25 November 2008

Speak softly and carry a big stick

When financial experts first started wringing their hands over the nationalisation of Northern Rock, there was much talk of Moral Hazard - the risk of incentivising immoral behaviour by preventing business failure. Today it seems so many institutions have been shored up, underwritten, merged and injected with government cash, there are more moral hazards than in a vicar's billiards room.

We don't tend to hear much about this phrase anymore, probably because we have moved beyond the point where we can debate the ethics of bailing out large banks. But I think we are finally starting to understand what it means: it's when the government gives a bank a squillion quid to lend to its customers, and the bank decides it wants to keep the money, because all its customers don't have the luxury of Moral Hazard and might go bust. Finally, the government tells them they really should think about letting other people play with the money, and the banks say: "Or you'll do what?"

It reminds me of the observation by the American comedian, philosopher and visionary, the late, great Bill Hicks, about the fact that British policemen do not carry handguns as standard issue. "What do they shout when they're chasing crooks: 'Stop. Or I'll shout stop again'? ". Maybe Alastair Darling should take a leaf out of his book and start carrying a loaded gun to his regular meetings with the banking Chief Execs. Instead of pleading with them to play fair, he could start to redefine the meaning of Moral Hazard.

1 comment:

PW said...

And the latest wheeze from the moral hazard merchants: tell the bank you're struggling to cover your mortgage and you'll get a two-year payment holiday, subsidised by the British taxpayer.