February 2009 The pork-laden, so-called stimulus bill that has wound its way through Congress is just a warm-up for the huge scam that is to come – bailing out greedy bankers and speculators on the backs of working Americans, their children and their grandchildren. The public is constantly buffeted with endless arguments about how this is necessary to prevent the collapse of the financial system. Yet, there is no evidence that any bailout will prevent this from happening. The original plan, the so-called TARP (Troubled Asset Relief Program), cost the taxpayers $850 billion and was marketed to the public as a way to purchase non- or under-performing loans from troubled banks, thus bringing balance sheets into positive territory to facilitate further lending. Fine print of this agreement allowed the banks to use the money however they chose, and a last-minute revision removed legislation that limited executive compensation. The results were predictable. Banks hoarded the money, even refusing to account to the government and taxpayers what they did with it. Executives took huge … [Read more...]
Income Inequality is Caused by a Lack of Moral Hazard
It is becoming the consensus of opinion leaders that income inequality is becoming a major political issue. Mayor DeBlasio, who ran on this issue in the recent New York City mayoral race, won by a 43% landslide. There are various causes cited on both sides of the political aisles. Conservatives cite globalization and advancing technologies allowing corporations to either export jobs overseas or replace workers here with automation. Liberals favor a more progressive tax structure in order to redistribute wealth. Both sides cite numerous facts, figures and academic studies to support their view. And both are wrong. The real cause of income inequality is what economists call “moral hazard.” Simply explained, it means that human beings will take significant financial risks if they are assured they will not suffer the consequences. For example, a blackjack player may be unwilling to take a $10,000 loan to gamble; however, the same individual would be perfectly willing to gamble away a $10,000 loan given the assurance that the loan did not have to be paid back. Over the past generation, major financial interests have generously donated to both political parties so that they can … [Read more...]
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