There is a term in finance called "moral hazard." It refers to policies and practices that reward wrong doing by banker and investors instead of allowing them to suffer their losses in the win-lose environment of the rigged casino that we refer to as markets.
On one level, it suggests that yes, there is some notion of rules and, dare I say, "morality" lurking in the anything goes if I don't get caught financial vampire land responsible for the collapse of credit markets in the aftermath of the disclosure of the subprime ("subcrime") scandal.
The bankers themselves are furiously debating what to do as they post record losses. The Bank of England opposes cutting the cost of credit, something that many expect the US Federal Reserve Bank is about to announce as a "moral hazard." Other bankers overseas are bitterly denouncing their American counterparts. Two banks in Germany had to be rescued.
There seems to be an air of desperation among financiers, also known as "masters of the universe" who always project confidence.
Measures are being taken similar to locking the barn door after the horses are gone. The Securities and Exchange Commission, the nominal regulators were caught napping. They are only now setting up "Enforcement Groups," including one on subprime abuses. They say they are going to be looking at "everyone involved."
Already big banks and credit rating companies that certified the crooked "securitization packages as kosher are firing top executives. Hedge Funds are reporting "shock losses." There is a clear "Contagion" as losses in one sector spread to others. Only the high price of oil is keeping the market afloat.
The industry and government response may be too little too late. Already the dominos are falling as these problems move into the real world or "real economy" as Treasury Secretary ad ex-Goldman Sachs chief Hank Paulson puts it. Just read the headlines in newspapers like the Financial Times.
"RISE FORECAST IN COMPANY DEFAULT RATES'
"Company default rates are forecast to rise nearly 300 percent as the credit squeeze it's the wider economy and raises the prospects of a global recession."
Note: Its not just homeowners who are defaulting anymore. Companies are. One expert says we are already in a recession even though, technically, the economy has to be "contracting" for two quarters for a recession to be acknowledged.
But, those in the know know its happening. They just don't want to panic the rest of us. This headline says it all: THE R-WORD SURFACES ON WALL STEEET. The White House is predictably complacent but the head of the National Bureau of Economics, Martin Feldstein, says there is a "very serious risk of a very serious downturn."
Part of the reason this is happening is because the predators who came up with all these securitization and derivative scams were enabled by big Wall Street investment houses with the Bush Administration looking the other way. They figured it would only entrap poor people they didn't care about and so not affect them. How wrong they were.
And can you believe that these geniuses don't know how much of their own investments are contaminated by funny money (ie. asset based securities with no real assets backing them.)
The London based writer William Bowles demystifies this problem:
So for example, the so-called sub-prime lending catastrophe (let's not forget the poor schmucks who are getting their houses repossessed, a fact that's rarely mentioned in news coverage of the crisis) is made even more of a catastrophe by the fact that the billions in debts owed to banks has been 'broken up' into millions of 'small' debts and then 'repackaged' with a bunch of other financial notes and then sold off to some clever cuts in the investment section of an institution, who sees yet another chance to actually print the money (rather than producing something real).It's fucking brilliant. What's more, because financial trading has been deregulated pretty well globally, these debts have been sold, resold, repackaged, resold, split, recombined, and had who knows what else done to them, right across the planet!
So that's what they mean when they say they don't know where the debts are."
The Financial Times put this more politely. "CREDIT TURMOIL SHOWS THAT NOT ALL INNOVATION HAS BEEN BENFICIAL." They lament: No more champagne and "bumper bonuses" for the scammers.
This is the time bomb that may be freaking out the big boys now but the rest of us will be affected as this crisis "rolls out" with rising unemployment and a credit squeeze. Billions are at stake. Tens of thousands have lost jobs. The housing sector, a core part of the economy is a mess. People are having their homes stolen. Other speculators, in our country and others, are waiting to pounce and pick up bargains at fire sale prices.
So isn't it time for the media to blow the whistle on this white collar crime wave before, and not after the collapse that many see coming?
Where are the organizations and politicians demanding the prosecution of wrong doers in what is clearly a criminal conspiracy and "ponzi scheme" of unprecedented proportions? Where is NBC News' "To CATCH A PREDATOR" program? They are certainly not 'following the money," the key imperative for journalism or targeting the big time predators. And they are not alone.
We are reading more stories like "I can't afford my life" detailing the economic noose so many families are experiencing but little about why its happening and who has been profiting off so much misery.
Millions of Americans are affected by why are so many people sucking their thumbs and looking the other way? How can we make this a people's issue, not just a financial story? Who has the courage to take this on? Who is ready to act?