Moral Hazard a risk that somebody will behave immorally because insurance, the law, or some other agency protects them against loss that the immoral behavior might otherwise cause. http://dictionary.bnet.com/definition/moral+hazard.html

Because I’m blessed with an unusually high level of disdain for bureaucracy and government in general, it’s extremely rare for me to experience jaw-dropping shock when confronted with the empire’s mouthpieces and their paid pontifications, which are excreted with dreadful regularity in the mainstream media. Then I came across this:

Sheila Bair, the chairwoman of the Federal Deposit Insurance Corp., said the agency has set aside $22 billion to cover any projected losses over the next year, leaving $19 billion. The deposit insurance fund now stands at its lowest level in nearly a quarter-century and is raising the assessment on banks and thrifts to give it more money in reserve. “Overall, we’re fine. But it is important for people to understand, we’re backed by the full faith and credit of the United States government. The money will always be there. We can’t run out of money,” Bair said.

“The money will always be there? We can’t run out of money?” Surely this is mere hyperbole, right? I mean, even the government can’t sincerely believe that money is some sort of infinite resource, right?

Perhaps not.

According to this article by Eric deCarbonnel writing for Market Skeptics:

Once the FDIC runs out of funds, it will have to borrow from the fed (fed prints money and FDIC borrows it). That means the checks being send out by the FDIC will soon be funded by printed cash.

Oh, snap.

The banks of course don’t want Mr. and Mrs. Average American to start stashing what little money they have left at the end of the month in their mattresses or in a hole in the backyard; our entire financial system is dependent on our being in debt and letting the banks get their greedy little hands in our pockets via home loans, car loans, student loans, vacation loans and eventually; loans to pay on our other loans. Oh, and by the way, charging the same schmucks a myriad of overdraft and various other fees that result in a billion-dollars-a-year slush fund which probably offsets the million-dollars-a-year bonuses they give out to their upper level officers.

Of course one needn’t worry their little ol’ head about the FDIC, after all they are backed by the Full faith and creditof the United States Government.

In light of apparent systemic risks facing the banking system, the adequacy of FDIC’s financial backing has come into question. Beyond the funds in the Deposit Insurance Fund above and the FDIC’s power to charge insurance premia, FDIC insurance is additionally assured by the Federal government. According to the FDIC.gov website (as of January 2009), “FDIC deposit insurance is backed by the full faith and credit of the United States government.’ This means that the resources of the United States government stand behind FDIC-insured depositors.” The statutory basis for this claim is less than clear. Congress, in 1987, passed a non-binding resolution to this effect, but there appear to be no laws strictly binding the government to make good on any insurance liabilities unmet by the FDIC.

*Sigh*

And savings are at an all-time low for Mr. and Mrs. America — not only are they dealing with less money after paying ever increasing bills, but are being good little patriotic citizens and buying crap from China (so the terrorists don’t win, ya know), who then uses that same money to buy US securities.

The FDIC, which is busy bailing out and protecting the assets of banks that are deemed “too large to fail,” gets it’s funding from insurance payments that the FDIC charges banks (a rate that varies depending on risks associated with liabilities held by the bank itself) as well as interest collected on US government securities. And who buys these securities you may ask?

While there are some ordinary folks who buy government bonds, by far one of the biggest investor in US securities is China. From the November 20, 2008 report titled, China’s Holdings of U.S. Securities: Implications for the U.S. Economy:

Given its relatively low savings rate, the U.S. economy depends heavily on foreign capital inflows from countries with high savings rates (such as China) to help promote growth and to fund the federal budget deficit. China has intervened heavily in currency markets to limit the yuan’s appreciation. As a result, China has become the world’s largest and fastest growing holder of foreign exchange reserves (FER). China has invested a large share of its FER in U.S. securities, which, as of June 2007, totaled $922 billion, making China the 2nd largest foreign holder of U.S. securities (after Japan). Some U.S. policymakers have expressed concern that China might try to use its large holdings of U.S. securities, including U.S. public debt, as leverage against U.S. policies it opposes. For example, in the past, some Chinese officials reportedly suggested that China could dump (or threaten to dump) a large share of its holdings to prevent the United States from imposing trade sanctions against China over its currency policy. Other Chinese officials reportedly stated that China should diversify its investments of its foreign exchange reserves away from dollar-denominated assets to those that offer higher rates of returns. The recent global financial crisis has heightened U.S. concerns that China might reduce its U.S. asset holdings. (www.fas.org/sgp/crs/row/RL34314.pdf)

In fact, making sure that China keeps on investing in securities (and subsequently making sure the FDIC has enough money to cover all the financial fannies that need covering) seems to be one of the first orders of the day for our newly appointed Secretary of State, Hillary Clinton. According to an updated entry in Wikipedia,

Nowadays, China is the first holder of US bonds. China owns so many US bonds, there is fear that if they stop buying them, the US economy would collapse. The bonds issue further links the US and China economies so tightly that both fear the consequences of a potential slow down in China’s purchase of those bonds. In her visit to China, US State Secretary Hillary Clinton called on authorities in Beijing to continue buying US Treasuries, saying it would help jumpstart the flagging US economy and stimulate imports of Chinese goods. (en.wikipedia.org/wiki/Treasury_security)

So let me see if I understand this correctly.

First, the FDIC is basically an assblanket for those banks deemed too big to fail, regardless of how many toxic liabilities they might have incurred; which allow them to stay in business when free-market practices would logically dictate that they either change business tactics or fail.

Then we pawn our kid’s financial future to highest bidder, China — which we need in order to keep funding the FDIC; which we need as an assblanket for the big banks.

The FDIC then keeps propping up the big banks while allowing smaller ones to go under which makes the remaining ones pay higher rates to the FDIC — the banksthen pass on these higher costs to the customer thereby making it even harder for the non-wealthy customers to save money.

Which makes sucking up to China even more important because we can’t take the chance on them using their holdings as leverage; on account of most of us don’t have any money saved up.

What. The. Hell.

That, boys and girls, is the very essence of moral hazard. The Powers That Be, the Grand Poo-bahs, the Dukes of the Almighty Dollar; decide which banks and companies are too big to fail (mainly the ones the uber-rich have their money invested in) buy a politician or two to make sure the legislation is in place to cover any potential losses on their end, skim the profits off the top before reporting quarterly losses, finally asking the puny depositors/workers to give them government hand-outs before downsizing and cutting jobs. And making it harder for the laid-off to file bankrupcy or refinance ARM mortgages- because that government money is by-God intended to be used by the rich to stimulate the economy. Duh.

There is a silver lining to this monetary shitstorm though; when China calls in its markers (and it will, what’s the point of holding markers if you never use them?) perhaps our new Chinese overlords can drill into our collective heads the importance of savings and investing-of planning for the future rather than going through our resources like Grant through Richmond. Then hopefully we can buy our country back.