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More Than Fat Cats Responsible for Financial Crisis

October 1st, 2008
By MARK DANIELS

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[This is a portion of the first part of a series I’m doing over on my own blog regarding the current US financial crisis and our grappling with it.]

Only those willing to be seduced are seduced.

Nobody persuaded into doing the wrong thing can credibly argue, “He tricked me,” or, “She jumbled my thinking,” or “The devil made me do it.” The evil all around may pull at us, but we are the ones who cave into our inborn tendency to do the wrong thing, no matter what the wrong.

Believe me, I know. I do things that are wrong and, in the end, I realize I only have myself to blame.

Only those willing to be seduced are successfully seduced. I’ve been thinking about that a lot lately as the nation grapples with the financial crisis. It was caused, it’s said, by the reckless policies of major lending institutions. Obscene compensation and benefits packages given to corporate CEOs and other company hot shots made things worse.

It’s all true, of course. And these realities are among the reasons that both Democratic and Republican members of the House of Representatives offer for not passing the $700-billion bailout or rescue package forged by the White House and congressional leaders over. “Why should we give $700-billion to these greedy corporate honchos?” It’s a fair question.*

I hate it when legitimacy, such as that enjoyed by the captains of the lending industry in recent years, is given by the government. For several decades now, Democratic and Republican Presidents and Congresses have endorsed and allowed the practices of the big investment bankers and mortgage lenders. Presidents lauded the ever-increasing homeownership rates, ignoring the fact that this “progress” was a house of cards erected on financial quicksand, bricks and mortar stacked on toilet paper. It’s high time that the illegitimate practices of the big mortgage houses were changed.

But others’ practices need to be changed as well: Those of the borrowing public.

Nobody forced people to get sub-prime loans. Nobody forced consumers to buy houses with no money down, with insufficient income to make loan payments, all on the less-than-shrewd bet that property values would inevitably increase and, borrowing from projected future value, they could refinance their way out of debt. And nobody forces consumers to use their charge cards as revolving loans.

The greed of the now-pilloried corporations was rewarded for the past twenty years by equally greedy consumers who were working the angles to get into houses, to own other things, to effectively steal their ways to more comfortable lifestyles.

Greedy lenders seduced people. But they couldn’t have been successful without greedy borrowers who were willing to be seduced.

[To read the entire post, go here.]

*Proponents argue equally fairly that the bailout is really for the entire economy, restoring liquidity so that deserving consumers and business owners can have the credit they need to buy homes, invest in inventory, and make payrolls.



This entry was posted on Wednesday, October 1st, 2008 at 7:41 am and is filed under Corporations, Wall Street, Economy, Politics, Money/Finance, Business. You can leave a response, or trackback from your own site.

Viewing 12 Comments

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    The many deadbeat, childish, greedy, something-for-nothing borrowing "homeowners" who were the last ones holding homes when the bubble popped deserve _nothing_ in the form of bailouts. That would just be more liberal risk-and-responsibility-free actions by government meant to buy the votes of so many cheap people whose votes and souls are for sale. Why should responsible people have to pay one penny for such a thing? The obvious logical, moral answer is: They (we) shouldn't have to pay anything at all.

    A second bailout bill is coming Congress's way. Is it really that much better? It raises FDIC deposit insurance levels from $100,000 to $250,000. Isn't this just a feel-good big-government liberal-style appeal to emotion to try to buy off the public? Who really benefits right now from such a thing? It's not individuals or households, who already have limited their deposits to $100,000 or less in any one bank. Arguably it may help small businesses, but still, what's the current situation? Probably $100,000 or less at any individual bank, too, currently. So what is this? It's just an attempt to buy off the public, ot at least its sentiment or support. What else is in the bill? It's still a $700 B bailout (let's not join some in the media in using that euphemism, "rescue"). And what else is in there? More gimmicks, like tax credits for alternative energy sources. It seems the only lesson learned by some about the House GOP's stunt of seeking a reduction in capital gains taxes was to do another, even more stupid stunt with this bill. And, for all the talk of prudence and responsibility, the tax credits in this bill are not offset by new taxes elsewhere -- this bill is not revenue neutral, but increases the public debt. I hope this second bill gets rejected, too. There is no moral obligation or compulsion by Congress to approve any kind of bailout, much less a bill now looking to be filled with various earmarks and pieces of pork. It's business as usual in DC.
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    Mr. Daniels, you will upset some here in Detroit metro who have objected very heatedly to what one caller said, similar to what you have said, on a local talk radio show -- that not everyone can afford a home and some should be renting instead.

    How politically incorrect! The heated objection: "Everyone has a _right_ to a house!"
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    Arrgh!

    "“The first thing I would do is say, ‘Let’s not call it a bailout. Let’s call it a rescue,’” McCain told CNN."

    http://www.thenewstribune.com/news/nationworld/...
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    To some extent I agree, Mark, but it's never wise to generalize about people. You seem to be blaming all borrowers as if they all knew they would be in trouble with those mortgages. Some of them were not too bright (surprised?) and others too ambitious, hoping they could make it. Some lost their jobs through no fault of their own.

    But people didn't just choose these loans, they were sold them. Everyone up to and including Alan Greenspan were telling them ARMs were a great idea.

    [Greenspan said] Americans' preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives.

    In a standing-room-only speech to the Credit Union National Association meeting here, Greenspan also said U.S. household finances appeared generally sound, despite rising debt levels and bankruptcy filings. Low interest rates and surging home prices have given consumers flexibility to manage debt, he said.


    So even the head of the Fed is telling them that they can manage their debt. It is experts like Greenspan and the banks themselves who are supposed to be capable of assessing the creditworthiness of their customers. There's plenty of blame to go around, but I would argue that the primary fault lays with banks pushing loans to customers who should not have qualified. It is they who put their companies at risk, not the borrower. It is they who put the economy at risk, not the borrowers. Add to that the ability of the bank not to have any risk, due to deregulation, by flipping the loan to be bundled into a newfangled financial instrument, and the entire economy was put at risk.

    My point is that protecting the assets of a corporation is the responsibility of those who run it, not of their customers.
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    Actually, it's complicated by _some_ (not extensive, but _some_) likely real fraud, which the FBI has already begun investigating. (Thus, again, why the bailout rush?)
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    Mark D. is just part of that blame America first crowd :-)
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    "The hand that took the bribe was oft outstretched before the bribe was offered."

    Well, something close to it happened among the subprime borrowers (and the house flippers and other sordid types that also materialized during the housing bubble).

    There should be _no_ interest rate freezes or other Third World dictator games stunts by Washington that steal from the lenders. There should be _no_ bailout of homeowners who face foreclosure -- they should become renters or leave the homes.

    Many of the liberal Dems want a systematic parasitic handout program. It's awful. I wonder, though, if Obama might not be clever about this once in office and ready to spend huge sums of money. Why not have Washington take over foreclosed properties, remodel them, and not necessarily resell them but give them to people in exchange for federal service of some kind, as a new, modern or contemporary form of a "homesteading" program? With affirmative action and subprime borrowers (Dem voters) strongly favored, naturally, of course. It's not to be called a giveaway program or a handout program or innovative public housing program, but a "homesteading with national service" program.

    I just wonder how Washington would handle the stampede not into Ohio or Michigan but directly to California, to Las Vegas, and other growing Sunbelt locations, though. Maybe just sell the Sunbelt homes (which will rise in value eventually) to finance the "homesteading" of traditionally-Democratic Snow Belt areas.
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    I'm not in favor of the foregoing project, but consider aside from politics or ideology how well spending money for such a program would be compared to just throwing $700B at Wall Street as a rush effort at current-crisis life support (and rewarding executives there).

    It's like some stupid EPA programs for air pollution. Wouldn't it be cheaper (it often has been examined and found to be so) and more effective just to buy and provide everyone with a new vehicle every few years? (improving emission controls)
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    I agree with Mark's point to a certain degree, and I think that individuals who took out bad loans they couldn't afford should be held responsible for their own, personal financial crises. But -- BIG BUT -- the overall, national-level crisis was the banks making poor investments in the form of those bad loans to people who couldn't afford them, and then leveraging on that debt. Individuals hell-bent on making crappy financial choices have always been perfectly capable of digging themselves deep into debt. In the past, however, institutions (who had supposed education and knowledge of good business practices, being in the biz and all) made good decisions on who to lend money to, because they had to to stay afloat.

    So, to recap: personal stupid choices are the fault of the person who made them, but I think the extremely poor decisions by the companies who should know better are the real cause of the crisis.