Wednesday, September 24, 2008

Give Credit Where Credit's Due

An excerpt from a Steve Pearlstein chat on washingtonpost.com:

Q: In the hunt for villains in the current financial crisis, I hear very little in the media about the responsibility of consumers for the problems in the housing market. Isn't the underlying issue the fact that consumers entered into contracts (mortgages) that they are now not honoring? If anything, the financial system was too optimistic about the intelligence and character of the consumers who were taking out these mortgages. They were too bullish on the capabilities (intelligence/character/cash flow) of the American consumer! That's not a populist message, but it seems like blaming all the players in the system - the financial intermediaries and their regulators - without assessing the culpability of consumers as a whole is a total dodge. Aren't there millions of Americans who have made bad decisions as borrowers? Aren't all homeowners participants in the price-setting that's gotten us in trouble? Where does that get factored into our collective assessment of who is at fault for this? It's depressing that the most common storyline makes consumers out to be victims in need of paternalistic care. Thoughts?

A: There's been a lot of populist resentment floating about the last few days, and with reason. But you are right: in the search for culprits, we all need to visit the mirror and look into the bathroom mirror. We've lived beyong our means for many years, and this is at the heart of the problem. And we got so caught up in the bubble that we forgot a lot of the basic lessons of household finance, in terms of how much we borrowed and how much we paid for assets. There's plenty of blame to go around.

Precisely. I'm all about Congress stepping up (finally after all these years) and asking some pointed questions, but their continuous references to the pain felt on "Main Street" should be understood for what they are: a naked election-year appeal to the consumers/voters who gleefully lived beyond their means and wholly contributed to this mess. It's easier to scapegoat those corporate sonsabitches than to admit you're just as greedy as they are.

5 Comments:

Blogger Deimos said...

So you're saying I should stop buying the extended warranty?

5:19 PM  
OpenID fromthehills said...

I TOTALLY agree...why are we always so quick to point the finger outward? What about our responsibility as consumers? Aren't we supposed to hold up our end of the bargain, too? Please, people, if you don't have the money, then don't invest/purchase/squander. Do what I do...humble yourselves and live in your inlaws' basement..

7:16 AM  
Blogger Chief Jimbo said...

Disagree.

In 2005 everyone was telling me "you gotta buy now or you'll never be able to buy later." I did my homework and found my limit in terms of mortgage/tax payments and it turned out I couldn't afford anything of the inflated prices of NoVA anyway.

BUT...when I was still in the process, my loan officer was like "wait, we can get you 30% more if you do a 5/1 ARM loan so really you CAN afford to do this."

I said "no way buddy" and I kept getting mailers from him. The people who designed these products that securitized mortgages and then products to hedge bets on certain ones failing should have thought out what the repercussions in the long term. If I design a bridge and it collapses because there's no one inspecting it, who's fault is it? Mine or the inspector? If I design a bridge and it collapses because I didn't design for all the 19ton trailers driving across, who's fault is it? Mine. Clear as day.

Yes, I agree there is a large portion of people that bear the responsibility because they didn't do their homework before buying. But the entire system failed. And there are people who designed that system who failed us and people who should have inspected the system who were never told to do so until it was too late. And I, who did do my homework am pissed off to high hell that our National Debt will exceed 10Trillion thanks to this bullshit (you should look up National Debt per capita over the last 20 years)...where I DID my homework and I gotta pay for the inept consumers and financial product designers complete failures to do their homework. Even more so, the investors who didn't do their homework to see these returns were too good to be true? How bout we make the $700B their problem, not the rest of ours.

(Note: I read somewhere that to cover the mortgage related fallout, it would only cost a fraction of $700B. The remaining duckets are for the rest of the fallout from this crisis.)

9:57 AM  
Blogger Waan said...

You might misunderstand. I'm not denying that mortgage sellers happily screwed the daylights out of buyers, themselves, and ultimately taxpayers. Interest-only loans? Bad credit? No proof of income? Are you fucking kidding me???? Banks played people and then happily went about building financial foundations on a swamp of consumer credit. I resent the fact that lenders and finance houses dug a hole so deep that we all have to pay for their shortsightedness--and, like I said, I'm glad Congress has made a fuss (from both sides!) and is looking for greater accountability. I hope momentum carries in to a new set of regulations for mortgage disclosure and book-keeping.

What irritates me though is that most Congressional talk has focused solely on 1) executive compensation (I say hang the bastards) and 2) the pain being felt on Main Street. The consumers' role in this has been little discussed but the numbers are hard to ignore. The national savings rate is negative (for the first time since the Depression) and national household debt is on par with GDP. Those are absolutely incredible numbers. Consumers' lust for all things credit is ferocious and of course lenders overexploited it. It's a shame that we've had to wait for a financial crisis to reign people in.

I don't buy the notion that this is strictly a top-down crisis and I'm irritated that no one is pointing straight into the TV camera and saying "Stop spending so much, consumer."

2:08 PM  
Anonymous mijoy said...

although I agree 99.9% warren, there is a bigger danger if consumers stop spending altogether-- what more to send our economy in faster downward spiral if all the money is kept under mattresses?

It's more like: responsible spending, but dont stop altogether.

2:50 PM  

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