cages under the cuban sun in guantanamo bay at this very moment?
it is at this level that the american philosophy, such as it is, of recent years can most clearly be shown to have been wrongheaded. there is a very serious unresolved agency problem that is aggravated and exaggerated by the lawlessness which was abetted in the fanfare of deregulation which has dominated the political and social discourse since reagan. the american pathology of exaggerated, almost cartoonish antisocial individualism is both strength and weakness, though it seems few would admit that the drawbacks could possibly outweigh the benefits. (some would with religious zeal deny that there are any drawbacks at all.)
can americans admit that our escapist society, our mania for freiheit and reflexive rejection of institutional rules, our scorn of both collective responsibility and collective action -- concepts which, long before they were pejoratively relabeled and lumped in with 'socialism' by simpleminds, constituted in practice much of what was called 'civilization' -- is at the source of our failure?
surprised this has not made it into your analysis
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