Moral Hazard is an Understatement

Remember “moral hazard?” We heard a lot about it when our government was contemplating the big bank bail out. Now, all we hear is about all those bankers and industrialists who must be given our money, lest their self imposed failure bring the United States to its knees (hey, some of us bought knee pads when the price was low). No more moral hazard for us – don’t mind the fact that we are handing our money to the managers who ran their firms into the ground. Keep every last thieving one of ’em working. A CEO in the unemployment line would add way too much narcissism to the welfare roles.

CEOs in this country live in a world of zero risk (to themselves). After taking over a firm, they stuff the board with compliant people and cronies, then collect their bonuses whether the firm does well or tanks. They “shoot the moon,” that is, the take enormous risks. If the risks pan out, the CEO gets remarkably generous incentive pay. If the risk destroys the firm, the CEO walks away with only a small bonus for the year, and goes on to another firm.

Stockholder power has been emasculated by US laws that were necessitated by political activists who would buy a few shares of a compnay, then try to push the company into left wing agendas that weren’t at all in the companies’ interests.

The country is fast becoming a parody of itself, as more and more firms, and even municipalities, are begging for a “bail out.” Disgust is the appropriate word.



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