"The unedited musings of a recovering madman"

Moral Hazard

Most of us have read about the proposed futures market on Terroism on July 31, 2003.  It was quickly struck down by the screaming politicians.

I guess I am so much more concerned with the aspect of dealing with widespread fear and paranoia, I overlook the issues that might be created by a moral hazard such as this.

If you want to read about the academics view point, there is a nice piece on Moral Hazard here by Rice University.

However, I don't see the real moral hazard trigger referenced.  I don't know whether people are sweeping it under the rug or are just blind to it--Genetic Testing.

There was an interesting case: http://www.wired.com/news/technology/0,1282,42971,00.html  of genetic testing in the news.  It was of course a victim of the moral hazard formula and therefore we'll see more of this coming soon.

Here's the bottom-line since I don't have time to develop this today...if there are no global standards and everyone is not on the same playing field, such as we have today with labor laws, human rights, employee rights, you name it, THEN I suspect that business will use the "moral laws" of one culture to provide the cost savings (it already is) to its customers, who GLADLY lap up the products and services they provide at a lower cost.

The real MORAL HAZARD is not any one things, it is the disparity in value systems that will literally place "selective pressure" on business to do what it has to survive.  The real MORAL HAZARD is the pressure of one "value system" to compete against another with the constraints in place of that value system, if you catch my drift.

The simple rule: Price is the determining factor of a purchase.

We're in big trouble as this energy dissipates through the system, if we don't change the simple rule above and many others that will literally bankrupt middle America.  Those of us who see the simplicity of what's taking place will be quick to take advantage--as a wellth mindset does--of the effects of this granddaddy of them all--moral hazard.

I read something this morning on McKinsey here  ...about China and the companies that are aligning with it.

"China’s industries become more open to foreign investment, alliances with local companies represent an attractive and profitable option for many global corporations."

Here's another way of looking at Moral Hazard.  If only the people in the know, the people who are wealthy, connected, on the inside know how to navigate these waters, then won't they be the one's to reap the big value from the success?

YET, won't it come on the backs of those least able to be involved--their noses are to the grindstone milling the profits of the wealthy--without sufficient time themselves to realize the world continues to help them digger a bigger hole?

Is that a moral hazard?

It's really funny what's called a MORAL HAZARD don't you think?

I guess it depends on your point of view.

Mike Jay, August 2003

© On The Professional Edge