By: KENNETH MAXWELL

Folha de São Paulo - Op-ed section - page A2   

It has been week of denial for conservative economists who have long been promoters of the idea of "moral hazard". Take the case of David Malpass.

Mr. Malpass held economic appointments in the Reagan and George (H.W) Bush administrations.

In April 2007 in Forbes.com he wrote that "governments, not the private sector, cause recessions." He had also argued that "a housing slowdown ... could be easily absorbed through growth in other areas of the economy."

He is (or was) chief global economist for Bear Sterns, the U.S. brokerage house that was bailed out over the weekend by the U.S. central bank when it made U$30 billion available to JPMorgan Chase to buy out Bear Stearns at a rock bottom two dollars a share; and in effect took over responsibility for Bear Stearns' valueless investment portfolios.

Here is how Malpass defined "moral hazard" in an article:

"[Moral hazard is] the negative consequences of overprotecting people from losses ... in the financial realm, moral hazard occurs when central banks provide extra liquidity during and after a financial crisis, stabilizing the financial system but rewarding people for taking oversize risks"

Well ... Yes!

George W. Bush has also been a promoter of unregulated markets, until of course the market crashes. But bankrupt governments have been pulling off that old trick since organized government came into existence. It was called "debasing" the currency. The government mint secretly diminished the precious metal content of the coinage; and then wondered why the currencies value collapsed.

Now central banks print money to bail out speculators, and governments allow the currency to decline in value. But for the wealth of the average citizen these bailouts and fixes will produce the same ruinous results they always have; diminished net worth for the average family as personal assets, savings and pension funds shrink, and they face increased inflation.

So why is George W. Bush so happy that he dances a jig on the White House steps? Maybe he was recalling the tune and lyrics of "The Fool on the Hill," the old Beatles classic:

"Day after day, alone on the hill,
The man with the foolish grin is keeping perfectly still.
But nobody wants to know him,
They can see that he is just a fool."

KENNETH MAXWELL is a weekly op-ed columnist (every Thursday) for Folha de São Paulo, Brazil's leading newspaper.