Peltzman Effect

I learned about the Peltzman Effect today. It's when people react to a safety measure by engaging in riskier behavior. That riskier behavior leads to outcomes that offset the benefit of the safety measures.

Today, there was also this article in the NY Times about TARP. The article talks about the unfinished work of TARP, but I see the problem more as the unfinished work of financial reform as a whole. There were some bills introduced and passed that enacted some small measure of financial reform, but the regulations in the bills are small compared to the power of the institutions that they regulate. The uncompleted nature of this work is clear from the conflict that Elizabeth Warren is having with republicans right now. The idea that the consumers don't need some protection from the predatory practices of the financial sector is astonishing to me.

I finished No One Would Listen by Harry Markopolis and The Big Short by Michael Lewis recently. If these books made anything clear it was the total failure of regulation by the SEC or the private sector. The rating agencies appear to be no more than a joke. Ideally the negative outcomes of poor decisions are supposed to cause the financial institutes to self regulate, but that clearly did not happen. We factually know that this does not work because we witnessed it repeatedly during the Bush II administration.

I believe TARP eliminated the idea of moral hazard, which didn't work anyway but was supposed to have some effect, and now might be causing a Peltzman Effect. Markopolis argued that it would be better to have no government regulation than the current system because it misleads investors to think there is some form of competent oversight, but as Madoff showed, there isn't. So it would be better for investors to understand that noone makes sure the information they receive is accurate and correct, that statements they get are forged, and that the investments they make are real. If they went in knowing at any moment all their money could disappear b/c the whole thing was cooked up, it would be more honest and give investors the opportunity to assess the real risks of their investments.

But we haven't done that. The SEC seems to be amazingly incompetent, and somewhat corrupt. Its legal counsel was recently investigated b/c his investments in Madoff may have created a conflict of interests. It seems in the case of Madoff specifically, and CDO's in general, that there is an actual Peltzman Effect going on b/c of attempts to regulate the industry.

I don't think this means there needs to be less regulations, but I think regulatory agencies should lose their immunity from suit for failure to perform their jobs. I think there should be more ways for private enforcement of these regulations, and I think we need a new regulatory regime with people like Elizabeth Warren running them.

Victim Blaming?

There was an op-ed in the NY Times last week about the way the media is portraying the women that were living with Charlie Sheen since his melt down, or whatever you want to call it. I find this op-ed interesting because based on the argument laid out I agree with the author entirely. However, where she stops, I realize that more conclusions can be made.

Her main complaint is that Charlie Sheen, a known woman beater with a serious history of domestic abuse, is getting a free ride for his terrible behavior while the women, aka goddesses, are receiving a significantly more negative portrayal. The author makes the argument that the media assumes the negative treatment these women receive at the hands of Charlie Sheen is deserved b/c of their chosen professions.

It’s these sorts of explicit and implicit value judgments that underscore our contempt for women who are assumed to be trading on their sexuality. A woman’s active embrace of the fame monster or participation in the sex industry, we seem to say, means that she compromises her right not to be assaulted, let alone humiliated, insulted or degraded; it’s part of the deal. The promise of a modern Cinderella ending — attention, fame, the love and savings account of a rich man — is always the assumed goal.

I don't disagree that this may be the reason the media is portraying the women in this manner. However, there is another explanation of why the media is portraying the women as bimbos. It might be that despite the clear history and overwhelming evidence that Charlie Sheen is prone to violence and not particularly stable right now, they still choose to associate with him.

This might be an instance of victim blaming, but they are playing with fire and it is probably going to be sooner than later that something bad comes of this. I'm not saying they deserve to be assaulted or that Charlie Sheen should not be held accountable for his actions. I'm saying associating with him is clearly a bad idea and when you make a terrible decision you shouldn't be free from the blame of making that bad decision. If you walk through a bad neighborhood alone, flashing money and you get mugged, I can only be so sympathetic.

Clearly these women should not be beaten, but it's not a question of what should happen. It's that there is an obvious and high probability of what's likely to happen. Just like announcing your flush with cash in a crime ridden neighborhood is likely to lead to a mugging.

There are probably arguments to be made that because of these women's prior abuse or mental health issues they're not capable of making good decisions about these things, but this argument would work just as well for Charlie Sheen.

So, I think the author of the op-ed has valid points all around, but I think there is an argument to make about the failures of these women as well and that is going to deprive them of sympathy but not of culpability.

This is a problem for a lot of issues in feminism, racial equality, or social equity. The factors in all these problems are complex, but just like you don't want to blame the victims of bad schools, date rate, or prejudice, there is a factor of culpability that has to be faced. If advocates against sexism don't honestly address the dangers that women should be aware of when they get wasted at frat parties, parents of failing children don't address regarding the educational climate in their home, or advocates of diversity address about societal norms for employment, then it allows their opponents to dismiss their arguments for failing to take personal responsibility for their own role in these problems.