Pundits
praise the virtues of the commodification and trading of risk. It
allows entrepreneurs to assume more of it, banks to get rid of it, and
traders to hedge against it. Modern risk exchanges liberated Western
economies from the tyranny of the uncertain - they enthuse.
But this is precisely the peril of these new developments. They mass
manufacture moral hazard. They remove the only immutable incentive to
succeed - market discipline and business failure. They undermine the
very fundaments of capitalism: prices as signals, transmission
channels, risk and reward, opportunity cost. Risk reallocation, risk
transfer, and risk trading create an artificial universe in which
synthetic contracts replace real ones and third party and moral hazards
replace business risks.
Moral hazard is the risk that the behaviour of an economic player will
change as a result of the alleviation of real or perceived potential
costs. It has often been claimed that IMF bailouts, in the wake of
financial crises - in Mexico, Brazil, Asia, and Turkey, to mention but
a few - created moral hazard.
Governments are willing to act imprudently, safe in the knowledge that
the IMF is a lender of last resort, which is often steered by
geopolitical considerations, rather than merely economic ones.
Pages:
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68