"Moral hazard" is a term that has been frequently discussed and rarely acted upon in the global financial crisis and the subsequent bailouts of financial businesses.

A moral hazard arises when people behave recklessly because they know they will be saved if things go wrong. Avoiding such a "hazard" is reasonable, but it is not absolute. Many financial institutions have been rescued in recent months from the consequences of their own reckless behaviour because the further consequences of letting them fail would have been worse.

In Bermuda, a similar decision was taken with regard to Butterfield Bank, when its bad investment decisions weakened it to the extent that it failed a stress test applied by the Bermuda Monetary Authority to determine if it would survive a worst case economic scenario. When Butterfield could not raise the capital the BMA said it needed, Government offered to guarantee the shares it planned to issue. The guarantee, rightly, was not open-ended. Government received certain rights to shares and has some say in the bank's management, especially with regard to bonuses. At the time, this newspaper said Butterfield was getting out of the situation quite lightly, and it is wrong that aside from bonuses, the senior managers and directors of the bank have not been held to further account — although the bank's shareholders have certainly suffered markedly.

It is also worth noting that not a penny of Government money has been spent yet, although the $200 million guarantee is carried as a liability and has contributed to the reduction in Bermuda's overall credit standing. Now the same principle is being applied to the Bermuda Industrial Union with regard to its subsidiary Union Asset Holdings' $6.8 million debt to Government.

Premier Dr. Ewart Brown argued that just as Butterfield could not be allowed to fail, so Bermuda could not afford to have the Bermuda Industrial Union weakened by calling in the debt, which, contrary to earlier claims by union officials, would cripple it. It was also revealed, for the first time, that depending on whether you believe Dr. Brown or BIU president Chris Furbert, the union has already lost either $9 million or $5.2 million in additional loans to failed Berkeley Institute contractor Pro-Active Management Systems Ltd. So are the two situations similar? Not exactly. No Government money has yet been spent on Butterfield Bank, but Government is now proposing to write off millions of dollars of taxpayers' money on the union.

Secondly, Butterfield Bank's collapse, which was not imminent in any event, would have had immediate and disastrous economic consequences for the Island. Thousands of depositors could have had their savings wiped out while borrowers could have seen their lines of credit evaporate with further effects on jobs and the like. Perhaps worse, the Island's reputation would have been shattered, perhaps permanently.

While the BIU is, as Auditor General Larry Dennis said, a vital part of Bermuda's fabric, the damage which even immediate payment of the debt would have caused on the union would not have had an immediate or systemic effect on Bermuda, because all workers are protected under the law, and indeed, by a labour government.

In any event, Government did not need to call on the union to pay off the entire amount immediately. Repayment could have taken place over a period of time. But Dr. Brown claimed last week that recovering the asset would have been too costly anyway, saying at one point that it would cost millions. But he also said it would have cost hundreds of thousands of dollars. The latter seems more likely, especially if the offices of the Attorney General's Chambers were being used.

In any event, the chances of victory for the union were poor; despite Mr. Furbert's claims that its rights had been ignored, the union's claims had already been rejected in a lengthy arbitration.

Spending hundreds of thousands of dollars to recover $6.8 million seems entirely reasonable and Dr. Brown should explain just which set of legal costs are accurate. Even if Government was correct in not wishing to harm the BIU when the BIU leadership's own actions have already done it plenty of injury, some form of quid pro quo would be expected, just as Government extracted certain rights from Butterfield.

Dr. Brown demanded an undertaking of sorts from the union; that it will cease downing tools without notice in industrial disputes and will allow 48 to 72 hours to settle disputes.

At first glance, this may seem to be a sizeable concession from the union, which has happily downed tools time and time again without any notice, not just in actual industrial action, but whenever it deems it necessary to have a meeting.

But the union's agreement, which is verbal, was being watered down before Thursday's press conference was over. There is no guarantee. If a dispute was deemed serious enough, Mr. Furbert said, then no notice would be given.

In other words, Government got nothing for its forgiveness of the debt when it had all the leverage in the world to get a cast iron pledge. Instead, the BIU can now be certain that its leadership can be as financially reckless as it wishes without consequences.