A reader in the "60 Minutes" thread below, which discusses Wall Street greed and incompetence as at the root of our current crisis, asks if I'd like to revise my view that everybody is to blame for this thing.
Well, maybe. I don't see how the savings rate of Americans can have dipped into negative territory for the first time since 1933 -- as it did in 2005 -- without there being some blame on the shoulders of Joe Sixpack. The story I link to quotes economists saying people were depleting their savings to buy cars and big-ticket items, confident that the value of their houses was going to keep rising. In 2005, The Dallas Morning News did a series of stories on indebtedness in Collin County, the prosperous northern Dallas suburban county; the stories revealed that so much of the wealth in this, one of the richest counties in the country, was built on credit. Check out this particular installment of the series, focusing on the culture of reckless consumption that characterizes Collin County. Excerpt:
Ms. Peterson is director of education and marketing for Consumer Credit Counseling Service of North Central Texas in McKinney."There's a whole subset of people out there who are trying to keep up with the Joneses and trying to better themselves, and they're trying to do that at the cost of being in debt," she said.
There are women in debt counseling who insist they keep their weekly hair and nail appointments. "One guy didn't want to give up his $500-a-turn golf membership even though he was unemployed," she said.
More:
Many families are struggling with materialism, debt and values, several Collin County-area church leaders said. More than half the county's residents say they belong to a religion.The Rev. Doug Miller said he was shocked when he took over the helm at First United Methodist Church of Frisco and noticed so many 30-something people in big houses with stay-at-home moms shuttling the kids to soccer practice in gas-guzzling SUVs.
"They all really do feel like they need these things, this 3,400-square-foot house with three kids," he said. "I guess they do, if you have to have your own computer room, television room, playroom, bathroom. That seems necessary to keep a kind of homeostasis within the family."
Now, having said that, what does any of this have to do with the high-stakes, extremely complicated Wall Street chicanery involving derivatives and credit-default swaps? Not a lot, at least not directly. I think there are two things going on here, both of them bad. One is the failure of ordinary people to live within their means. The second is the failure of financial and political elites to exercise proper stewardship over the system. It is tempting, of course, to scapegoat Wall Street and Washington, to throw off the guilt ordinary people have for getting ourselves into this jam, but I really do believe that the elites bear the greater share of responsibility here. Think about it:
You and I and all our neighbors couldn't get through the day if we had to stop and think about how Wall Street does its business, or how the federal government is exercising its responsibilities. In a profound sense, everything runs on credit -- that is, the trust we all have that those in positions of responsibility, in both the public and the private sector, are generally operating, well, responsibly. When they don't do that, the consequences for the entire nation are potentially devastating. The "60 Minutes" report last night pointed out that 94 percent of American homeowners are paying their mortgages ... but Wall Street bet so very much on the six percent who aren't, and who were never likely to. Steve Kroft kept asking his interview subjects what kind of sense it made to place so much on a bet that people who are least likely to be able to pay their mortgages were going to do so. Nobody had a good answer. There was quick money to be made there, which is all the answer most of those Wall Street people needed. And both parties in Washington had their own political reasons for not stopping them.
How could we, the people, have been expected to have understood what was happening at this level? You trust that your government is on top of this stuff, and is behaving as a prudent steward of the public's trust. And now we find out that they weren't doing it at all.
One more thing: an aspect of the broader crisis that has been undiscussed is the role of free will in getting ordinary people into such a financial jam. You can read stories like the Collin County series and grasp clearly that the inability or unwillingness of ordinary people to discipline their consumer appetites got them into trouble. But I wonder -- and really, I have no answer here, I'm just speculating -- to what extent homebuyers had freedom of choice in such matters.
Obviously nobody has to own a big-screen TV, or a Lexus. But folks who bought houses out in these new developments may have had perfectly legitimate reasons for doing so, one reason in particular: the search for a good school. Many urban school districts are a mess, and middle-class parents of all ethnic backgrounds who can afford to leave the city for suburban schools do so. As I've written before, my wife and I could afford culturally to buy the inner-city house that we could afford financially because we came here intending to homeschool. We're back to doing that with No. 1 Son, but for the year that he was in private school, I was fortunate enough to have developed alternate sources of income, which paid that tuition. The point is, we're in better shape financially to make that happen than lots of folks we know. We have some friends in Collin County we keep trying to entice to move to our neighborhood, but they use public schooling, and it's hard to make a case that they should take their son out of the school they have up there to use the school they'd need to use here. And if you want to get into those good public schools, you have no choice but to buy into the housing stock that's available in those neighborhoods -- the large homes that are bigger than anybody reasonably needs. But what choice do you have?
You know me, I'd be the last person to let people off the hook for buying way more house than they need. I suppose the point I'm getting at here is that not everybody who ended up in a bad financial situation because of real estate did so out of greed or vanity, and that's not something I'm seeing talked about a lot. Then again, when you end up living in a place where most people around you have excessive and unsustainable consumer habits, it messes with your idea of what's normal. It would require a remarkable ability to stand outside oneself and to restrain oneself to keep from being caught up in what everybody else is doing, not because one is a bad person, necessarily, but because this is what seems normal.
Anyway, some random thoughts before the market opens today...
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We drink nothing but bottled water here. And I have gotten cavities because of it, I think, as I never had any before I deployed to Iraq and when I came home I had three. I seem to have gotten off topic somehow...
Yeah, I remember the pallets - pallets! - of bottled water sprinkled throughout various base camps.
I wonder if bottled water might've actually been curative for me. Medical (mis)diagnosed me with cavities prior to my deployment, and pulled my wisdom teeth in preparation for filling them. And then decided they could remain unfilled 'till after I got back Stateside. (WTF?) Then, after months of nothing but bottled water (I don't do coffee or soft drinks), the dentists conclude that my fangs are entirely free of caries. I'd always chalked this up to simple incompetence, but now you've got me thinking of alternate explanations...ah well.
Time spent out in the field, along with occasional muj attacks on the facility supplying our base with water, gave me a new appreciation for the luxuries of indoor plumbing & running H2O.
"Conservative, liberal, libertarian, crunchy, etc. - it's interesting how they all conclude that implementation of _their_ particular policy recommendation(s) before the fact would've prevented this financial meltdown.
Posted by: MI "
Agreed. I posed the question to Rod the other day because I, like Erin, found generalizing the blame to be an exercise in letting off the hook those who need to be on the hook. Rod tends to assess many current events through a lens of morality and personal sin. (Point taken. We are all prone to greed, hatred and delusion.) So it is not surprising that he framed the current situation that way.
My 91-year-old mom-in-law lost a small bundle in the Lehmann Bros. collapse. She did everything right. Raised her sons in church, abhorred debt, etc. It sickens me that her independent livelihood may be threatened because of speculation in the world of high-finance, a world where she has never set foot.
Rod @ 0913:So it's not our fault because no one who is fit decided to run for office? That seems like weak logic to me. Certainly some who were more fit ran and were defeated.
And not being all-seeing is also no excuse for the decisions we as a society have made. A little common sense would have gone a long way. When people are getting mortgages that by any reasonable measure were completely unrealistic (for example, interest only) you didn't have to be an expert to see that a correction was inevitable.
I'm not claiming to be perfect. I didn't do anything to stop it, even when I knew it could come to no good end. However, when this bailout came up I could see that it would not solve the problem, and did what was in my power to stop it. I called and emailed my federal elected representatives, and let it be known in no uncertain terms that I disagreed with the bailout and with the way it had been reworked as a pork delivery vehicle. One office hung up on me and the others might as well have. My actions didn't stop it, but if everyone who agreed with me had taken these actions perhaps it would have stopped it. The fact that while people claim to be against it, they didn't act to stop it is an example of why we as a society are responsible for what is coming. Another clear example is even though people claim to be against the bailout, they will re-elect the fools that voted for it.
No federal or state incumbent will get my vote this year. That applies to people who are trying to change offices, such as McCain and Obama. I don't know who I will vote for but if I say I am adamantly opposed to the bailout it is imperative that I vote that way. It's not OK to hold your nose and vote if a bedrock principle is violated. That's the behavior that got us where we are.
I fault the leadership, both in government and on Wall St.
Joe Sixpack has no idea what is going on and really can't take the blame.
Our leaders have totally failed us. They have brought this once great country to the brink of financial ruin.
Both parties are to blame. You partisans are just stupid.
Truly, I believe that they guilty parties both in government and on Wall St. should be executed. I'm completely serious. The amount of pain that these bastards have caused(and will continue to cause) is almost infinite. The damage to the country could be permanent; therefore they are guilty of treason and should be killed.
Hi, AnotherBeliever, thanks for the heads-up that cholera is treatable. Still, I don't think it's something we want to risk breaking out, especially if there are a lot of demands on the medical system.
Re public schools: However, you can't ignore the disparity between the per capita expense paid per child in those nice suburban districts, and those children warehoused in disintegrating inner city schools.
Most urban districts have a greater per child allotment than suburban schools (in the St. Louis area, it is about $11,000 per student, versus about $7,000-$8,000 in some of the "better" suburban districts.
The money in inner city districts comes from the state (i.e. state taxes) as well as the city district. In our state, "better" suburban districts are forbidden by state law from receiving any substantial amount of state tax money, and are made to fund their districts almost entirely from *local* property tax revenues - while at the same time sending tax $$ to urban districts.
In some states like Texas, property tax money is "pooled" and redistributed to the districts which "need it the most." These are usually very poor-performing districts with a lot of problems.
There are other issues too - even though the courts have pretty much backed off of mandatory school desegregation plans, the fallout of these plans (some of them 30+ years old) have soured many middle-class people on public schools within the cities altogether. Until it became too expensive to operate the busses, St Louis for instance used to almost automatically bus white children to largely black neighborhoods, in order to achieve racial integration goals. (The district at the time probably had 20% white children at most.) The city district was quite adamant that "racially unbalanced" schools would not develop in various neighborhoods (i.e. that white children wouldn't cluster in city neighborhoods that were mostly white.)
I don't know what St. Louis is doing now - the district has kind of imploded - but the first lawsuit was filed almost 40 years ago, and it radically changed the face of the city schools. And that's just one city.
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