Re: What is "Moral Hazard" and why is it important ?

[David Farber <dave () farber net>]

________________________________________
From: Anthony Citrano [anthony.citrano () gmail com]
Sent: Monday, April 28, 2008 3:37 PM
To: David Farber
Subject: Re: [IP] What is "Moral Hazard" and why is it important ?

But to moral hazard, two wrongs do not make a right.

These CEOs and, as JHKunstler calls them, "Hedge Fund Boyz", should
not be bailed out by any mechanism.  They should face the markets and
have their assets "marked to market" in my view.  And it will not be
pretty - some of these big banks have Level 3 assets well in excess of
their *real* assets.  That's a disaster that will unravel sooner or
later.  I suspect sooner, and that we'll see one or two large banks
fail this year.

But Reich is guilty of encouraging exactly the moral hazard he decries
with his talk of bailing out foolish homedebtors.

It bugs me especially because over the past five years, I've
deliberately stayed out of the real estate market.  Everywhere I've
lived (Boston and Los Angeles) have felt too inflated and frenzied to
me to seem like a sane purchase.  From roughly 2002 through 2006, I
cannot tell you how many of my friends told me I was crazy - "you've
got the money, why don't you buy something?  Renting is like throwing
your money away."

But for most of them, what they thought was "buying" was really just
renting from the bank.  And they were overpaying.  Some of us knew
this, and stayed out.  The buzz around the real estate space in those
recent years (say 2002-2006) sounded, to me, suspiciously like the
tech stock market in 1998-2000.

So I stayed out of real estate and put my money elsewhere.  Now, those
same friends are telling me I was right and may have to bear some very
large losses.

Now, people are talking about bailouts for these people - would the
notion even be entertained had they made the same gamble on a bad
stock?

I'm not asking for a public handout for being right - so I am asking
that those who were wrong bear the financial consequences of their
gambles.

best
-a

---
anthony citrano
www.citrano.com



On Sun, Apr 27, 2008 at 9:34 AM, David Farber <dave () farber net> wrote:
>  Begin forwarded message:
>
>  From: dewayne () warpspeed com (Dewayne Hendricks)
>  Date: April 24, 2008 11:53:20 AM EDT
>  To: Dewayne-Net Technology List <xyzzy () warpspeed com>
>  Subject: [Dewayne-Net] What is "Moral Hazard" and why is it important ?
>
>  [Note:  This item comes from reader Jack Unger.  DLH]
>
>  From: Jack Unger <junger () ask-wi com>
>  Date: April 24, 2008 8:36:59 AM PDT
>  To: Dewayne Hendricks <dewayne () warpspeed com>
>  Subject: What is "Moral Hazard" and why is it important ?
>
>  Want to make sense of the unfolding financial situation that is
> simultaneously affecting the two parallel worlds of "Wall Street" and "Main
> Street"? Read these links describing "moral hazard" and you will begin to
> understand where your own financial interests fit in to the "big picture".
>
>  <http://www.minyanville.com/articles/MER-GS-C-jpm-bac-LEH/index/a/16812>
>
>  <http://robertreich.blogspot.com/2007/09/moral-hazard.html>
>
>
> <http://www.google.com/search?hl=en&q=%22moral+hazard%22&btnG=Google+Search>
>
>
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