Moral Hazard

Moral Hazard is a term used to describe a situation where someone seemingly benefits by doing wrong.

If the US Government assures a bank that they'll bail it out if it gets in trouble, it creates a moral hazard. The bank no longer has to assume risk in its activities because if it makes bad judgments, the government will bail it out. This hurts everyone.

Our economic system works because people understand that we need to keep our promises. It is built COMPLETELY on trust. When that trust is violated, most commonly by greed, everyone loses; including the greedy party.

What is the proper response when we discover that our trust has been violated? I believe the most healing response to that situation is to shed light on it; to expose exactly what happened; who did what; and be very clear about the specifics of how it has hurt everyone. I believe that's where the benefit in disaster lies. To put all the energy into bailing out Chrysler, the savings and loans, the hedge funds or banks only frees these people up to make the same mistake in another venue. All intelligent people know that covering up a problem creates bigger problems than the original problem itself. Ask Bill Clinton.

Honesty is the best policy. Until we are honest with ourselves about what is happening economically, things will continue to deteriorate economically. Once we realize people violated the trust placed in them due to greed, we are free to move on. We must also accept the part we played in allowing this to happen. Every one of us could have done more to shed more light on the greed and its inevitable corruption and damage to our economy.

This isn't about beating people up for mistakes. It's about learning from our mistakes; as a culture. Again and again we are faced with the fact that no one can sustainably benefit at another's expense, and will continue to have this thrown in our face until we learn the truth of this.

When we understand our personal standard of living, our sense of well being, and quality of life are a reflection of how well we cooperate with each other for the common good; then our economy and society will make great and sustainable strides forward. We are all one.

Scott Friedman

Mortgage Broker

(Including Reverse Mortgages)

805 383 2545