Monday, September 22, 2008

"The working man gets hurt the worst if you don't save the rich ones first"

I've posted a couple of times before about Merle Hazard, the financial analyst turned country music singer, but it seems he just keeps getting more topical every day. The Holy City of Washington has never needed Merle's lyrical wisdom more urgently than it does right now, as the Treasury Department is on the verge of bailing out nearly every big investment firm that wasn't already bailed out by the Federal Reserve earlier this year.

The issue Merle sings about the most is what economists call "Moral Hazard," which is what happens when you assure financial gamblers that the government will save them from the consequences of their risky behavior. That is to say, they indulge themselves in even more risky behavior than they would have otherwise. They're relentlessly logical in that way.

Merle's lyrics never fail to be on the cutting edge of financial news. A major goal of Treasury Secretary Paulson right now is to overturn the 'mark-to-market' accounting rule for valuing mortgage-backed securities, something that would save the big firms from having to honestly report the diminishing market value of their assets. Well, Merle saw that one coming:

Now the CMOs [Collateralized Mortgage Obligations] ,
And the other mortgage-backed securities
Are gettin' marked down to market causing much unease
In the Hamptons

Much unease, indeed.

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