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Posts Tagged ‘moral hazard’
June 25th, 2012 at 2:40 pm
No Risk, Plenty of Reward
Posted by Print

Over the weekend, Newsday’s Lane Filler had a terrific editorial piece on one of the absolute worst trends in modern American politics: Government’s growing tendency towards preventing failure (read: insulating people from the consequences of their actions).

But as Filler correctly points out, this trend isn’t just limited to big financial firms on Wall Street. We only pay special attention to “too big to fail” because it’s a relatively new development. In many ways, our entire social contract has come to be defined by the same ethos. An excerpt:

Every social program, as much good as it might do, strikes a blow against moral hazard. Unemployment insurance, which many people have received for as long as two years during the current recession, helps folks get through tough times, but economists agree it also keeps some of them from taking jobs. Few people would take $300 per week to trim hedges if they can get $300 per week to not trim hedges while they wait for a wage offer they can actually live, or even better, thrive, on. Take away the $300, though, and that bad job starts to look better. Extended unemployment benefits aren’t the only reason there are 3.4 million unfilled jobs in the United States, but they are a reason.

Let people know that if their income is low enough, the government will give them food, and they won’t have nearly as much inclination to earn food money as they would if they were down to carpet-lint soup. Provide shelter to those who can’t provide their own, and folks feel less desire to hustle for housing than they would if an underpass in Cleveland were their winter home.

As Filler goes on to note, the same criticism applies to Social Security and Medicare, both of which provide far more in benefits than beneficiaries ever pay in.

None of this, of course, is to argue against a basic safety net. But as many conservative wags have been noting of late, the safety net is coming to look a lot more like a hammock.

Failure, uncomfortable as it often is, is the finishing school of success. Having weakened its instructive powers, we should not be surprised to find ourselves living in a nation of adolescents.

April 11th, 2011 at 12:00 pm
Free Market Solution to Housing Crisis

While the federal government continues to create moral hazards for people trying to stay in their soon-to-be-foreclosed homes, TwinRock LLC is giving those same people a reason to hope: letting former homeowners rent their foreclosed properties at reduced rates.

So far TwinRock has purchased 22 homes in Moreno Valley, Riverside, Corona, Rialto, San Bernardino, Highland, Murrieta, Wildomar and Temecula, and the company has plans to buy several hundred more, said Meyer.

Earlier this year, TwinRock put together a $6 million fund to enable the company to buy about 40 Inland homes and it is getting ready to raise another $15 million, Philips said. The firm’s investment model primarily calls for buying houses with cash at trustee auctions conducted each weekday at Inland courthouses, he said.

There’s another benefit to keeping people in their homes:

Letting former homeowners remain in the foreclosed homes as tenants also eliminates the potential that the homes will be vandalized by angry former owners facing eviction, Meyer said.

TwinRock’s solution isn’t for everyone.  Some homeowners are so indebted in other areas they need to declare bankruptcy and restart their financial history.  For many others, however, renting one’s home with the possibility of buying it back later is much more attractive than waiting for a temporary government bailout.

H/T: Riverside (CA) Press-Enterprise