** MONEY & MORALITY: your thoughts? **

codger

Just wondered: where does an individual's reponsibility for his or her own actions begin or end?

Here's a UK banking executive who benefited from his bank's pursuit of excessive profit. His bank has just been bailed out, thanks to £billions of public money.

He's OK though. He hasn't lost a penny.

Now. . . here's a UK IceSaver customer who benefited from an interest rate return in excess of many another savings product. His savings have just been assured, thanks to £billions of public money.

So he's OK, too. He hasn't lost a penny.

The banker who profited from the bank's conduct must have known -- and if he didn't, then that's no excuse, is it? -- that embarking on a course of action in defiance of fiscal sense must inevitably court serious risk.

The saver who profited from IceSave's interest rate must have known -- and if he didn't, then that's no excuse, is it? -- that embarking on a course of action in defiance of commonsense must inevitably court serious risk.

After all: if you were running a bank in a sensible fashion, you wouldn't have made loans of a nature that could run into difficulties come pay-back time.

And if you were saving in a sensible fashion, you wouldn't have deposited your money in a place where you might run into difficulties getting it back.

But then in this instance. . . the banker, and the saver, are both OK. 100% safe. Both set out to get the best deal. Both succeeded.

Only the public purse has been placed in harm's way. To the tune, now, of several £billion.

Yes, the scale of magnitude is different. But is anything else different in terms of risk and consequence, responsibility and absence of responsibility?

Or have we now reached the stage that whatever actions we undertake in matters monetary, those actions -- thanks to the safety net of a public purse funded by those who never took any such risks in the first place -- are never going to be accountable?

Just wondered. . .

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Execlellent question, Codger.

This is where regulations are necessary to ensure Moral Hazard is not abused. But not too much wasteful bureaucracy please.

For an expalanation of the term see http://en.wikipedia.org/wiki/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. For example, an individual with insurance against automobile theft may be less vigilant about locking his or her car, because the negative consequences of automobile theft are (partially) borne by the insurance company.

Moral hazard is related to information asymmetry, a situation in which one party in a transaction has more information than another. The party that is insulated from risk generally has more information about its actions and intentions than the party paying for the negative consequences of the risk. More broadly, moral hazard occurs when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information."

silvercar

Would anyone have objected if the chancellor had said:

I'll guarantee you will get all your money back;

I'll guarantee you can keep your ISA tax wrapper;

I'll guarantee that you will get all interest upto the day your money is returned;

BUT I'm only going to pay interest at the level of the highest interest rate paid by a british bank at the time.

magicdogsbrain

codger wrote: »

Just wondered: where does an individual's reponsibility for his or her own actions begin or end?

Here's a UK banking executive who benefited from his bank's pursuit of excessive profit. His bank has just been bailed out, thanks to £billions of public money.

He's OK though. He hasn't lost a penny.

Now. . . here's a UK IceSaver customer who benefited from an interest rate return in excess of many another savings product. His savings have just been assured, thanks to £billions of public money.

So he's OK, too. He hasn't lost a penny.

The banker who profited from the bank's conduct must have known -- and if he didn't, then that's no excuse, is it? -- that embarking on a course of action in defiance of fiscal sense must inevitably court serious risk.

The saver who profited from IceSave's interest rate must have known -- and if he didn't, then that's no excuse, is it? -- that embarking on a course of action in defiance of commonsense must inevitably court serious risk.

After all: if you were running a bank in a sensible fashion, you wouldn't have made loans of a nature that could run into difficulties come pay-back time.

And if you were saving in a sensible fashion, you wouldn't have deposited your money in a place where you might run into difficulties getting it back.

But then in this instance. . . the banker, and the saver, are both OK. 100% safe. Both set out to get the best deal. Both succeeded.

Only the public purse has been placed in harm's way. To the tune, now, of several £billion.

Yes, the scale of magnitude is different. But is anything else different in terms of risk and consequence, responsibility and absence of responsibility?

Or have we now reached the stage that whatever actions we undertake in matters monetary, those actions -- thanks to the safety net of a public purse funded by those who never took any such risks in the first place -- are never going to be accountable?

Just wondered. . .

I could not possibly agree more.

Everyone who is not involved has been robbed IMHO.

Also consider those careful individuals that split their money between icesave and other banks so that their money was secure (taking a lower rate with the other banks). Will those people get compensated - not a chance!

codger

Thanks for that: gosh, I've never seen moral hazard explained in such terms (it used to be what my mother warned my sister about where boys were concerned. . .)

I'm just hoping that from the current wreckage some new perspective emerges and some renewed sense of individual responsibility -- I don't want any IceSaver to lose out, and I know that we (as a country) can afford to help them on this occasion, but, but, but. . .

Enough is surely enough.

Next time, a compensation limit must be a compensation limit, regardless of emotion, of sentiment, or political posturing.