Filler: Moral hazards go beyond big banks

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Twice in the past 10 days, JPMorgan Chase chief executive Jamie Dimon has appeared before a congressional committee. He was summoned to talk about massive losses his bank suffered, and is continuing to suffer, because it put money in investments so complex they carried risks that Dimon himself, and his genius money trolls, didn't understand.

Leaving aside the idea that there are now investments so complex the world's top financial minds don't have any idea how much they'd cost if they blew up like Alec Baldwin near a photographer -- and there are many such instruments -- let's focus on another facet of Dimon's testimony on June 13. He said his bank is not too big to fail.

Not too big to fail? That's like saying Shaquille O'Neal isn't too big to enjoy tooling around the driveway on a Big Wheel. If JPMorgan, with $2.3 trillion in assets, $1.1 trillion in deposits and $71 trillion in derivatives exposure, goes down, we'll all be wearing bear skins and eating stewed weasel. On the good days.

The problem, we're told, with banks that are too big to fail is a lack of "moral hazard." That means when the folks who run these institutions know the government can't let them go belly up, they make 19-sided derivative swaps based on third mortgages taken out by roller rink operators and secured by used disco balls. If the deal makes scads of money, the bankers get bonuses. If they lose it all, well . . . still bonuses. Dimon, disliking the negative connotation of "too big to fail," knows all this as well as anybody.

But the lack of moral hazard in America goes beyond banks. We seem to be trying to create a society in which no one can truly fail, and we're getting a nation where there is less and less incentive to behave prudently.

Every social program, as much good as it might do, strikes a blow against moral hazard. Unemployment insurance, which many people have received for as long as two years during the current recession, helps folks get through tough times, but economists agree it also keeps some of them from taking jobs. Few people would take $300 per week to trim hedges if they can get $300 per week to not trim hedges while they wait for a wage offer they can actually live, or even better, thrive, on. Take away the $300, though, and that bad job starts to look better. Extended unemployment benefits aren't the only reason there are 3.4 million unfilled jobs in the United States, but they are a reason.

Let people know that if their income is low enough, the government will give them food, and they won't have nearly as much inclination to earn food money as they would if they were down to carpet-lint soup. Provide shelter to those who can't provide their own, and folks feel less desire to hustle for housing than they would if an underpass in Cleveland were their winter home.

Why is Social Security going broke? It's been bailing out seniors who are too small, and too beloved, to fail. People who retired at age 65 in 1980 took 2.8 years to recover the money they paid in, but had a life expectancy of 81.4 years, meaning an average of 13.6 years of free ride. That gap has shrunk as payroll contributions to Social Security have been increased, but it's still there.

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Medicare is the scariest liability our nation faces, because the employer-worker contribution total is only 2.9 percent of pay, not nearly enough. Where is the rest of the money for the custom hips and designer knees? Government bailouts for granny.

If we keep adjusting society to try to eradicate failure, we will end up stewing the weasel, metaphorically, and wearing the bearskin. But it mostly won't be because we decided the banks were too big to face the consequences of their actions. It will be because we tried to legislate away consequences altogether.Lane Filler is a member of the Newsday editorial board.

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