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diggWall Street’s meltdown speaks to a loss of character
The market meltdown calls for a return of character, a return of thrift.
"I love the dump!" exclaimed my friend over yet another glass of his home brew. We were sitting on his farmhouse porch talking about being frugal, when I began hearing about the exciting things one can find in a rural garbage dump, where, as you drop your refuse off, you can also pick up new items.
The thriftiness of this ultimate act of recycling surprised me a little, though perhaps it shouldn’t have; we were drinking home brewed beer, not only because this friend has great skill in coaxing a good glass of ale from the pot, but also because it is cheaper. And it’s not that I have not engaged in rescuing items from the garbage (such as a near-perfect condition 1920s art deco dresser for my wife), but I never saw this friend as having any need to shop at the dump.
The truth is, my friend does not need to shop at the dump, but does so because he knows the value of a dollar. Life used to be full of sayings extolling the virtue of thrift; lines such as Benjamin Franklin’s "A penny saved is a penny earned" filled life in America and beyond with the sense that saving money was the thing to do if you wanted to get ahead. Today’s consumerist culture is more likely to believe sayings such as "No interest, no payments for 12 months" rather than Mr. Franklin’s maxim.
Of course, all of this comes to mind as we watch the markets on Wall Street and around the world reverberate from the American housing bubble since it burst earlier this year. The sub-prime mortgage meltdown is, at its base, a failing of character. First, there was a failing of character at the companies lending money to people that could not pay and then selling the mortgages as a complex investment vehicle to investors looking for greater returns. There was a failing of character in millions of individual Americans who took out mortgages far exceeding what they could afford, some to just finally join the ranks of homeowners with a modest abode, others taking on ever greater mortgages to move up to the McMansion on the hill. In both cases, the company and the consumer were living beyond their means.
And that is where a study from the Institute for American Values comes in.
A report called "For a New Thrift: Confronting the Debt Culture" has been signed by 62 scholars from across the American political spectrum, it is a report that New York Times columnist David Brooks calls "the most important study you’ll read all year". The paper documents how American families have gone from saving a large portion of their income shortly after World War II, to saving next to nothing now; all the while charging more to their credit cards and buying on the instalment plan. This is hardly a culture that would value my friend’s excursions to the town dump as a virtuous act of thriftiness; this is a culture that values spending.
There is a downside to all of this spending, a downside now playing out as American consumers declare bankruptcy, with filings from students and seniors reaching new highs. Even for those who do not declare bankruptcy, the debt culture is leaving families strapped for cash and vulnerable to unexpected events, such as job loss, and car or home repairs that insurance might not cover.
We are unlikely to hear too much about the moral failings of either Wall Street or especially of Main Street during the Presidential election. Politicians are simply not willing to blame the people whose votes they are seeking. Barack Obama did make a slight nod that Washington cannot fix all during his nomination acceptance speech "More of you have lost your homes and even more are watching your home values plummet. More of you have cars you can't afford to drive, credit cards, bills you can't afford to pay, and tuition that's beyond your reach. These challenges are not all of government's making. But the failure to respond is a direct result of a broken politics in Washington and the failed policies of George W. Bush."
No doubt there were failed policies, especially as it relates to the mortgage giants Fannie Mae and Freddie Mac but those date back decades and across several presidents and congresses held by both parties. I will give Senator Obama credit, he at least acknowledged the problem, McCain chose not to mention it. But the question that arises from Obama’s statement is: Whose fault is it if Americans now have cars they cannot afford to drive, credit card bills they cannot afford to pay?
For some, they are simply victims of circumstance, perhaps losing a job at an inopportune moment. For many others, the situation is a series of bad choices; the kind of choice I and millions of others make and are enticed with in a consumer/debt culture. The truth is, most of us carry debt loads at which our grandparents would have balked. In fact according the Thrift study, Americans spent more than they earned in 2005-2006 for the first time since the Great Depression. This was despite historically low unemployment rates and at a time before the housing bubble burst, sending many families finances spiralling out of control.
One of the main recommendations from the 62 scholars that have signed onto the report is for a public education campaign to encourage thrift and savings similar to campaigns to reduce smoking or drunk driving. The authors also call for expanding and improving school savings accounts, establishing government matching savings accounts for children and encouraging credit unions and other institutions that encourage members to save not just spend. It is these proactive policies, rather than the calls for cracking down on pay day lenders that have the best chance at reshaping the culture. We need to encourage more people like my friend, willing to save engage in new culture of thrift.
Picking up the pieces from the current mess will be a major undertaking for whoever becomes the next President of the United States. We can only hope that he heeds at least some of the advice from this study and tries to reshape the debt culture so prevalent on Main Street rather than simply shaking up Wall Street.
Brian Lilley is Ottawa Bureau Chief for radio stations 1010 CFRB in
Toronto and CJAD 800 in Montreal. He is Associate Editor of MercatorNet.
haha… just like what my mother’s officemate mentioned… people spend money they don’t have, to buy things they don’t need, to please people they don’t like…
Geoff Jones said: “while i never thought i’d say it, Bush is an idiot (that being said, he was better than the 2 other bozos he ran against in 2000 and 2004).”
We’ll never know, will we? It was, however, George Bush and his ideology that led us to the brink of this precipice. Look where we are now and compare it with where we were 8 years ago. Bush took office with a huge budget surplus and look at the sorry mess the he and his ideologues have left us. McCain has been part of the problem right along. From his involvement with Keating (they were inseparable) to all the years he referred to himself as the ‘deregulator’.
while i never thought i’d say it, Bush is an idiot (that being said, he was better than the 2 other bozos he ran against in 2000 and 2004).
it’s all very well to combat terrorism and have secure borders, but if you can’t even keep you own house in order then everything else pales into insignificance.
Jim, the gold standard didn’t protect us from the great depression. Even Ron Paul doesn’t want to return to the gold standard the way it was before 1933.
The lessons of youth tend to stick with us throughout our lives, provided they are well and truly taught.
It is my position that fiscal responsibility begins at home, and if the examples shown are the philosophies and mentalities of the “keeping up with the Jones’” syndrome, then it is small wonder that there is a financial crisis in America, and elsewhere in this wonderful world of ours.
Having been born with the proverbial silver spoon in my mouth and having been given all the alleged advantages that money can buy, when it came time to begin my adult years, I was ill-equipped to deal with the reality of the grown-up world in which I found myself.
Many years later, I am living and working in Afghanistan where my “home” is a 6-foot wide by 7-1/2 foot long space in a weatherhaven tent I share with 7 other women. I don’t need the designer clothes, the super deluxe car, or the great big house. Luxury is the joy of having a hot shower once a day and a hot meal.
We CAN learn to live with less of the material things in life - society as a whole needs to accept that concept, and once that happens, we will begin to see changes for the better.
Sue wrote:
“… And/or by the relentless de-humanising forces of capitalism altogether.”
I think rather than the de-humanizing forces of capitalism what we are seeing in the US is the relentless push of the left toward socialism. Bit by bit our courts and legislators are putting socialistic policy in place. We have witnessed an undermining of the dignity of human life, marriage and the family, and we have a legal system/government that is lacking responsible leadership. Altogether these things are very de-humanizing, but capitalism itself is not the root cause.
I’d wonder Sue what you might propose that would be better?
David Page wrote:
“We need another New Deal and you can’t get that from McCain. He was for every deregulation for the last 25 years. As a direct result we came right to the edge of another Great Depression. We still might get it. We’ll certainly get it with McCain in the White House.”
and from another post:
“The laws created just after Roosevelt came into office were meant to avoid this kind of catastrophe.”
David it surprises me that you would put forth the programs and ideas of Roosevelt and his New Deal as something desirable. Or, perhaps I misunderstand or am reading something into your statements that is not there. The New Deal contributed to Federal Income Tax rates going as high as 80 to 90%. Imagine that, perhaps history is repeating itself as we head for higher taxes due to monetary greed and our consumption driven economy. In addition, Roosevelt was instrumental in the formation of the International Monetary Fund as well as starting the process of creating our fiat currency by taking US currency off the gold standard. Both of these activities have allowed the banking system to ride roughshod over the common man whether he be in the Third World (in slavery to the IMF) or in the developed countries where the banks created their own wealth/money.
Republicans and Democrats alike are responsible for NOT allowing the market to control irresponsible business (read the banking/credit and mortgage industries). Is it any wonder that the banking executives allow such irresponsible financial behavior when the US government itself, that would be both Republicans AND Democrats, seem to have no interest, or ability, to control their own spending or consumption of borrowed money?
Admittedly, I’m not an economist or finance person by any stretch … but you have my 2cents and I fear the government will take a whole lot more.
Excuse! Me,
This so called ‘conversation’ seems clueless. It’s amazing how deftly our attention is diverted from the real issues. This whole world wide problem is about the ‘Derivatives’ game. Problem mortgages are just part of it, significant, but minor compared to the hyper inflated ‘Derivatives’ market. The US taxpayer is being asked to cover Derivatives and more. The plan is being brought to us by the very people who enabled and profited from this market and now want to burden the US taxpayer to save their monies and make more. There is nothing, I repeat nothing in this for anybody but ‘them’.
A KNESAL ‘Fiscally Conservative Liberal’ “Little Beirut”
“Never Own Any Thing You Can’t Leave Out In The Rain”
Very interesting discussion - also, what about us learning from the americans? seems like we’re headed in the same direction, Australia is becoming a country with that same consumism culture, Earning for the weekend expensive restaurant and the holidays in asia or europe… Not appreciating the real value of money. Moreover, we should focus in looking for - and finding - true happiness in non-material things, trascendental things, things that don’t last just for that little moment, treasures that cannot be stolen and that don’t rot. I think many Australians are too far from those expectations, and sounds like sooner or later we’re going to be in the same position as the americans.
Brian, without serious regulation we should let wall street pay there own debts. Deregulation was the problem. This was amplified by the Bush white house that wouldn’t allow those regulators who still existed to do their jobs. Under Bush, the Republican Party has become a criminal enterprise. Even now they are trying to protect the golden parachutes of the executives who caused the problem in the first place. There were greedy home buyers, but the bulk of the blame should fall on the Bush administration. This is only one facet of the harm the Republicans in the last eight years have caused this country. They have squandered the surpluses of the late ‘90s and left us with huge deficits. They started a preemptive, unnecessary war which we can’t afford. They haven’t enforced any of the provisions of NAFTA. They allow free trade with countries that don’t trade freely with us. They refused to prosecute business owners who hired illegal aliens. They allowed companies to move offshore but gave them government contracts anyway. They tried to eliminate Habeas Corpus. They shamed us with the use of torture. They passed a bankruptcy bill entirely written by credit card companies without changing a word of it. They insulted our European allies. They squandered the chance for decent relations with Russia. I could go on but you get the point.
David Page asked:
Do you believe that the borrowers who made bad choices are as guilty as the predators who examined every angle to see how they could lie, cheat, and swindle to put money in their own pockets?
Brian responds:
In some cases David yes. Obviously if people were misled, then no, whenever you purchase something you must be able to trust the person across the table. Yet as we can all plainly see, many of the people now hurting put themselves in this situation. When any of us take on too much debt, opt for interest only mortgages or mortgages for homes they can hardly afford if anything goes wrong, then yes, there is blame on borrowers who made bad choices.
You mention regulation and blame only Regan and Bush. You seem to forget Clinton and Carter. Is that for partisan reasons perhaps? Presidents and congress have for decades brought about bad policy including making Fannie Mae and Freddie Mac hybrids of the worst sort. When those two mortgage giants made money it went to shareholders, when it lost money the taxpayer was there to pick up the pieces. Privatising profit and socializing risk results in bad corporate choices, choices backed up with government cash.
You are either missing my point because you don’t understand it or willfully choose to ignore it. Let me state it again.
There is blame on both sides. Companies that swindled borrowers and built a financial house of cards are to blame. Blame also has to lie with people who chose to use sketchy financing schemes to buy a house, car or lifestyle they could ill-afford.
Would more regulation help. Perhaps yes. Canada’s federal government recently announced that they would not insure 40 and 50 year mortgages and would limit government insurance on no money down mortgages. Likely a couple of smart moves based on the American experience.
Yes Brian, I do agree. All the more reason to closely regulate these financial institutions. Most people, regardless of their tendencies, will obey the law if there is a law to obey. The laws created just after Roosevelt came into office were meant to avoid this kind of catastrophe. The deregulators, like McCain, dismantled those laws.
Laws have to reflect how people are, not how we wish they would be. Do you believe that the borrowers who made bad choices are as guilty as the predators who examined every angle to see how they could lie, cheat, and swindle to put money in their own pockets?
Sue, I couldn’t agree more. Reagan set out to dismantle Roosevelt’s New Deal. George W Bush continued on that path. The result was completely predictable, if they, and their friends, were not blinkered by greed.
For all of you who are pointing out that Congress or the president’s office had a role in this. Yes, you are correct. For those who say the big corporations had a role, yes I say they did and call for a return of character to the corporations.
A return of character and a general sense of thrift in the population would mean these attributes were present in congress, corporate boardrooms, even the president’s office.
Yet for Sue I ask, if character, virtue and thrift were all present in greater amounts in the general population, how would people get duped by “manipulative predators”? Is an interest only mortgage ever wise? Should everyone own a McMansion or should we just realize the homes on TV are not for everyone. There is real suffering, much of it brought on by greed in the offices of predatory lenders but also by greed in the home. We cannot solve all our problems by blaming someone else.
Would you not agree Mr. Page?
Yes but isnt the current crisis the inevitable replay, on a much larger scale, of the Savings & Loan Scandal of the 1980’s which occurred when the “character” actor Ronald Reagan de-regulated the mom and dad savings system, thus opening it up to all the manipulative predators, including members of the Bush family.
And the trashing altogether of what little social and cultural capital that was left in the USA, by the Bush administration too. And/or by the relentless de-humanising forces of capitalism altogether.
On Reagan’s “character”.
http://www.psychohistory.com/reagan/rcontent.htm
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