Cover of MoneyWeek issue 423, 20 February 2009

Hardy bloomers

20 February 2009 / Issue 423

Thirteen sturdy stocks to keep your returns from wilting... PLUS:

  • One bargain financial stock to buy now
  • Can printing money save the UK economy?
  • Bill Bonner on what Castro can teach us about bail-outs

Excerpt

How finance got careless

My wife needs a new passport. So the other day, we got the form and filled it in. The Post Office offers a service where they’ll check your application to make sure you haven’t made any mistakes – which we thought would be worth paying a bit extra for, as we needed it back in a hurry. So we were a bit put out when she later got a call from the passport office. She’d forgotten to put in our wedding certificate, which needless to say, our man at the Post Office hadn’t noticed.

Why am I telling you this? Because I think it’s a good illustration of what lies behind today’s whole financial crisis: moral hazard. This is basically the idea that if you believe you are protected from the consequences of your actions, you’ll be less careful. Sure, you can argue that if the guy at the Post Office had done his job properly, he’d have noticed the certificate was missing before he sent it. However, if the Post Office hadn’t offered the service at all, then we’d probably have completed the application correctly ourselves in the first place.

And something similar happened during the financial boom…

• Read the full editor’s letter here: How finance got careless