Saturday, September 20, 2008

Financial Political and Moral Hazard

Occasionally thoughts of shares and investing seem worth a blog post or two -
I'm still waiting for positive happenings at Zyzygy my favourite penny dreadful
share company investment about which I have posted before
- but this week, investing and shares have been international headline news.

City people around the globe seem to have breathed a collective sigh of relief
at the US government's decision to spend $bns on nationalising huge
numbers of USA 'toxic' mortgage debts. In the UK the government having previously
risked £ms of taxpayer's money in bailing out Northern Rock tore up its
ban on anti competitive mergers by actively encouraging Lloyds TSB to take over
HBOS bank.

The current financial crisis has its origins in individuals, companies
and governments borrowing far too much in order presumably to have the joy
of what money can buy today and postpone the pain of actually paying until tomorrow,
yet the 'remedies' seem to me to amount to little more than postponing the pain
until the day after tomorrow instead.

Letting NRK crash would have been painful
and might have precipitated some other crashes but the time span would
have been relatvely short and renewal and regrowth processes would have commenced
quite swiftly. Rather like the destruction and pain wreaked by forest fires,
almost as soon as the flames are dowsed, the regeneration begins.

After WWII the UK taxpayers had years of repayment of lend lease debts to
the USA to endure. Imposing such repayment burdens on UK taxpayers
such as yours truely who were not even born at the time of WWII, was a
positive step for government to take
as the pain of subjugation to a despotic regime would have
been far more painful and long term. 'Winning' WWII also reduced the
risk of such wars affecting Western Europe again.

Subsidising those who have over borrowed, creates the financial and moral
hazard of divorcing over optimistic if not reckless borrowers from the
consequences of their actions. To do that on the epic scale of $bns
that the USA government seems about to embark on is bound to create
pain for years to come and enfeeble the nation financially and politically.

The Northern Rock debacle in the UK is bad enough but I hope that the UK
government does not follow in the footsteps of the USA government as regards
an all embracing toxic mortgage subsidy.

Shorting and the recently imposed restrictions are another topic...

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