"Those who do not learn from history are doomed to repeat it."
-- George Santayana
"Here's another nice mess you've gotten me into." -- Oliver Hardy
"When will they ever learn?" -- Pete Seeger
Finance mavens were once (in their dreams) masters of the universe as they invented, innovated, devised, designed, complexicated and sold to the unwary, unknowing and all too willing, their increasingly risky "products." The concept of helping a client invest gave way to a goal of selling a product to a customer. Profit from fees drove out the idea of protecting the investor.
Result: Financial institutions became too big to fail, and were bailed out by government. And now, too big to fail has yielded to too big to indict, as prosecutors choose not to charge HSBC because doing so might topple the international finance system. Instead, they "settled" the case of fraud and money laundering for $1,92 billion. Criminal charges will be held in abeyance for five years, while the international bank cleans up its act and behaves itself, according to news reports.
This takes away another incentive to keep bankers honest. With no fear of jail, there is only the "punishment" of a money "settlement." And the wrongdoers remain free to seek other ways to manipulate the system, knowing that if they lose, government will bail them out and not prosecute.
That's called "moral hazard." When there is little or no risk of punishment and there is a good possibility that they will be lifted out of holes they dig themselves into, even as they retain past profits, morality is ignored and hazard -- for the perpetrators -- is eliminated.
It seems the self-appointed masters of the universe are still in business. They transferred their expertise in manipulation from selling "product" to the unwary to laundering money for others, secure in the knowledge that they can buy their way out of punishment.
It sounds very like the Medieval practice of buying forgiveness for sins without confessing that you have actually committed them or done anything wrong. Some even purchased absolution for sins before sinning. Some insurance business.
Moral hazard can be a contagion, spreading from financial institutions to nations. If the trend continues, look for bigger buyouts and fiscal rescues. Only it won't be just smaller nations like Iceland, Greece or Ireland. Rescue plans could be put in place for larger nations, such as Spain and Italy.
The contagion -- and the bill for curing it -- may even spread westward across the Atlantic. No one is immune to the virus.
The Great Recession has been following a pattern set 80 years ago by the Great Depression. Moreover, this may be the opening act to The Great Tragedy.
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