Saturday, July 26, 2008

Gay Marriage on the Spectrum of Moral Hazard.

First, let's define Moral Hazard .

"The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles."

Entering into marriage, gay or straight, is morally hazardous, as heterosexuals have proven beyond a shadow of a doubt, considering the 50% divorce rate among other things. Yes, marriage is a very slippery slope, with more than a 50% chance of sliding straight into hell. Keep in mind that divorce is not a necessary prerequisite for slippage..there are many people who never divorce, yet can tell you they "slipped" long ago.

The term "moral hazard" is normally applied in the context of financial investment. However, marriage is an investment, a contract and an agreement. As far as defining marriage by assets, liabilities, credit capacity or incentive to take unusual risks in a desperate attempt to earn a profit before the contract is settled or the disintegration of the contract is final, goes...just ask anyone going through or who has gone through a divorce, and undoubtedly they will define marriage exactly that way.

Now, let's take a look at "moral hazard" the way it was intended to be applied. Currently, with the rash of corporate disasters, it would seem "moral hazard" underlies, and is the foundation of our economy.

Consider last month when we found out that home prices fell in April at the fastest rate since the Case-Schiller Index -- a comprehensive measure of all home sales, including auction sales, that calculates appreciation and depreciation in the housing market using the collected data from 20 metropolitan areas -- began more than two-decades ago. This market collapse is not solely the result of market correction, but the consequence of "haphazard" greed, and in some cases, even worse, methodical greed.

The Housing and Economic Recovery Act of 2008, on the other hand, may stimulate and reverse the devastating effects to this industry. But at what cost? What are the long vs. short term effects? What about tax considerations? And the ultimate question, who will pay the price? Someone must, hopefully it will be the segment of our population who can most afford it this time around. That is about as likely as Pope Benedict announcing his impending nuptials to Monsignor Georg Gänswein (purely hypothetical, of course).

The Pope and the Monsignor tying the knot would set the world ablaze. People would be taking up arms, wailing, crying, screaming, fighting, rioting, pushing people out windows...OK, maybe that may be an exaggeration, but not much of one.

IF that were to occur, how many of us will ask, why is this earth-shattering news? Will anyone try to take a rational approach and ask themselves, why is the love between two men worse than the hundreds of thousands injured and dying over in Iraq? Why is this worse than the 50 million currently uninsured? Why is this worse than the pending oil crisis?

What about the housing industry?

The Case-Schiller Index calculated the appreciation/depreciation percentage +/- from the market peak, two years ago, dividing the housing sector into three categories:

Glut states:

Miami FL - 26%
Phoenix, AZ -29%
Las Vegas NV - 29%

Boom bust:
San Francisco CA -24.6%
San Diego, CA -27.9%

Industrial heartland:
Detroit, MI – 26.2%
Boston MA -13%
Denver CO – 8.3%
Seattle WA -6.6%
Charlotte -3%

Another report, from the Office of Federal Housing Enterprise Oversight (OFHEO) offers a look at the more "modest" sector of the housing industry. It collects data from all 50 states, however, their calculations are based only on homes sales with conforming home mortgages on loans less than $417,000. The OFHEO indicated U.S. home prices fell 4.6% in April from the same month last year, when that index peaked. That marked the biggest decline ever in the agency's monthly index.

We can't forget about bailing out the fallout from the moral hazards Bear Stearns and more recently, the Federal Financial Assistance for Fannie Mae and Freddie Mac which estimates the cost to be approx. $25 billion over fiscal years 2009 and 2010.

1. CBO estimates the expected federal budgetary cost (that is, taking into account the probability of various possible outcomes) from enacting this proposal would be $25 billion over fiscal years 2009 and 2010.

2. Using historical and industry estimates of the expected losses on the different types of credit risk that the GSEs face in their current portfolios, CBO estimated the firms’ possible credit losses under thousands of possible future market conditions for housing prices. That analysis suggested that there was more than a 50 percent chance that the GSEs’ future losses would not exceed those already recognized, but there was almost a 5 percent chance that the added losses will total more than $100 billion. Given that distribution of possible future losses, CBO then evaluated how much assistance might need to be provided to the GSEs to allow them to continue operating in the capital markets.

3. In particular, CBO assumed that the Secretary would want the GSEs to continue to have the ability to tap the capital markets after the temporary authority expired and that financial markets would provide such capital to the GSEs only if market participants perceived the GSEs to be sufficiently capitalized in terms of the value of their assets relative to their liabilities. Evaluating what financial markets would view as “sufficiently capitalized” requires judgment; CBO’s approach is described in more detail in the letter. In other words, if the value of the GSEs’ assets was perceived to be insufficient relative to their liabilities, the Secretary would have to provide equity capital or subsidized debt to the GSEs before the temporary authority expired. CBO’s estimate of $25 billion in costs over the 2009–2010 period reflects a probability-weighted average of how large those injections might need to be, including zero as a potential outcome.
What's the bail out cost when the gays marry? What will the consequences be? Who will get hurt? Why is gay marriage an issue at all?

At most, gay marriage will "cost" no more to society than straight marriage. More than likely, it will "cost" less. Why? Because gay people, overall, will be less inclined to insist upon having their own biological children and more inclined to adopt the children who otherwise would be dependent on state subsidies. In addition, gay divorce would not be nearly as costly to society, once again, due to lack of dependents.

So, never mind the upshot of the aforementioned "trivial" events resulting in loss of: lives, life savings, health benefits, health itself, freedom, justice and everything else our Constitution guarantees. The gays are getting married!

3 comments:

Doug 19:56  

Bravo - very good article. With the housing meltdown, two concurrent wars, huge amounts of debt (federal, state and personal), Iran, North Korea, China's rise, global warming, a myriad of other environmental problems, etc, etc, ad naseum, I find it hard to swallow that some folks are still caught up on the gay marriage debate. I find it so mean-spirited at this point that I'm quickly coming to the point where I don't associate with people who are resolute in not allowing gays to marry.

Fortunately, I'm in Canada, however.

Anonymous,  21:40  

I'm not gay, but I'm going through a divorce and I feel like I'm in Hell.
I don't know how gay people getting married will somehow corrupt the institution of marriage. That's not possible.

Anonymous,  13:07  

The Pope? I'm a Catholic moderate conservative. You got to give me something for reading this one.

I don't care what people do behind closed doors, however, I'm not up for seeing the Pope tie the knot with a priest.

I know I've lived too long when that happens. LOL.

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