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The Voice of New Rochelle: Haunted Ships

For years the author has struggled to come up with a metaphor to explain both the need for the bank bailout and the reason why these institutions continue to get away with so much. He thinks he found it.

The ship is sinking by the head, its first five watertight compartments flooded. The size of the gash, coupled with the limited rate of return provided by the pumps, make it a mathematical certainty that the ship will go down within two hours. That most of us are doomed is likewise a certainty ... unless.

When the Titanic met its death 100 years ago there was no “unless.” The Carpathia, more than four hours away, would later collect those who were already saved by virtue of the few lifeboats available to barely a third of the passengers. Another ship, the California, stood by idly, only 10 miles away, misinterpreting the flares and otherwise oblivious to the wounded ship’s plight. (Allow me to jump out of narrative to credit you if the California reminds you of the Securities and Exchange Commission leading up to the financial meltdown.)

Back to “unless”: It is true and regrettable that the Titanic was breaking with best risk practices when it increased its speed in the face of iceberg warnings. It is also true that White Star, the ship’s owner, was motivated by the financial gains to be had by breaking speed records. The company had already taken the savings of carrying an insufficient number of lifeboats (there were no suitable regulations) to its bottom line. Indeed, the pursuit of profit, poor risk-management and the lack of regulatory oversight helped bring the great ocean liner down … unless.

Suppose the 4,000 souls on the ship were the entire population of a small town called Americus. Suppose, also, that Americus reached great prosperity though the free market and adherence to a financial tenant known as Moral Hazard, a principle that keeps the value of things real and risk-taking behavior realistic, by never bailing out business enterprises that are either too weak or too badly managed to sustain themselves. It is, indeed, a great and worthwhile concept that I have no intention of besmirching. But it is, like all great ideas, subject to the need for an exception when circumstances indicate that to comply would eradicate the very thing it is designed to protect. In brief, it would be suicidal.

And so, in our little adventure, we will mourn the loss of the entire town of Americus … unless.

Suppose those on the ship knew a way to put up a signififcant percentage of the town's wealth by wiring funds to an uncaring, sterile, money obsessed country— let’s say Switzerland—to allow a huge freighter nearby to offload all its precious cargo and let us purchase their boat at great profit to them. How many on the Titanic, do you suppose, would say all of us deserve to die, even if we had no role in shipbuilding, because it violates our belief in Moral Hazard? Clearly, the passengers were hostage to a ship and its industry, that left them in a kind of a Catch 22. My fake Titanic was thus saved.

So, too, was our economic system by the bailout of the banks by both Presidents Bush and Obama. They got it right. But our financial ship remains haunted. Just the other day, the Bank of America, paid $2.4 billion to settle accusations that it misled investors and stock holders in its takeover of the tanking, mismanaged ship that became Merrill Lynch. B of A, like so many financial service firms before it, was able to do this, along with proclaiming that it admitted no guilt. And to think that our Supreme Court says that companies are just like people. Our prisons are filled with people who don’t have $2.4 billion.

So here we are, bad regulations, a pushback on Dodd/Frank and the banks are still Titanic-sized and too big to fail.

It is my hope that one day we will look back on the Citizens United decision as the second great failure of the Supreme Court, both of which dealt with the legitimacy and rights of citizenship. I wonder, would Dred Scott have won his freedom if he had $2.4 billion?

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