Holiday time off from work and academic study gave me a chance to put a dent in my non-law, non-dissertation book pile. One book I finished – “The Plungers and the Peacocks,” by Dana Thomas – is a history of some of the major personalities of Wall Street from its beginning through the late 1960s. The book ends with a quotation that got me thinking about the idea of risk in our society. It’s from a long-ago Wall Street Journal editor, writing about market speculators: “If ever prohibition extends to the taking of a chance involving the risk of whole or partial loss, the result may be ‘good Americans,’ but of a merely negative side of goodness.”
The speculators and gamblers chronicled in the book knew they could lose great fortunes just as easily as they could gain great fortunes, but they went for it anyway. They assumed the risk.
In the legal realm, assuming the risk meant that a plain- tIff brIngIng a case for negligence could not recover (with a few exceptions) for any damage caused by a defendant’s acts if the plaintiff knew of the risk and voluntarily (expressly or impliedly)proceeded in the face of the risk. This is the legal embodIment of the commonsense notion: it’s a shame about your loss, but you knew what you were getting into.
Today, in most jurisdictions, the concept has been folded into the comparative negligence doctrine: a plaintiff is not fully barred from recovery but can only recover the percent- age of the damages that was not his fault. Still, common sense is supposed to prevail. It’s a shame about your loss, but you knew what you were getting into. If my best friend decides to go skydiving, he assumes the risk that he could be injured or die. Other than sadness at the loss of my friend if his skydiving adventure goes awry, I do not assume any consequence of his risk.
I have an unlimited tolerance for risks that others assume – if ~hey bear the consequences for their actions. That goes for frIends, enemies, and financial institutions.
The idea of risk seems to have gotten twisted in our society. I know I’ve mentioned this before, but taxpaying citizens are increasingly bound by legal tethers permitting us less and less control in our own lives. We’re permitted less and less risk, and we are compelled by the state to assume the risks of others. The state’s favored financial institutions – you know, the ones that are “too big to fail” – are permitted to engage in highly risky acts without serious consequence. Bailouts require taxpaying citizens (present and future) to assume the consequences of these institutions’ risks. lean’t assume the risk of ingesting foods with trans fat or enjoying a relaxing cigarette in New York City, but now my hard earned money (and that of my heirs) is diverted to pay for the consequences of unconscionable risks assumed by certain financial institutions that mostly reside in and around that city. The state’s insulation of financial institutions – its coercion of taxpayers to bear the losses of those institutions’ risks – comports neither with legal principles nor with common sense.
Risk should not be legislated out of what is supposed to be a free society. Neither should the government shift consequences of risks from the responsible parties onto those taking no part in the original venture. Within the bounds of their fiduciary duties, financial institutions (particularly those of which I am not a client) should be able to engage in high risk investments in the hope of large rewards. I can tolerate such risk, but only if I do not have to bear to the consequences.
Bearing favorable or unfavorable consequences from my own risks – this I can tolerate. A relative asking for a little help after losing out on a risky venture – this I can tolerate. Some Humphrey Bogart-like character coming up to me on the street and asking, “Can you help a fellow American down on his luck?” – this I can tolerate. But all citizens, corpo- rate and individual, have the right to assume the risk of their actions – bearing the benefit of success and the consequence of failure.
The way things seem to be going, however, the state’s pet financial institutions are free to engage in whatever risk they wish, buoyed by the taxpayers’ forced support, while those same taxpaying citizens aren’t permitted to risk the choice of beverage with a meal. This we cannot tolerate.