What We Don’t Know Can Hurt Us

DECEMBER 2008: AS WE SEE IT

by Jack Van Ens

“Ignorance is bliss,” we say. “What we don’t know can’t hurt us,” we say. But historian David McCullough, two-time winner of the Pulitzer Prize, flipped these adages on their heads in a recent speech at the University of Denver. He warned, “What we don’t know can hurt us,” especially for those who regard history as series of boring past dates and events.

Many speculators caught in the mortgage meltdown and the financial collapse on Wall Street don’t seem to want to admit their greed. But it clearly was greed, more than unwise management on Wall Street, in Washington, and on Main Street, that decimated a stock market built on cheap credit. Bankers, politicians, investors, and the guy wanting a house he couldn’t finance winked at the fundamental economic wisdom Jesus taught. “Take heed,” warned Christ, “and beware of all greed; for a person’s life doesn’t consist in the abundance of his possessions” (Luke 12:15). An insatiable appetite to accumulate more, given time, causes economic disaster.

When many of our leaders and citizens refer to Wall Street’s precipitous decline, they lament greed but describe what happened in morally neutral terms. In an interview with The Wall Street Journal on October 12, 2007, when the market began its downward spiral but when few had as yet pressed the panic button, President George W. Bush used descriptive, but not moral, language to justify the widening income gap. “First of all, our society has had income inequality for a long time. Secondly, skills gaps yield income gaps. And what needs to be done about the inequality of income is to make sure people have got good education, starting with young kids.”

Notice how the President used literary Lysol to cleanse speculative greed on Wall Street of any ethical coloring. His line of argument eclipses, and perhaps quietly justifies, greed. Smart investors make big money, as has always been true. Savvy skills benefit them and leave most of us far behind. So, get more education and then citizens can learn to grease the system and prosper.

It’s not surprising in his first television speech to the nation about our financial peril, Bush had Washington plead ignorance. Beltway government officials watched while banks bought risky portfolios, citizens purchased homes with nothing down, and Wall Street invested hedge funds and derivatives so complicated that Uncle Sam didn’t know how to regulate them. “There’s a sense that if policy makers [who are paid to regulate] were surfers,” asserts economist Robert Brusca, “they would have missed every wave.”

There’s not a whisper of unethical behavior causing our financial plight in the president’s report. The dynamics of dire collapse are described in morally neutral language. The meltdown, according to Washington insiders, occurred because our financial wizards followed bad advice. It wasn’t because they were greedy people.

In a provocative commentary, The Wall Street Journal‘s Daniel Henninger tells of how our society manipulates “moral hazard” (WSJ October 2, 2008, p. A17). He writes of how Fed Chairmen Alan Greenspan and Ben Bernanke have used this venerable phrase before congressional committees investigating excessive financial risk. What does “moral hazard” mean? “Moral hazard,” writes Henninger, “is an odd phrase. Its meaning isn’t obvious though it does sound like something one ought to avoid. ‘Moral hazard’ dates back hundreds of years in obscurity, but its use eventually settled inside the insurance business in the 19th century. The French call it “risqué moral.”

Henninger traces how speculators emptied “moral hazard” of ethical impropriety. “In time,” notes Henninger, “the economists got their hands on ‘moral hazard,’ and the first thing they did was strip out the heavy moral freight to make the concept value-neutral. Now moral hazard became less about judgment and more about the economic ‘inefficiencies’ that occur in riskless (sic) [risky] environments.” At congressional hearings, commercial banking executives avoid admitting any “moral hazards” on which they gambled. They plead blindness in not seeing Wall Street’s implosion coming. Few confess, moral turpitude or greed.

Architect Louis Sullivan nearly a hundred years ago had inscribed over the door of a bank he designed the word THRIFT. Thrifty savers don’t squander. Thrifty investors pay as they go. They shun speculation that honors no bottom line. But when was the last time a Wall Street bank advertised they were in the business of thrift? Or promote savings over chancy loans? What bank advertises its prime business as helping customers and Uncle Sam invest in virtue? Didn’t thrifty Ben Franklin adopt the language of moral hazard when he coined the adage “a penny saved is a penny earned” ?

Thomas Jefferson and James Madison clashed with Alexander Hamilton in 1791 when Congress passed a bill creating the Bank of the United States. Jefferson warned that the Constitution never gave its stamp of approval to the Bank nor did constitutional articles validate it. He detested concentrated wealth breeding corruption, gargantuan debt, and influence peddling. The Bank would destroy the virtue that formed the basis of our Republic’s governance.

Like Jesus, Jefferson believed in prosperity built on virtuous thrift. He warned against financial peril that morally hazardous greed spreads. Jefferson’s words come from the earliest days of our republic but are clearly as relevant now as ever.

Jack Van Ens is the executive director of Creative Growth Ministries in Arvada, Colorado.