Tuesday, October 23, 2007

Moral Hazard as Bond girl - a student response

In return for canceling the midterm, I invited (ordered) my students to post something to the class discussion board showing they understood the concept of moral hazard. I suggested that Moral Hazard might be a rather good name for a Bond girl, and invited responses on how a 007 movie might do that. This is one student's response:

Since I consider Vesper Lynd to be an ugly Bond girl name, I am already inclined to vote for Moral Hazard as the next Bond girl name.

However, if one were to consider James Bond as the preeminent insurance provider for the British Government, perhaps the program’s name should be changed from MI6 to MH6 since the British Government may be more inclined to do reckless things, say, I don't know, like for example, putting millions of dollars at stake in a poker game in the hopes that Bond (with full information at his disposal) will not only win it back, but act appropriately to catch the villain in his save-the-day-wilst-sipping-martinis-without-breaking-a-sweat-fashion that we all know and love.

Then again, the British Government’s proclivity to provide money power and an obscene amount of weaponry to 007s may lead to questionable, even morally hazardous financial and ethical behavior by Bond, who doesn’t have to fully pay for the consequences of his actions. (See Casino Royale – scene where Bond loses millions of government dollars to a creepy-weepy-eyed-villain because of ego, testosterone, and unmediated arrogance). But I digress.

Yes, this Bond movie would have greatly benefited from the wittiness and subtle irony of a Bond Girl named Moral Hazard. A Bond girl who had sole control over the funds to be used in a high stakes poker game, who had sole access to the account number to which the funds would be returned, who then went solo to the bank in romantic Venice to “transfer the funds” back to the British Government. Hrmm. Let’s see.

Vespa – Let’s call her Ms. Hazard - is in a financial bind. One can characterize her as a borrower. She needs money to invest in the return of her captured beau. She sees an opportunity to get a boatload of money which is essentially at her disposal. Ms. Moral hazard is faced with a choice and ultimately may not act prudently when she decides to invest the funds recklessly in this risky albeit romantically admirable gesture, knowing that she will not have to bear full losses of the investment if it turns out badly. (Unless you consider paying with her life the equivalent of normally accepted currency). (See Casino Royale – scene where Bond girl hands over millions of dollars to ‘bad guys’).

In sum, Moral Hazard arises through the British government insulating Bond from risk, through Bond insulating the British Government from risk, and through Moral Hazard herself, using and abusing an unchecked financial system at her disposal to wreak havoc on a man on a mission.

Another student's response, re Casino Royale:

There once was a man: Ian Fleming
Whose thrillers were always best selling.
James Bond loves to bet
And bought sub-prime debt
"The market has tanked!" He is yelling.

Now the Fed needs to give it a whirl
With a woman to make his toes curl.
Buy a put on Bernanke,
He loves Hanky Panky
Moral Hazard's the name of his bond girl.

And then this:

In Casino Royal, the Bond girl, Vesper actually did face a moral hazard. After James lost the $10m in poker to Mr. Bleeding Eye, she had the opportunity to buy in another $5m. On the train she reminded him that if he lost, the government would, in effect, be funding international terrorism. She had a choice to make whether to provide addition funds after 007 lost. She said NO. It was the good Yankee CIA agent who fronted the money for James to stay in the game, not Vesper. So it may be an apt comparison for what the British and the Americans do when faced with such a moral hazard.