Moral Hazard

The United States is slowly climbing out of what has been termed, “the great recession.”  Millions upon millions of people have suffered losses of one kind or another during the course of the recession.  Many have lost their jobs, their homes, and their savings.  Foreclosures, bankruptcies, and unemployment have also caused a serious spike in anxiety and depression.  Repercussions of this great recession will drag on for years, altering the course of peoples’ lives for as long as they live.  Many seniors have had to delay retirement for years, some permanently.  Millions are shackled with houses that are “upside down,” worth far less than what is owed on the mortgage.  Millions of young people are heavily burdened by student loans in a labor market that does not provide sufficient good-paying jobs to pay off their debts.  The future looks bleak indeed for college graduates who want to buy a home, marry, and start a family.  What a mess!

Many theories have been put forward as the cause of our plight.  Some say we have lost our competitive edge.  Some say we have exported our good jobs.  It is popular to blame the banks or blame the one percent.  Many economists tell us it was a “bubble” that burst, a bubble caused by easy credit, risky mortgages, and consumers willing to take on more debt than they could afford.

No matter which factor or combination of factors brought our economy to its knees, there is one overriding fear in the minds of almost all the experts—moral hazard.  Moral hazard is defined in the Fifth Edition of the American Heritage Dictionary of the English Language as, “The risk that an individual or organization will behave recklessly or immorally when protected from the consequences.”  At the individual level, the great fear is that millions simply walk away from their obligations, leaving lenders and investors “holding the bag,” as they say.  At the corporate and organizational level, it is the fear that large institutions shed debt through bankruptcy and/or reorganization, once again harming bond holders, pension funds, and small investors by leaving them holding worthless I.O.U.’s.  Perhaps even more serious is the prospect of our municipalities and federal government defaulting on their debts.  Moral hazard is a very serious matter with dire consequences.  It can spread like a financial virus, sickening the whole nation if not held in check.

The Root Cause

We find ourselves on the brink of contagious moral hazard because it is a consequence of ideas planted in the minds of young Americans thirty to fifty years ago.  Very closely related to moral hazard is moral relativism.  Moral relativism is defined in the aforementioned dictionary as, “The theory that value judgments, as of truth, beauty, or morality, have no universal validity but are valid only for the groups or persons holding them.”  The idea that truth and morality depend on the individual or upon circumstance gradually became accepted over time, beginning about two generations ago.  As truth and morality became matters subject to personal philosophy and ethos, society began to change.  Slowly what was unacceptable became acceptable and vice versa.  I contend that the seeds of what we are harvesting today were sown two generations ago.  I like to use agricultural analogies, so here is one that has been used down on the farm for a long time: “The chickens are now coming home to roost.”

Moral hazard is a very real threat today because too many people rationalized their behavior by deciding for themselves what was right and what was wrong.  Our whole society was at fault for facilitating a condition of moral decay.  Instead of accepting personal responsibility, too many held the notion, I will do what is best for me and place the burden of risk on the rest of society.  Examples abound, and here are a few.

  • The lending agent who knowingly provides a mortgage to someone with insufficient income so the agent can pocket the commission, and then sells the loan to another party.
  • The borrower who signs the mortgage knowing they cannot or soon will not be able to make the payments, often assuming they can hold on long enough to sell at a profit.
  • The house flipper buying multiple homes, fixing them up a little, sometimes just applying a coat of paint, and selling to the next flipper for a profit.  This “artificial demand” drove prices up even faster, making it hard for legitimate home buyers to purchase at a fair price.  During the frenzied real estate market from 2004 to 2007, it is estimated that 30% of all house purchases were to flippers.  Homes were never meant to be traded like stocks and bonds, nor were they meant to be gambled with.  Homes are meant to provide shelter and build equity over time.
  • Bankers who resold mortgages for profit to investment houses, so they could bundle them up in collateralized debt obligations (CDO’s) and sell them in traunches to unsuspecting pension funds, IRA plans, municipalities, and foreign investors.
  • Hedge fund managers investing in derivatives and in unregulated opaque markets, many times with inside information.
  • Insurance companies insuring and often reinsuring investments over and over as they were traded among all the aforementioned participants—well beyond their capacity to cover losses in the event of collapse.  But they knew moral hazard was okay, because after all, Uncle Sam and the Feds would come to the rescue if things got too bad.

Enough people took advantage of moral hazard that they turned the nation’s housing stock into a huge casino with our homes as the chips.  The sad fact is that millions of Americans had to participate in these shenanigans in order for the bubble to get so large.  In just two generations, moral relativism and moral hazard nearly caused America to “lose the whole farm,” as they say.

Reaping What We Sow

Galatians 6:7 is a verse that all of us would be wise to memorize: “Do not be deceived, God is not mocked; for whatever a man sows, that he will also reap.”  This cause-and-effect principle is as certain as the law of gravity.  God set this “law” in motion for the benefit of mankind, and there is nothing you, I, or anyone else can do to circumvent or diminish it.  God wants us to learn that it is good for us to obey Him and live by His timeless precepts.  “Loving thy neighbor as thyself” (Matthew 22:39) is a good place to start.

Any farmer will tell you that in order to have a good crop, one must start with good seed.  Seed derived from strong, healthy, and productive plants is essential.  Planting “clean” seed is also very important.  Clean seed is seed that has been carefully winnowed and processed to remove weed seed and other chaff from the grain.  Unclean, contaminated seed, if planted, will yield more and more weeds and disease with each successive planting season.  Within a few generations, various weeds and disease will have completely overwhelmed the crop.

A third factor necessary for a good crop is good soil. Rich, well-prepared soil planted with good clean seed then only needs sunlight and water to produce a bountiful harvest year after year—if we keep the weeds out.  Each human being is physically composed of soil that contains the seed of life, a miniature garden, so to speak.  From infancy, this garden must be maintained, cultivated, and protected from the many weeds, pests, and diseases that want to find their way into that soil and wreak havoc.  God wants to implant the seed of His word into our gardens to cross-pollinate, as it were, with our seed by sowing it in our garden.  He wants to produce a bountiful crop, a crop full of His wonderful character traits spoken of in Galatians 5:22-23: “But the fruit of the Spirit is love, joy, peace, longsuffering, kindness, goodness, faithfulness, gentleness, self-control.”  We would love to have citizens throughout the land who possess these fruits.

God is indeed a master farmer and gardener working with the soil of humanity. It is no accident that Adam was made of “the dust of the earth” (Genesis 2:7) and placed into the Garden of Eden (Genesis 2:8).  James 5:7-9 reveals God to be a patient farmer sending rain and sunlight (truth) to fall upon the soil of our minds and hearts: “Therefore be patient, brethren, until the coming of the Lord.  See how the farmer waits for the precious fruit of the earth, waiting patiently for it until it receives the early and latter rain.  You also be patient.  Establish your hearts, for the coming of the Lord is at hand.  Do not grumble against one another, brethren, lest you be condemned.  Behold, the Judge is standing at the door!”  Indeed we must cooperate and use our free will to assist God as the master farmer.  He wants us to tend our garden and care for our seed, our seed as individuals and our offspring!  When we die, our legacy as a nation is the garden and the seed we leave behind.  God is not mocked—we reap what we sow.

Christ indeed sowed good seed when He walked the earth.  That seed entered the hearts and minds of humanity with the full intention of proliferating throughout the earth, culminating in a peaceful, joyful, and compassionate world.  His arch enemy Satan sows his seed of discord, hate, deceit, perversion, and selfishness.  Satan has more ways to sow, disseminate, and nurture his insidious crops than ever before.  Moral relativism and moral hazard provide the nutrients in our soil to make his evil fruit thrive.  We do not have to cooperate with him.

Read the parable of the sower in Matthew 13:1-9 and Christ’s explanation in verses 18-23.  We can provide Christ with various types of soil in which to sow—thin soil, rocky soil as in hardheartedness, thorny weedy soil, or good soil.  We can provide human seed that is clean and ready to cross-pollinate with Christ’s good seed, or we can provide contaminated seed.  We have a huge part to play.

The future of our families and our nation is at stake.  Are we going to continue to gamble with our children and our grandchildren?  We are witnessing the resultant crop of two generations of moral relativism and moral hazard.  Perhaps the pain, suffering, and heartache we are now experiencing will be enough for us to change our course.  Hosea 8:7 tells us that if we “sow the wind, we will reap the whirlwind,” and that the plants in our gardens will not produce goodness.  Proverbs 22:8 states unequivocally that he who sows iniquity will reap sorrow.

James 4:7-8 shows us what to do: “Therefore submit to God.  Resist the devil and he will flee from you.  Draw near to God, and He will draw near to you.  Cleanse your hands, you sinners; and purify your hearts, you double-minded.”  Do not allow evil into our homes to infect the minds of our young.  Proverbs 22:6 prompts us to “Train up a child in the way he should go, and when he is old he will not depart from it.”

Deuteronomy 4:7-9 promises that a great nation is the result of teaching our children and grandchildren the ways of God.  God is never mocked.  For that reason, if we follow His precepts and teach our children, we will be blessed with safe schools, peaceful streets, and physical prosperity.

Suggested study aids:

  • CD: “The Great Paradox:  Violence inAmerica”
  • CD: “We Reap What We Sow”
  • Booklet: Battleground Earth
  • Booklet: The Two Trees