Would you take a 50% loss on your house to save a banker's life?
Many theories are circulating about what causes these bankers to take their lives. Here's my theory: I think it is a predictable extension of what economists call “moral hazard” that is the problem. Moral hazard is the idea that it is “okay” to allow bankers to pilfer a little bit every now and then, if it keeps markets open. In other words, regulators look the other way when bankers commit legal transgressions for the greater good, so they believe. The classic case being the specialists, the ones still at work on the floor of the New York Stock Exchange, are allowed to front-run orders, pocketing riskless profits, for the perceived benefit of allowing for uninterrupted “market orders” to transact: stoking order flow and easy access to capital.
The banking system is rife with such legal corner-cutting and nobody questions it – until now. Now I think what we are seeing is a case of the system itself becoming engulfed by moral hazard (read: fraud) and one could say the banking industry is now defined by moral hazard. And it is this systemic, institutional embrace of organized theft: High Speed Trading, mortgage fraud, Libor rigging, Forex rigging, energy market rigging, front running, and a myriad other examples, that is finally catching up to bankers inside the industry who decide, tragically, to top themselves instead of facing up to their reprehensible behavior.
Predictably, one reads comments in liberal outlets like the UK's Guardian newspaper from people who are outraged when it is suggested that a rejection of financial fraud-seeking that is causing a crisis of conscience driving these bankers to suicide.
I did an experiment on Twitter.
After I tweeted recently that the most recent banker suicide was yet another example of an industry hell-bent on cranking out sick, pathologically-lying kleptomaniacs that drives them to finally kill themselves, I got a lot of "outraged' tweets back suggesting I was callous to say such things in the wake of this newest tragedy. So I put it to these faux-outraged types: would they be willing to take a 50 percent hit on their house price to save a banker?
The basis for this question lies in the ultimate moral hazard conundrum faced around the world today. Central banks pursuing ZIRP (Zero Interest Rate Policies) to bail out zombie banks – while imposing austerity measures to help pay for it (a policy that causes deflation, misery and financial ruin instead of fighting deflation; the stated goal of these central bankers) – have created enormous property bubbles in cities and towns all over the world. It's complete unearned, rent-seeking income gifted to a few, at the expense of the many.
In other words, the kleptomaniacs and their casually acceptable moral hazard that has swallowed our economy whole is fueled by cheap rates; leading to two outcomes, bigger house price bubbles and bankers killing themselves (who are waking up to the fraud and seeing no way to find peace in this corrupt cesspool of Quantitative Easing then to trade up to that big Credit Default Swap dealer in the sky).
So the question I tweeted was “Are you willing to live in an economically rational world of real rates at 5 percent, real costs structures, and genuine risk taken by honest entrepreneurs engaged in actual free market capitalism, or would you rather see your house price bubble higher and watch a few bankers kill themselves?”
My Twitter experiment resulted in the following: 100 percent of those asked to choose between saving a banker's life, or taking a 50 percent cut in the value of their house, took the first option. Surprised? I hope not. If you are, then you might want to call the suicide hotline.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.