Bible Studies
Written by Jim Jordal   
Friday, 28 August 2009


By Jim Jordal

"But godliness with contentment is great gain.  For we brought nothing into the world, and we certainly can't carry anything out.  But having food and clothing, we will be content with that.  But those who are determined to be rich fall into a temptation and a snare and many foolish and harmful lusts, such as drown men in ruin and destruction.  For the love of money is a root of all kinds of evil. Some have been led astray from the faith in their greed, and have pierced themselves through with many sorrows."

I Timothy 6:6-10 (WEB)

In this biblical passage the apostle Paul points out to his student and co-worker Timothy what we could call the moral hazards associated with greed and the determination to become rich. The hazards Paul speaks of are many, almost to the point of being so numerous as to be beyond enumeration. But they are very real, working toward the subversion of decency, justice, mercy and even life itself, as well as destruction of society and the physical earth. Worst of all, this crazed search for money violates the concept of righteousness, or right relationships between humans and God, between ourselves, and between us and nature.

Economist Paul Krugman in his book, The Return of Depression Economics, relates that the term "moral hazard" as it relates to finance got its start in the fire insurance industry many years ago when adjusters began to notice that fully insured buildings owned by people in financial difficulty had a considerably higher incidence of arson than other buildings did. So a certain moral hazard existed for the owners of such buildings as the temptations of a huge insurance settlement exceeded their respect for the law and their fear of punishment.

The concept of moral hazard soon came to mean any financial situation in which one group of people (financial speculators) determined how much risk to take and another group (taxpayers) picked up the losses when things went sour. Fast forward to the current situation in the world financial industry. Could it be that there exists a considerable moral hazard associated with access to and control of hundreds of billions of other people’s money? And could it be that whatever moral hazard exists already is greatly exacerbated by the fact that hedge fund and private equity capital managers can make billions in profit from this manipulation of the money of others, but lose nothing when their highly-leveraged and extremely risky financial vehicles collapse?

Well, folks, that’s the way it is. That’s the joy of investing with other people’s wealth. You might now ask, But where does all this excessive wealth come from? Did it exist a generation ago, or is it relatively new?

There have always been people with what we might call excessive wealth, but in the years since the end of World War Two this wealth was usually invested with long-term efforts involving job creation, research and development, and innovation. Not so true today. The real avalanche of wealth began with the first Reagan tax cuts in the early 1980s and reached their peak under the first administration of George Bush. After 30 years of dedicated tax cutting the marginal federal income tax rate (the rate on extra dollars of income) fell from 70 percent to its present 35 percent, thereby on this measure alone doubling the after-tax income of the very rich. Now if you add innumerable tax shelters and subsidies to businesses owned by the very rich, you’ll begin to understand why there is so much "hot" money floating around these days.

How bad is it? According to some sources the total financial wealth of the top 1 percent exceeds the total family wealth of the combined bottom 90 percent of Americans, and the disparity is increasing. The share of national income accruing to the top 1 percent has doubled over the past generation while the share of the middle classes has actually dropped over the same period. The only thing that has kept consumer spending alive was that the middle class—more and more unable to live on one wage--put more family members to work, cashed in much of their home equity, and took on mountains of credit card debt. So the problem is bad, even severe.

A potentially devastating moral hazard exists when the owners of great wealth forget that their good fortune in the final analysis comes largely from the labors of others. When arrogance and apathy toward the plight of the bottom billions of people on the margins of world society replaces compassion and generosity—watch out. And when the people making the investment decisions don’t have to be responsible for losses, then a bigger—watch out. And when all of this comes together, you have a financial meltdown such as we’re now experiencing.