Head West?

By October 2, 2008Business

Currently I am addicted to The Wire. When I last saw Dominic West in action, he was Edward Voysey in Barker’s The Voysey Inheritance at The National. Both are essentially about economics. The Voysey Inheritance is the story of a son finding out that his father, a much-respected solicitor, has been speculating with his clients’ capital, paying them an ordinary rate of interest and pocketing the difference. Written in Home Counties 1905, the world it portrays is vastly different from the world of The Wire, which is about drugs and corruption in modern-day Baltimore.

I was entirely unmoved by Voysey. To the modern eye, such practices are so normal so as not to attract comment. Technically Voysey is acting illegally because he is not a bank, but we are so used to this practice that the drama it inspires now seems anachronistic and naïve. What I did notice was how far public sentiment had travelled. Having collectively been boiled by the warmth of an apparently healthy economy, like the proverbial frog we had become increasingly inured to the complexity – and fragility – of the financial instruments beneath it, until suddenly the credit crunch catapulted Middle England out of its dozing armchair and back into the ranting Daily Mail. It reminds me of a story I once read, in which a Catholic ordinand had in his mind’s eye a ‘map of sin’ that lit up if his hands strayed into his girlfriend’s no-go areas. What map do we have of go and no-go areas in the world of high finance? In The Wire, the Brit Dominic West is now the American Jimmy McNulty, and the Baltimore economy is quite straightforward. Whether it is drugs, girls or stolen goods, everyone takes a cut and passes the product down the line. It is a very real economy. Risk is manifest, and accepted. People get shot and do time. Everyone knows it is ‘wrong,’ with Barksdale graciously proffering his hands for cuffing when he is eventually caught. But ‘wrong’ in this context is about losing, not about morality. The law is about playing the odds, with the game being considered ultimately worth it. This raises an interesting question about our current outrage over the credit crunch. We took our time to get cross. If it is wrong to lend to bad risks, and to engage in increasingly complicated manoeuvres to hedge that risk in an attempt to dilute it to acceptable levels, it is wrong even when the results look good.

In an article prompted by the World Values Survey data, Guiso, Sapienza and Zingales argue that religion is more conducive to economic growth than atheism, not least because religious people are statistically speaking more loath to break the law. Similarly, Barro and McCleary argue that this behaviour is linked to a belief in heaven and hell, i.e., divine judgement, and both of these arguments throw into sharp relief society’s current moral predicament. Thanks to the triumph of utilitarianism, morality is about results not intentions, and, in a secular environment, this renders normal an attitude towards law which is about playing risks not about underlying morality. In the world of The Voysey Inheritance, the dilemma is about underlying right or wrong. In The Wire, it is more about whether or not you get caught. The banks have now been caught. But before we rush to bolt the stable door with more regulation, perhaps we should pause for thought. Adding to the already Gordian calculation of risk with new laws is only worth doing if it is likely to have the desired effect. And what effect do we want? A map of sin? Do the lights stay off for credit cards – first base – but go on for collateralised debt obligations – a home run – with degrees of sin in between? Basically, bad debt is bad debt, and dressing it up in fancy instruments doesn’t change its nature. Slicing the knot of securitisation requires a deft hand. Either you make people more moral to begin with or you make it more likely that bad behaviour will be punished. The latter course is easier for states. So before we add further regulation, let’s apply what we’ve already got – Basel 2 anyone? – and let some chickens come home to roost. The moral hazard represented by the house of cards that is securitisation is reflected in governmental bail-out of the worst offenders. In a civilised society we cannot let the innocent be unduly punished, but in our rescues we should be sure to take some high-profile scalps from the guilty.

Edward Voysey made amends, but covertly to avoid scandal. Jimmy McNulty works a case until he gets public prosecutions. I’m with him on this one. Credit – he/she/it believes. Debit – he/she/it owes. We believed in them. They owe us.

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