Moral Hazard caused Global Imbalance thus leading to current Financial Crisis.

It is said that science is cumulative while business is cyclic. In other words the current financial crisis will happen again if capitalism doesn’t reinvent itself. The level of inequality in the current system is outrageous and the reason people haven’t noticed is because they are too busy working trying to pay for this inequality.

Take the case of “sir” Allen Stanford’s web of company that was doing billions of dollars of business, the bank’s assets had burgeoned from $1bn in 2000 to more than $8bn at the end of 2008. “sir” Allen had faced regulatory scrutiny before it all came falling. Financial Industry Regulatory Authority (Finra) had fined the Stanford Group a total of $70,000 in April 2007 for failing to adequately state the risks involved in the CD investments and to disclose that an affiliation between the broker-dealer and the bank could pose a conflict of interest. Stanford consented to the sanctions without admitting or denying wrongdoing (whatever that means), according to a file on Finra website. Assuming that in 2007 Stanford Group made $7bn and was fined just $70,000, that’s not even the cost of doing business. This form of punishment doesn’t deter a repeat of the same. Assuming someone is making $50,000 per year and has a speeding ticket he or she would have to pay 0.70 cent at this rate. That would not be a sufficient reason to deter the driver from speeding again. This is not akin to moral hazard but moral hazard in blight yellow colors. The only part that has tried to address moral hazard a bit is the tax code which is calculated in terms of a percentage. But the rich (e.g. Tim Geithner’s more than $34,000 tax bill, forget Tom Daschle) are able to circumvent this process with the help of offshore banking and tax attorneys there by leaving the poor citizens who can’t play this game since the taxes are withheld by the government. In order to address this moral hazard all fines should be paid as a percentage of one’s income.

If a company (or a person) is to be fined for any violation they should be fined as a percentage of their income. Thus a speeding ticket shouldn’t be a flat $100(an example) for a person making a quarter of a million dollars or one making $50,000 or minimum wage.
This global rate of high inequality and tax evasion has left the government with little income to depend on. The rich are getting richer (I have nothing against that) but they are evading tax thereby leaving the baggage to the poor who are getting poorer thus falling income hence falling taxes, but they are enjoying the protection if the government as citizens.