naked capitalism

DownSouth says:

Waldman’s post on strategic default is superb, and is in the same vein as Yves’ post yesterday “Keyne’s Rap,” where in response to the conservative Robert’s assertion that “markets punish you,” the more liberal Skidelsky responds that:

They actually punish millions of people for the mistakes of quite a few people. And no government, no democratic government is going to allow that level of punishment… There are lots of companies who are not making mistakes, they’re just affected by the people who have made the mistakes.

Along similar lines is this from Bill Moyers:

STEVE MEACHAM: A lot of what we do when people are coming in, is create the moral space for people to feel like they have the right to resist (foreclosure and eviction), because they’re told by almost everybody that they don’t…

These are the same guys who have run our entire economy into the ground and who have been rewarded with billions in taxpayer bailouts and have used billions of that money to give bonuses to the very executives that drove their companies and the whole economy into the ground. And they are citing moral hazard as the reason why they can’t resell that property to the existing homeowners at the real value. That is disgusting and hypocritical and in the extreme.
http://www.pbs.org/moyers/journal/12182009/watch2.html

Meacham points out that in 95% of the cases they take on, when people decide to fight the banks, that they prevail and that the banks eventually concede to some sort of compromise.

Despite the moral fiction that the banks try to create and enforce, they are in reality deeply mired in moral quicksand, with public sentiment heavily weighted aginst them, and they know this.

But, as Reinhold Niebuhr wrote in Moral Man & Immoral Society:

When power is robbed of the shining armor of political, moral and philosophical theories, by which it defends itself, it will fight on without armor; but it will be more vulnerable, and the strength of its enemies increased.

jdmckay says:

Great article.

We have large military base here (Kirtland/Albuquerque), predominantly a few AF/ANG wings. There were a lot of Iraq deployments out’a here. We live less than a mile from there, and I know a lot of folks who served: GI’s, officers, whole lot of ANG’s, and many, many medics of varying skill and rank.

I’ve heard this same story, over and over.

I am aware of a slew of similar situations whereby honest people playing by the rules got hosed. Downsouth above taps into some of these circumstances.

Aside from remaining dysfunction in US financial system, larger principle, it seems to me, is the same as it always is when grand scale scams (Enron, Columbia HCA, 80′s S&L meltdown, this thing, etc.) are allowed to proliferate: cleaning up the mess is much harder than preventing it would have been.

Beyond that, especially given scale of current debacle, deconstructing the crime is a massive undertaking. And the deeper one goes in doing so, among other things, the more this kind of injustice (theft) is revealed. The tenacles on this one reach everywhere, in more flavors than I can count.

Yves’ link on Mercer’s Little Alaska Problem another failed link in the chain, same thing IMO: dedicated profesionalismk… eg: just doing good, honest work, has been eroded across US, justified by bottom line trumping a professional mission. From that link:

Then, rather than own up to the mistake, Mercer executives covered it up, the documents say. “Following standard Mercer policies designed to prevent clients from discovering Mercer’s errors,” Alaska’s lawyers contend, “Mercer’s actuaries carefully avoided creating a written record of their discussions and calculations, in order, one of them testified, to avoid creating a ‘trace.’ ”

(…)But the lawsuit details what look like obvious failures by Mercer. For example, Mercer consulted “real-world data” on health care expenses only every five years, a problematic practice given the volatility of these costs.

We (NM) have similar issues arising from the firm contracted to manage/do actuaries etc. for state administered Medicaid/HC benefits.

Anway, the tantacles of fraud extend wide and deep. It hasn’t been addressed at all, rather we’ve further indebted ourselves to feed the hydra that feeds the tentacles.

Talk about a moral hazard.

The guy who wrote linke article concluded…

And the point of all of this is that even the meekest law of real estate finance can have a profound effect on our cultural values. The whole moral universe, in regards to debt, has been overthrown for these good and righteous men with whom I went to war. They started out with an inclination as to what the right thing to do was, and then they were unsure. Then they questioned whether they were just being “suckers” and if there really was any kind of moral question at all given what was happening in the world around them.

I wonder what new moral lessons these men, indeed our whole generation, will now teach our children and grandchildren. I

Indeed. Evident there, not to mention tons of pretty smart people w/whom I’ve talked about this mess in detail… the cultural effects of recalculations down the food chain, people drastically affected but mostly unnoticed by our…

We’ve got a lot of rot, w/institutions charged w/preventing it wholly unable to do so, much less identify and weed it out.

Back +/- 20 yrs ago, when I still idehtified as a “Christian”, I recall one of the scam evangelists (even idiots say good things once in a while):

It’s easier to keep the devil out then get him out.