To date, the national discussion about this concept has revolved specifically around financial moral hazard. And, as evidenced by trillions of dollars in public loans, guarantees and subsidies given to speculators to cover their massive losses, leaders in both political parties have no interest in preventing financial moral hazard -- despite stern press releases insisting the contrary. By rewarding rather than punishing Wall Street for losing irresponsibly risky bets and by holding out the promise of similar bailout rewards in the future, politicians have incentivized even more irresponsible risk-taking for years to come.

But financial moral hazard is only half the story. The other half is political moral hazard -- the mother of all other moral hazards.

Consider, for instance, Federal Reserve chairman Ben Bernanke. He's the top regulator who not only sowed financial moral hazard with the Fed's post-meltdown bailouts but openly admits that as the crisis developed, his Federal Reserve "should have done more -- we should have required more capital, more liquidity. We should have required tougher risk-management controls."

Firing Bernanke would tell other regulators that there are consequences for negligence. Instead, President Obama rewarded Bernanke with renomination and thus manufactured a pernicious problem. As economist Dean Baker says, just as bailouts create a financial moral hazard giving speculators no incentive to avoid excessive risk, so Bernanke's renomination creates a political moral hazard whereby regulators "will not have an incentive to do their jobs properly [because] there are no consequences" for failure.

The Democratic Congress, of course, could reject Bernanke's nomination for being "the definition of moral hazard," as Sen. Jim Bunning, R-Ky., correctly noted. But that seems unlikely, considering how many Democrats have been aggressively embracing moral hazard.

When Senate Democrats ratified Obama's nomination of New York Fed chief Tim Geithner as Treasury secretary, they rewarded yet another shill who also fell down on the regulatory job. When those same Senate Democrats considered the nomination of Gary Gensler to head the agency regulating derivatives, they could have rejected him for championing derivatives deregulation as a Clinton official and then cashing in as a Goldman Sachs executive. Instead, Democrats backed his nomination and effectively told every other Gary Gensler-like parasite that misguided actions and corruption don't prevent future promotion.

And let's be fair -- it's not just Democratic politicians who are creating political moral hazard. Many Democratic pundits, activists and voters continued cheering on President Obama while he stuffed his administration full of Wall Streeters -- and many of these rank-and-file voices attacked as disloyal those progressives who raised questions. That told Obama he faces few consequences -- and even defense -- from his own base for promoting those who engineered the economic meltdown.

The only open question is whether the public at large becomes complicit, too. Come Election Day, if there are no consequences at the ballot box for the politicians -- Democrat or Republican -- who legislated bailouts, supported these appointments, and are now working to undermine proposed Wall Street reforms, then America will have created the biggest moral hazard of all.

© 2009 Creators Syndicate Inc.

The key line:

...(2) a peaking in unemployment in mid-2011 at about 10 3/4 percent.

The unemployment rate sits at 10.2 percent right now. The prospect that it might remain above 10 percent for another year and a half is, as Pethokoukis rightly points out, a massive political disaster in the making for Democrats.

Other forecasts have predicted that unemployment would peak in the first quarter of 2010 and then start to slowly fall, but an article published today in Bloomberg News ranks Hatzius as the most accurate economic forecaster on Wall Street, so his doom-and-gloom cannot lightly be ignored.

On a happier note, there appears to be real momentum on the weekly jobless claims front, with new filings for benefits falling for the fifth straight week to the lowest point in more than a year, and with the four-week moving average dropping like a rock. But that's a slender thread upon which to hang, when faced with the scenario foretold by Hatzius.

How embattled? Bloomberg columnist Alice Shroeder passes on some hearsay: Goldman bankers are stocking up on ammo!

"I just wrote my first reference for a gun permit," said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.

The "senior Goldman people" may be spending too much time trolling the Internet. If you read the comments posted after just about any blog item or feature article referencing Goldman, the venom expressed would surely lead you to imagine that a mob armed with pitchforks and torches was already on their way to Goldman headquarters. It's a bipartisan frenzy, and as Goldman profits continue to accumulate while the economic slump persists, the bile will continue to percolate.

But spare us the "embattlement" syndrome. A foreclosure notice or a pink slip engenders a siege mentality for good reason. Bad press, when you are making as much money as Goldman employees do, is collateral damage that hardly nicks the paint job on a Bentley.

The scourge of unemployment is splitting America into three groups: 1) the third just mentioned, whose households are in danger of losing their homes and whose kids are surviving on food stamps (that's up to one in four children in America today); 2) the vast majority of Americans who are managing but worried about keeping their jobs and homes; and 3) a small number who are taking home even more winnings than they did in the boom year 2007.

Prominent among Category 3 are Wall Street bankers, many of whom are now concluding their most profitable year ever. Goldman Sachs is so flush it's preparing to give out bonuses in a few weeks totaling $17 billion. That will mean eight-figure compensation packages for lots of Goldman executives and traders. JPMorgan Chase is rumored to have a bonus pool of around $5 billion. The three other major Wall Street banks are ratcheting up their compensation packages so their "talent" won't be poached by Goldman or JPMorgan.

Wall Street is booming again in large part because the rest of America -- categories 1 and 2, above -- bailed it out to the tune of $700 billion last year. The Street has repaid some of that but, according to the bailout program's inspector general, much of it is gone forever. For example, the taxpayer money that bailed out giant insurer AIG went directly through AIG to its "counterparties" like Goldman Sachs -- to whom Tim Geithner, according to the inspector general, gave away the store. As Goldman Sachs prepares to dole out some $17 billion to its executives and traders, it's worth noting that Goldman received $13 billion a year ago from the rest of us via AIG and Geithner, no strings attached.

Which brings us back to homeowners who are falling further behind. The $75 billion federal program designed to bribe banks to modify mortgages has been a bust. No one knows the exact number of mortgages that have been modified (that will be reported next month) but housing experts I've talked with say it's a tiny fraction of the number of homeowners in trouble. Seems that the big banks can't be bothered. "Some of the firms ought to be embarrassed," Michael Barr, the assistant Treasury secretary for financial institutions, told the New York Times.

Barr says the government will try to use shame as a corrective, publicly naming institutions that have moved too slowly. But the banks have done almost nothing to date. "We've made dramatic improvements, and we continue to try to get better," says a spokesman for JPMorgan Chase, but as a practical matter JPMorgan has done squat.

Shame? If we've learned anything over the last year, it's that Wall Street has none. Ten months ago Wall Street lobbyists beat back a proposal to give bankruptcy judges the right to amend mortgages in order to pressure lenders to reduce principle owed, just like Wall Street lobbyists are now beating back tough regulations to prevent the Street from causing another meltdown.

Shame? For Wall Street, it all comes down to P.R., at minimal cost. Goldman Sachs, attempting to preempt a firestorm of public outrage when it dispenses its $17 billion of bonuses, is setting up a crudely conceived $500 million P.R. program to help Main Street.

Shame won't work. Only political muscle and courage will. Congress and the Obama administration should give homeowners the right to go to a bankruptcy judge and have their mortgages modified.

And while they're at it, resurrect the Glass-Steagall Act that used to separate investment from commercial banking, so Wall Street can't continue to use other people's money to gamble.

Finally, before Goldman hands out $17 billion in bonuses, claw back the $13 billion Goldman took from AIG and the rest of us and add it to the pool of money going for mortgage relief.