Can we blame Main-Street yet?
My girlfriend is mad, I mean really mad. Apparently she has seen a side of me she never thought was there. Anyone hearing her talk would think that I caused her bodily harm or cheated on her, but no her anger was brought on after a conversation about the recession – more specifically banks and bankers roles within the recession.
My better half’s reaction towards folks working in our financial institutions is common place in western society at the moment. They are the modern day villains, the Nazi’s of our time (a bit strong?) – heck, if I was running for office I’d try and paint my opponent as a bank sympathizer the first opportunity I got.
Now with the dust settling and the majority of countries recovering– I want to ask, who is really to blame for the down fall of the world’s economy? The reason me and my woman argued is because I put the blame squarely on people like myself, and my girlfriend, and her friend at her work, and her friend’s lecturer – the blame has to go to everyday people. Main Street (as you Americans put it) is to blame.
Ok, maybe not all of it, but it has to own up to its fair share. What…to soon?
I find it fascinating that we are debating about how greedy banks have been, how investment bankers have no morals and how Dick Fuld is the devil himself.
Come on now.
What about people that bought mortgages they can’t possibly afford? What about buying a car that you can’t possibly make the payments on? Why is Obama getting the blame on a culture that was in place during Clinton’s time?
Banks and bankers exist only to make money, fact. I learned that when I was 12 years old. They are not there to be the beacons of society, they are there to make money. They are not there to be leaders of men, THEY ARE THERE TO MAKE MONEY. Their greed is a survival mechanism. Their immorality is the difference between them ending up like Lehman Brothers or Barclays. I know it’s hard to swallow that the Chief Executive of (insert bank name here) isn’t looking out for your well being but thats the reality of our capitalist system.
I know what I can and cannot afford. I would love to buy a flat and maybe a new car, but I can’t afford to so I have to make do with living with my mother (I’m still 23 give me a break) and riding in my rusty Corsa. Do I grumble about it? Yes! Do I look on enviously at my banker friend who is back to making a killing? Yes! Do I hate him for doing his job well? NO!
We are living in a world where no one wants to take responsibilities for their actions. I am hugely disappointed in Obama and Brown for not showing real leadership on this issue. I agree, fixing banking regulations is a must to make sure that a collapse of that magnitude never happens again, but changing people’s habits is a much more pressing issue. Changing the idiotic premise brought on by Clinton that everyone should own a house would be a great start.
I want a politician to treat me like a human being, tell me the truth, don’t simplify the issue. “Prime Minister Brown, what are you going to do about me and my fellow greedy Britons who helped to bring on this financial mess?”
Don’t just address the politically palatable – make us eat the vegetables as well.
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36 Responses to “Can we blame Main-Street yet?”
I agree 110% with you Dalitso. What “The Great Recession” in the USA is doing is readjusting attitudes. The credit and capital markets are frozen like glaciers which means cheap credit isn't being dished out liberally. And it is causing Americans to start to buy what they can afford. And that is a good thing. But the fallout is nasty. Our job market was overinflated due to cheap credit. And now a great correction is occurring which is being irritated more by corporatism and continued government silliness in various financial initiatives.
Everyone is to blame, but the financial industry ran up profits with smoke and mirrors. Seems Ohio is going after Wall Street, not Main Street:
http://www.balloon-juice.com/?p=30161
http://www.nytimes.com/2009/11/21/business/21ra…
These derivatives were like junk bonds, yet they were rated like gold…
What about people that bought mortgages they can’t possibly afford? What about buying a car that you can’t possibly make the payments on? Why is Obama getting the blame on a culture that was in place during Clinton’s time?
Credit cards can be a survival mechanism too, if that's the only way you can pay the rent or the mortgage, buy food, and make car payments. People can get into debt for reasons that have nothing to do with being irresponsible. Divorce, family illness, losing your job — there are many different ways to get into debt without having done anything wrong. And once you're in that spiral, it's tough to get out without help — even with help.
Banks and bankers exist only to make money, fact. I learned that when I was 12 years old. They are not there to be the beacons of society, they are there to make money. They are not there to be leader of men, THEY ARE THERE TO MAKE MONEY. Their greed is a survival mechanism.
Well, Dalitso, that is why we need government to step in and regulate banks and bankers, and the financial industry in general. It's true that banks and bankers are there to make money, and it's also true that that is the reality of our capitalist system. That doesn't mean we have to allow them to abuse and exploit consumers. I get the sense from what you say here that you perhaps understand capitalism and the profit motive to be a law of physics, like gravity, which we simply have to live with because it's not within human control to change it. But I'm sure you can see that that is not true. The financial industry — and private industry in general — will be just as greedy and outrageous in their behavior as we allow them to be. We don't have to agree to that arrangement. And that is another aspect of responsibility — taking responsibility as a society for placing reasonable limits on what business can do in the name of making money.
On one level, I absolutely agree with you, Kathy. We do have a duty to regulate the banks and private industry. We have to do that to keep the markets free. Only a small number of lunatics and economists would completely disagree with you, even out of the Chicago School. As well, not all debt is obtained from lack of personal responsibility. If that's the case, then I have no issue with Government helping out. Where I lack compassion is the large group of people among the middle and lower classes who believe they are owed the world, the universe, and a Lexus. Those people made their own beds, and Government absolutely should not step in beyond ensuring that they don't starve or freeze to death, because that would cost the taxpayers, and responsible spenders even more money when they are already strapped for cash because of the Government taking away so much of their income, and providing them with so little.
I do take exception, however, to your attitude, Kathy. You seem to have an absolute, abiding, and hubristic aversion to any sort of personal responsibility being required of anybody. “Society, and Government, must do this. Society, and Government, must do that. Nobody ever need do anything for him- or herself” That is what is apparently your view from what you post. I reiterate what I said earlier. If the duty of society and government is to take care of those too foolish to intentionally live within their means (when no outside influence like loss of a job or family illness), then give me my Government-Owned robotic slave, because I don't want to feed myself, I don't want to tie my shoes, and I don't want to do anything at all. The taxpayers, and especially the rich, should pay for my every whim and wish.
I do take exception, however, to your attitude, Kathy. You seem to have an absolute, abiding, and hubristic aversion to any sort of personal responsibility being required of anybody.
With all appropriate respect, PJBFan, I believe that the above conclusion is coming from your own social and political views — your own personal prejudices as it were — and not from anything I wrote here. Truly. Because if you examine what I wrote, and try to do so with some level of fairness, I think you will have to conclude that there is absolutely nothing in my comment that could lead a reasonable person to detect “an absolute, abiding, and hubristic [lol!] aversion to any sort of personal responsibility being required of anybody.” And ditto for the other vast, sweeping conclusions you attribute to me.
I can't take credit for such conclusions.
Tom Friedman's in laws were burned by the credit meltdowm and they aren't lower or middle class. The commercial loan sector used subprime loans to build commercial properties and what about their greed…
The entitlement culture in our nation today is depressing. Its like the whole nation thinks it is daddy'd little princess or Momma's little man and they deserve the world to be dropped at their doorstep on a silver platter, and that nothing they do is wrong, and mommy and daddy and nanny will take care of any boo boos. As long as they can watch Dancing with Stars and American Idol and blame someone else and be rewarded for it, why should they change?
I agree not an absolute aversion, just a frequent one, with more government and more spending of taxpayers money as the usual proposed solution
NO!!!!, NO!!!!! and F**K NO!!!!!!!!
Are we clear now?
Who spent the 80's and 90's sending credit cards to every dead-beat they could find? It sure the F**K wasn't main street…
Who spent the 90's and 00's inventing NINJA mortgages? It sure the F**K wasn't Main street…
Who invented CDO and CDS in the 90's and the 00's? It sure the F**K wasn't Main street…
Who invented invented mortgage packaging? It sure the F**K wasn't Main street…
Who did not rate the newly package mortgages? It sure the F**K wasn't Main street…
If Main street is guilty of anything, it's guilty of believing the bullshit about self regulating markets and free markets being fed to them by Republican/Conservative con artist.
There was a US president who told us to eat our vegetables, you can ask the conservatives on this site or any other conservative site what they think of that President, you can also look him up in your history book, and see how well the “eat your veggies” speeches go over with the voting public…
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PJBFan and I agree (and likely the vast majority of moderate conservatives do as well) that some regulation is both necessary and healthy.
It's worth mentioning, though, that the entitlement attitude expands beyond the “middle and lower classes”. The area where I live is an excellent example: affluent, enormous homes, and frenzied over-purchasing and extending, to the point of 3500 sf homes furnished with yard furniture housing children with iPhones and designer purses / shoes.
In a supply and demand world (and that is exactly what we have, regardless of ideology folks), the supply MET the demand, it didn't create it. Consumers lost all sense of perspective and reality. Common sense became part of legend and parable.
Yes, it's LONG since time to blame Main Street — at least in part. But right along with the entitlement attitudes has come the “it's everybody (anybody!!) else's fault” attitudes. And judging by some of the comments here, that inability to recognize and stop rewarding greed and stupid decision-making at ALL levels of this fiasco is not yet purged from society.
And if the Bankers had maintained their traditional standards 20% down, monthly payment no more than 33% of gross income, none of those houses would be there, and the housing bubble would not have occurred. If you are going to give people money for nothing, they would be fools not to take it…
Bankers have no excuses, they give out loans on a daily basis, your average mortgage takes out two or three mortgages over their life time.
“If you are going to give people money for nothing, they would be fools not to take it…”
Sweet logic, DQ. So if somebody's giving away free cocaine, they'd be fools not to take it? And if somebody's giving away free lead-based paint for the kids' room remodel, they'd be fools not to take it?
Where, in your worldview on this, is there any room for personal responsibility? We're all just poor pitiful victims? Please… I cannot believe you run your own life under such a philosophy. You're far too intelligent.
“…your average mortgage takes out two or three mortgages over their life time.”
One might reasonably expect, then, that the gravity of such a rare undertaking would give some pause to the person assuming the contract?
And when the Banker/Broker sitting across the table from you says, No problem, you'll be able to refi in a couple of years when rates go down, or sell at a profit, and the real estate agent says this is a fair price a good deal, who are you going to believe “the little voice in the back of your head that goes to good to be true”, or the banker/broker that got recommended by someone you trust? Most people will believe the Banker/Broker, after all it's his profession, he is the expert…
To complete the picture, lots of people bought 3500 sq feet houses because there are no small houses or rental units being built in good school districts. So if you have school age children and you care about their education, you have/had two choices pay through the nose to move into a good school district or pay through the nose to send your kids to private school…
If you move into a good school district, there is always the hope that as soon as the kids complete their high school education that you can sell the house at a profit and move into a crappy school district where housing and taxes are cheaper…
We are fishes swimming in a tank, if the water is clean we thrive, if the water is filthy and disgusting we 'll have a very hard time and die very fast.
And the water is filthy and disgusting and getting worse by the day…
Or to put it differently, we make decision based upon the inputs that we have, if the inputs are wrong, we will make bad decisions. Garbage in Garbage out…
One might think, DQ, from reading your comments and the populist rhetoric on the subject, that everybody was snookered and bamboozloed.
“Most people will believe the Banker/Broker, after all it's his profession, he is the expert…”
That's just false, DQ. Most people, in spite of the hype, did NOT over-assume. Most people are NOT in foreclosure. Most people, in fact, are making their payments and are working within their means.
And although 1 out of 6 people are “on the edge”, the reasons for that have more to do with unemployment / underemployment and a rapidly deflating housing market — a market that we all helped blow out of proportion.
I knew that the bubble was unsustainable. Everybody I knew, from California to Texas, knew the bubble was unsustainable. How is it that so many people knew it and avoided the idiocy, if we are all just flotsam in a filthy fishtank? There were many MANY signs, and economists had been writing exactly that for years.
People went along because they wanted to.
I need to add to my comments. The “fault” for the housing debacle is multi-layered, and trying to pin the blame on a specific layer is astoundingly short-sighted.
The government, across multiple administrations, pushed easy money to enable home purchases by people who did not meet traditional criteria. Bankers crafted plans under these eased — even pushed — policies. And the people tossed all caution to the winds.
Blaming the bankers is a dead end. Personally, I think the government's policies deserve the lion's share. Furthermore, it's one of the strongest contemporary arguments I can think of against governmental “social engineering”. The long-term ramifications of even the best-intentioned legislation are often self-defeating.
Excellent post Dalitso. There is plenty of blame to go around, from Main St. to Wall St. Yes, parents and schools (primarily a parental job) need to do a better job of instilling the concept of personal responsibility in youngsters (a nod to Leonidas here) and not just automatically pump them full of strokes and self-esteem regardless of how close or far away they are from understanding and realizing sane standards. And while I know we're talking about fiscal responsibility here, I think it's more than fair to extend this concern about standards to personal character qualities as well. I see us falling steadily down in as a country in this area too, and as far as I'm concerned the development of those personal attributes is the foundation for everything else.
It is the duty of financial professionals to accurately judge risk in lending to prospective lenders.
I am well aware of the fact that many people aren't smart enough to know what's good for them.
That's why professionals are paid to accurately access risk.
“I am well aware of the fact that many people aren't smart enough to know what's good for them. “
As it happens, I agree with this statement, but I wonder whether you recognize the implicit elitism in it — and how easily it translates elsewhere? Voting, for instance… Should we then be protecting ourselves from people who are too stupid to vote for what's good for them? And who decides what's good for them, anyway?
Polymom,
Greenspan says ARMs might be better deal
And here's the Maestro himself telling the American Public to get Adjustable Rate Mortgages…
So the head banker, a man who has been celebrated non-stop in the media, tells you to get an ARM and you're going to blame John Q Public for following his advice…
WHICH THEY DID NOT DO! PERIOD.
DQ, how do you explain the many millions of people — including me — who successfully managed to finance via an ARM without going bottoms' up?
Depends on the person, their financial situation and when they bought their house, People who bought prior to 2000 before the Market went nuts are probably in pretty good shape, those who bought after, not so much…
I bought a house ( 3 Beds 1 Bath 1700 sqft ) in the Northern Suburbs of NYC in 95 for 150K, sold it in 2000 for 235K and saw it hit the market in 2006 for over 490K. It went for the asking price. Who ever bought that house had better have some serious financial resource, they are going to take a bath. Problem, all the other houses in the area were going for similar prices…
I agree with this statement, but I wonder whether you recognize the implicit elitism in it? … And who decides what's good for them, anyway?
You've identified the core of the issue, Polimom. It seems clear that given enough rope to hang themselves, 20% will do so, while 80% will get good use out of the rope.
Shall the 80% go without to protect the 20%? Sometimes yes, sometimes no. It needs to be the government that decides. It's not the job of bankers.
Clearly the financial system needs some regulation. It is only part of the problem, however. Many, many people live above their means and pass a skewed view of money and what it takes to earn it, on to their kids. I am struck by how few young people really understand that their cell phones, ipods, designer bags, etc cost a lot of money, that SOMEONE had to earn through hard work.
Polimom–
In my view of this, the elites are the professionals who were supposed to have accurately accessed risk–and failed. There's nothing implicit in my elitism–it's right out there in the open.
While I don't want to exempt Main Street from blame, I do think Main Street is paying consequences for its failures. Meanwhile, bankers–the elites who have failed us–seem weirdly exempt from consequences, including even the mildest possible consequence of having to own their share of responsibility for this failure.
I hate to seem like I'm avoiding your questions about how we protect ourselves from knuckleheads and about “who” “decides” what's “good” for “them”. (I might have said “us” instead of “them” since I'm as non-elite as anyone.) The easy answer: Better elites. But since I have already agreed with your post about poisoned wells, I admit to feeling mighty pessimistic on that score.
I appreciate your interesting reply to my comment. I hope you feel this, in turn, was responsive.
“Yes, parents and schools (primarily a parental job) need to do a better job of instilling the concept of personal responsibility in youngsters”
No matter how often I disagree with someone here, there's always times to agree. I've always told my kids that I'm not going to let school get in the way of their education.
“Meanwhile, bankers–the elites who have failed us–seem weirdly exempt from consequences”
Which strikes a nerve going back to the S&L bailout (actually, the deregulation that led to the bailout). Anyone who is preaching freedom should know that it's married to responsibility. They gave the S&Ls complete freedom to invest, but kept the FSLIC insurance on those investments. That's freedom without responsibility, which is always disastrous. Seeing these things play out is like watching a bad movie for the second time: you know what's going to happen, but the actors don't listen to you.
Now big bankers, investors in GSEs, union leaders, and insurance companies have to be saved from the consequences of their bad decisions, and both parties think that it's important to do so (while their followers blame the other party).
Hey Dr. J. I really liked this comment, and while agreeing with it 100%, I think I've got to draw different conclusions from it than you seem to. Yeah, 20% of people will likely be fooled by any given scheme — and not always the same 20% from scheme to scheme. I think we've all been taken in at one point or another (I know I have — still smarting from the “bumber to bumber + maintenence” package I bought with my last car). The problem here is that usually 20% of the population making one particular mistake and getting duped by whomever happens to be selling that particular brand of magic elixer generally doesn't take down the entire world economy with it. If you make a poor investment into a shady venture, you are generally the biggest loser, and you can often legally go after the mountebank. Now we're looking at a situation where not only are those who were selling the faulty goods entirely without negative consequences, but a decent proportion of the other 80% of us who did not fall for the subprime scam are now paying huge consequences as well — we're losing our jobs and finding ourselves unable to pay for the totally safe 30-year fixed-interest morgages we took out 10 years before any of this happened.
So, I guess what I'm saying is that I do think that bankers have an obligation to make sure that the 20% who are duped by their BS won't pull the rest of us down with them. Barring their ability to be responsible lenders, the government should regulate them to the point where they don't have a choice. It's not only the gullible who are paying the price here.
Roro, no question banks should not extend loans that will compromise the bank, much less the entire economy. And if a banker makes bad enough decisions, the bank should fold, the shareholders should bear a loss, and the banker should have trouble eating lunch in that town again. It's a major problem if we let the bank get big enough to extort taxpayers.
However, what it means to be a “responsible lender” in a broader social sense is too ill-defined for banks to do well. The banks used to deny loans to people they doubted could repay them. It was called “redlining,” and we made them stop because we wanted more social responsibility, less fiscal responsibility. Looks like we got it.
The right division of labor is to let business look after business–that is, selling stuff people want to buy and creating value for shareholders. Government should be responsible for the broader issues of social responsibility and the health of the economy, and should provide regulatory nudges toward those ends.
Businesses should fold when they take bad risks or stop adding net value to the economy. Government unfortunately can't be forced out of business when it makes abysmal regulatory decisions, but it should be held to account and the people responsible sacked.
Well, Dr J, maybe we're drawing exactly the same conclusions after all. I agree with almost everything here.
“made them stop because we wanted more social responsibility, less fiscal responsibility”
This was the one bit I don't agree with. Encouraging local banks to work with local low-income home buyers was a very small part of this problem. And when it comes down to it, the local banks to which these relaxed laws (passed under Clinton) applied have faired relatively better than the large banks to whom these laws didn't apply, if my understanding is correct. A much larger part of the problem, in my estimation, were things like the common practice of lying on loan applications about the customer’s ability to pay back the loan – that was never legal, but was done a million times over for the purpose of the commission. There’s a huge difference between taking the extra effort to work with the real numbers and real financial abilities of local lower-income families to see what can be worked out and going out and trying to dupe lower income people into signing second mortgages or refi’s they can’t afford.
Where I totally agree with you is this:
“Businesses should fold when they take bad risks or stop adding net value to the economy”
This, I think, is where the regulation needs to come in. There should be no business “too big to fail” if we’re going to have capitalism work correctly. It might sound counter-intuitive, but I honestly believe that capitalism works the best when it’s tempered with correct regulation – that includes monopoly busting, unionization, and many other things that hard-core capitalists dislike.
Roro, totally with you on lying on loan applications, no way would I defend that. I'm likewise reading with a certain amount of glee these stories about foreclosures being tossed out of court because the secondary mortgage market was sloppy with title paperwork.
Encouraging local banks to work with local low-income home buyers was a very small part of this problem.
I can't quite agree with that. The encouragement included Fannie and Freddie, offloading and implicitly guaranteeing trillions of dollars of mortgages. That's not a regulatory nudge, that's a battering ram.
It might sound counter-intuitive, but I honestly believe that capitalism works the best when it’s tempered with correct regulation – that includes monopoly busting, unionization, and many other things that hard-core capitalists dislike.
Maybe I haven't met the hard core, but all the free-market proponents I know agree the government has a role to play to keep the markets free. Monopolies are bad, and the government needs to prevent them. One reason I dislike unions is they are themselves monopolies in the local labor market, with all the ills monopolies tend to bring–high prices, low quality, locked-in buyers, and occasionally pretty aggressive tactics to maintain the monopoly.
Back to banking, it turns out we needed the Glass-Steagall act and shouldn't have repealed it to let bank holding companies grow in 1999. Banks lobbied for the change, but it was the government's job to say no, and the government blew it.
Regulating well is a super hard job, requiring clairvoyance to know where to bend and where to stand firm, and the guts to do so despite lobbying pressure from all over. Government often –maybe even usually–makes big mistakes at it, which is why I often come out against it. Like firing oneself out of a cannon, it's a perilous activity, and we should do no more of it than we absolutely have to.
The encouragement included Fannie and Freddie, offloading and implicitly guaranteeing trillions of dollars of mortgages. That's not a regulatory nudge, that's a battering ram.
Another case of freedom without responsibility. The really disturbing part with the way they “helped” the low-income buyers with cheap mortgages, is that it hurt them far more than it helped. First, it drove up home prices as more people were encouraged to buy what they couldn't afford, meaning they had to pay more for housing than before; then it encouraged lenders to push the kinds of higher interest loans that the buyers really couldn't afford, since the bank would get the profit and the GSE would suffer any consequences; so the buyers are now defaulting and hurting their credit rating, which was often bad to start with. I'm a big proponent of personal responsibility, but that has to be coupled with a hatred (yes, hatred) of those who prey on the vulnerable.
“Encouraging local banks to work with local low-income home buyers was a very small part of this problem.
I can't quite agree with that. The encouragement included Fannie and Freddie, offloading and implicitly guaranteeing trillions of dollars of mortgages.”
Hello again Dr J, not sure if this topic has fallen off, but I just wanted to add something here. While I don't disagree entirely with this sentiment, I don't think we can separate this from the application lying. There wouldn't have been problems in having Fannie and Freddy guarantee these loans (at least not to anywhere near the same degree) if they had been made using real numbers. The problem here is that the same people who were being encouraged to get these loans were by far the most likely to not understand that their loan applications were full of BS. That probably sounds elitist as all hell, but there is correlation between education and income, and the low-income people were much more likely to have lies all over their applications, and much less likely to have realized what they were signing up for. Of course all of that goes out the window once the economy collapses and half the world loses their job. We know that that phenomenon also disproportionately affected those with less income and education.
“all the free-market proponents I know agree the government has a role to play to keep the markets free. “
They might agree privately, but the lobbying of big business paints a much different picture. Heck, even after all this mess, they're denying that regulation would do the system good, calling it “socialism”.
“Banks lobbied for the change, but it was the government's job to say no, and the government blew it. “
Agreed.
“Regulating well is a super hard job”
Of course it is, but that doesn't mean we just let things ride. We seemed to have done an ok job between the great depression and a decade ago, so I don't actually think it's impossible to do a good job at it.
“we should do no more of it than we absolutely have to.”
Well, we've seen what doing as little as possible has done. It ain't good.
1 in 4 mortgages 'underwater'
Time to send some jingle-mail