Immoral Hazard

The crash of 2008 and the recession that followed were the result of a speculative real estate frenzy fueled by reckless lending. It ruined millions of lives. Most were people who never accepted a bad loan, flipped a house, or gambled in a frothy market. They suffered the fallout, but banks and other lenders deemed too big to fail were bailed out at taxpayer expense, and no financial crook, executive, designer or trafficker in toxic credit instruments wound up in the clink.

Those who were outraged at this spectacle screamed moral hazard — the notion that there must be painful disincentives for bad behavior or more bad behavior is what you’ll get. Some reforms were introduced, including tighter bank regulations and a consumer financial protection agency, but the Trump administration is busy rolling them back so high rollers can prey on the suckers yet again, and put the wider economy at hazard. So soon do we forget the high price of laxity in this amnesiac nation.

And now, Houston provides us with another chance to acknowledge bad, or at least careless behavior, and erect rules that make it too expensive to gamble with other people’s lives. After all, the fact that Houston is built on land that has been undergoing big, bigger and now biggest floods for a century is hardly news. One, in 1935, was so bad that steps were taken to channel water, build reservoirs and avoid another disaster.

It worked for a time, but Houston’s explosive growth has long ago made those fixes obsolete. Since the beginning of the 21st century, Houston has growth 35% in population, added almost 500,000 new housing units, and has done almost nothing to mitigate the dangers and potential expense of flooding. Indeed, it has made the risks worse by paving prairie, building on flood plains, and refusing to force buildings to be elevated out of harm’s way.

Texas is an anti-government, anti-regulation bastion of unfettered free enterprise. Capitalism of this sort may pay a lot of dividends, for the capitalists, but it also produces a lot of collateral damage when the costs it imposes aren’t borne by the villains but can be passed on to innocent bystanders. And that’s what’s about to happen again, post-Harvey.

Climate change is making weather catastrophes more frequent, and unrestrained, under-regulated overbuilding are making weather catastrophes more costly, among them Katrina, a little over a decade ago, Sandy in 2012 and major flooding in Houston in 2001, 2015, 2016 and now Harvey. Each time, Houston is rebuilt, often at taxpayer expense, which is rich given the antipathy of Texas to the intrusive federal government with its regulation, taxation, waste and abuse.

Texas libertarians are all for laissez faire and states’ right until their carelessness, greed and folly come home to roost. Then they expect a helping hand from Big Brother. Aren’t we all Americans, neither blue nor red? Apparently, only when it serves the pocketbook of those who the rest of the time want to live free or die. Texas Sen. Ted Cruz famously led the fight not to spend federal dollars to help liberal New Jersey after Sandy, but now is all for dipping into federal coffers to help conservative Texas recover.

One reason Houston is a boomtown is because of its fossil fuel industry, whose captains appreciate the state’s low tax rate and its lax enforcement of environmental protections which enables the industry’s bad behavior. Under Greg Abbott as Attorney General, and now Governor, the state has sued the EPA 48 times in an effort to escape green mandates, and controls on emissions and the many filthy superfund sites, 18 of which are within Houston’s Harris County. They are now leaking industrial pollutants into the air, water and land in the wake of Harvey. Not to mention the insufficiently safe chemical factories that are now exploding and doing the same. Do the leaders of Texas repent of their failure to protect their citizens from their own waste? Far from it. Gov. Abbott said last Sunday said that he expects the EPA he has made a career of opposing “to get on top” of possible water contamination from the toxic sites.

Why should responsible green states and their taxpayers have to pick up the tab for irresponsible “freedom to pollute” states? And going forward, why should places like Houston, New Orleans and Miami, that are sure to find themselves severely impacted by the rising waters and more volatile weather of climate change, be entitled to federal flood insurance or help in rebuilding if they won’t face reality — plan ahead, design robust flood protection measures, ban development on obviously hazardous flood plains or coasts, make polluting industries clean up their act or face ruinous fines and costs for reimbursing those harmed? If the Dutch practiced such feckless denial, they would have all sunk into the sea centuries ago.

Unfortunately, the reason that nothing is likely to change is that we are governed by a plutocracy. The rich and powerful (and polluting) profit from lax regulation, weak penalties, and taxes too low to fund the safeguards needed to protect the public. To achieve this they invest in choosing political candidates through their donations, collude in drawing district lines to favor their lackeys, dictate the legislation they pass, and laugh all the way to the bank.

Meanwhile, the majority of the people, who lack their clout, eat, drink and breath their pollution, lose their pensions, jobs, houses and sometimes lives at the whim of the oligarchs. They have been taught by the propaganda campaigns funded by the wealthy that entrenched economic power is not their enemy, but socialists, tree huggers, illegal immigrants, and other enemies of good, capitalist Americans.

One can only hope that one day a Katrina or Harvey, Flint or superfund site will be the last straw, that it will open the eyes of a victimized public and make them repent their folly in having trusted the malefactors of great wealth and their handpicked politicians who have taken advantage of them and left them standing knee deep in polluted water in their own home.

They may think then of the rueful old blues, “Love, oh love, careless love. You made me weep, and you made me moan, and you made me lose my happy home.”


Immoral Hazard — 1 Comment

  1. Well said. Very sad for suffering families, but disasters in Houston, New Orleans, Miami, and the like should not be a surprise, and as a society we need a more consistent set of standards for how to olan for and deal with these events.