No Permanent Majorities In America
Cartoony Politics in Canada
Being President 101
Failure To Blow Election Stuns Democratic Party Faithful Mourn End To Losing Tradition
Hope Is On The Way
The Future Is Upon Us
Illinois Outdoes Itself
Environmentalists Disregard Public Safety
There's Something About Harry
The White Collar Lament
What Good Can Come Of This?
Dummies
If The Shoe Fits Hurl It
Obama The Magic Negro-Gate
Sick Of The Doom And Gloom?
Crazy Like A Fox
Out With The Old
Remember The Empty Chairs At Holiday Tables
Who Are The Real Nazis?
The Gaza Rules
Harper's Weekly
The Mortgage Thieves Return
Bringing A Bit Of Fairness To The American Workplace
Bye-Bye 2008: Things I Want To Forget
The Fierce Urgency Of Now
How Many Government Workers Does It Take To Change A Light Bulb?
The Perils And Joys Of Self-Esteem
The Future Of Civilization
'Hunk' Obama Can Help Nation Fight Obesity Epidemic
Moral Clarity In Gaza
Obama's Tax Cuts Leave Logic Behind
Talking About Sex-Ed That Works
The Time Is Now
Et Al Ad Nauseam: 2008 And All That
The Generational Theft Act Of 2009
Pay Rod Gives Democrats Fits With Senate Choice
'Tis The Season To Be Jolly. Or At least Try
Gaza: The Dove'S War
Hamas Rockets Blew Away Gaza Opportunity
Season's Readings
Old Acquaintances
A Social Trauma For Obama: Youth Crime
Sensitivity And 'Gran Torino'
A Question For My Friend Alan Dershowitz
The Unsung Hero Of Obama'S Victory
Red Ink Did Me Good
Barack in Limbo
A Hard Year Ahead
Ask Not For Plum Political Appointments
Eric Holder And All Political Prisoners
Mideast Overshadows Obama's Prospects
A Clean Start
Year-End Odds And Ends
Team Obama Dabbles In Drama
The Gamble in Gaza -- Interview With Aaron David Miller
Cal Thomas-Bonus
A Respite From Reality
One Nation, One People-God Bless Us Everyone
Dr. Leavitt's Scary Diagnosis
Rich People Versus Politicians
Richardson's Exit And The Vetting Process



Michael Barone
Managing Risk In An Unstable World
Michael Barone 11/29/2008
Digg This Story!
Del.icio.us Reddit StumbleUpon Yahoo! MyWeb Technorati Google Bookmarks Furl Ma.gnolia Newsvine Bloglines Rojo Facebook
How can we reduce risk for individuals? That's a natural question when a financial crisis has vaporized trillions of dollars of personal wealth in residential real estate and financial instruments. The problem is, when you try to reduce risk for individuals too much, you end up making things much more risky.

Case in point: the financial system over the past decade. Our current difficulties arose from "the idea," as Nicole Gelinas describes it in the New York Post, "that any loan, bond or other bank asset could be sliced up and turned into an instantly liquid, priceable and tradeable security, with all its risks engineered away." The securitization of mortgages seemed to reduce risk for everyone — for the lender (who avoided risk of non-payment by selling the mortgage), for the borrower (who got the mortgage at a lower rate than otherwise) and for the purchaser (because all those mortgages couldn't got belly up at once, could they?).

The problem was that the risk models were based on the experience of only the last seven years or so, and that both the Clinton and Bush administrations and Fannie Mae and Freddie Mac encouraged the granting of mortgages to borrowers who were, by previous standards, non-creditworthy.

So eliminating risk ended up creating huge risk for everyone — so huge that just about no one,
even the Treasury armed with $700 billion — wants to purchase the securitized mortgages in bank portfolios.

Or take another case recently in the news. The United Auto Workers, a forward-thinking union, wanted to eliminate the risk for its members of retiring without comfortable pensions and entirely free medical care. So they negotiated contracts with what we used to call the Big Three U.S. auto companies that guaranteed UAW retirees big pensions and free medical care for life.

But that assumed that the companies could always fund those benefits. If, as now seems possible, the Detroit Three go bankrupt, those pensions will be replaced by limited government pensions and those free retiree health benefits will vanish altogether. Eliminating risk turned out to be very risky.

Which is my answer to those, like Yale Professor Jacob Hacker, who advocate public policies to reduce risk for individuals. In his book "The Great Risk Shift," Hacker argues that the move over the past 25 years from defined-benefit pensions (in which an employer pays into a pension fund) to defined-contribution pensions (in which an employer pays into every employee's personal investment account) makes life unbearably risky for ordinary people. And to be sure, almost everyone's 401(k) account has shrunk over the last three months.

Add Feed to ZapTXT Add Feed to Bloglines Add Feed to Technorati Add Feed to LibWorm! Add Feed to My Yahoo! Add Feed to Google Add Feed to Newsgator Add Feed to Rojo Add Feed to Windows Live Add Feed to My MSN
Credit Freeze-COLOR
By RJ Matson - The St. Louis Post Dispatch * Posted 10/13/2008 12:00:00 AM
Post to MySpace!
Comment
Email
Credit Freeze-COLOR
© Copyright 2008  RJ Matson - All Rights Reserved.

Posted By: Dave  on Tuesday, December 02, 2008

This column's not too bad except for one thing: There is far less uncertainty about climate change then the author believes. Action on this is needed urgently. The risk of climate change far exceeds anything that can happen with Social Security for example -- unless fixing Social Security involves killing a bunch of people through natural disasters. Hmm.



And by the way - come back when you've talked to some behavioral economists. Classical economics is very bad at predicting human behavior.

Make A Comment
We appreciate your feedback. Post a comment using the form below.
Your Name (required)
Your Comments
Type the characters you see in the image:
 
Please contact your local newspaper editor if you would like to see the Michael Barone column in your hometown paper.





© Cagle Cartoons, Inc., All Rights Reserved; Artwork and Columns © each respective artist and writer.