Moral Hazard? Slabbed wipes our a$$ with Moral Hazard (Part 1)

Friday afternoon I decided to take on the broad topic of Moral Hazard, the concept for which this blog is unpinned. I collected links and research and then promptly experienced writers block for which even my gratuitous bashing of Rossie could not break. Then as per normal (and in true Talebesque fashion) Russell serendipitously emails me a link that ties things together. This becomes part 1 because there is no way I can tackle the topic in one post and do it justice. The bonus is I get to indulge a personal interest in Game Theory and of course poke some fun at what one observer calls moral hazard lite which represents the intersection of politics with the calamity that has shaken our banking system to its core. Let’s start with a quick definition of Moral Hazard:

Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions.

How does this “different behavior” that results from having no ri$k play out in the financial markets? We have a case study in progress commonly known as the bailout that provides some clues. Russell knows me as an intuitive trader when it comes to individual issues and I’ve been casually telling people this current rally in the financial services sector is an illusion in respects. We’ll have to retest our lows and that could happen as many as three times between now and Q4. Tyler Durden at Zero Hedge gives us a 2009 example to the old Wall Street saying, “Sell in May and go away” as he details why banks as a whole were surprisingly profitable the past two months. Hopefully this will stick with us when the bank execs collect their bonuses from these “results” down the road. Here are some snippets from the Zero Hedge exclusive: AIG was responsible for the bank’s January and February profitability:

Zero Hedge is rarely speechless, but after receiving this email from a correlation desk trader, we simply had to hold a moment of silence for the phenomenal scam that continues unabated in the financial markets, and now has the full oversight and blessing of the U.S. government, which in turns keeps on duping U.S. taxpayers into believing everything is good. Continue reading “Moral Hazard? Slabbed wipes our a$$ with Moral Hazard (Part 1)”

The Daily Slab – March 30

An aerial view shows a house with a sandbag levee is surrounded by floodwaters south of Fargo, North Dakota March 29, 2009.

All the sandbagging seems to be paying off for folks in North Dakota – so far – but it will be touch and go until river drops another couple of feet. However, it was all go for a young couple who married “surrounded by family and flood water”.  More pictures from North Dakota are here.

Closer to home, a Moss Point school will be closed today because of flooding.

Orange Lake Elementary School in Moss Point will be closed Monday due to flooding.

“This is the only school in the district at this point that is closed, but people should stay in touch with the media,” Myya Robinson, director of communications for the Moss Point School District, said Sunday night.

Tobacco lawsuit dollars tracked from Clarion-Ledger reporter Jerry Mitchell  story in the Sunday paper could lead one to believe Merkel is tracking reporters after Delaughter’s strong showing in last week’s motions – for example, this footnote from the Motion to Dismiss Counts Two, Three and Four:

The indictment concedes that Judge DeLaughter’s rulings in the Wilson v. Scruggs litigation were “not plainly unlawful.” Indictment at 2, ¶ 7. We take that double negative to mean that his rulings in fact were lawful and that the government will not attempt to show that any of Judge DeLaughter’s rulings favoring Scruggs was erroneous. (Judge DeLaughter made a number of rulings favoring Wilson during the indictment period. We assume the government will not contend that those rulings were erroneous.)

More during the the day as news comes our way – or yours.