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TechnoratiWall 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.
The present crisis is the direct result of Republican mismanagement of everything. The market was supposed to take care of everything, but it only takes care of those who manipulate and abuse it. It’s not reasonable to expect borrowers to know as much about finance as the institutions they borrow from. The government was supposed to keep the foxes out of the hen house, not to open the door for them. 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.
Brian you forgot one thing.... Several decades ago the US Congress first castigated the big, bad banks for “redlining” certain geographical areas and then, through the Corporate Reinvestment Act, encouraged banks to deliberately lend to people who were financially subprime. Can one really fault the banks for trying to offload such bad baggage through the various instruments they developed? Yes, Americans must learn to save money, rediscover deposits and exercise self control. So must the US Congress.
Vinnie Santoro
economist
New York City
While admiring the wisdom presented in the above article, I’d like to mention Americans, as well as other nationalities, must not expect the government to hand things to us. Everyone must take responsibility for providing those necessities for themselves, regardless of what that service/item might be. I find the immediately above comment enlightening in that My2Cents grew up apparently existing with very little, and relying upon themselves for what they gained. Such self-responsibility is exactly what is a necessity if this world, including the US, is to exist.
This lovely writing speaks to my heart, perhaps due to the fact that I grew up under similar conditions as these, so clearly rendered into words by Brian Lilley. My mother was widowed at age 26 and with 2 small children to raise alone, she largely home schooled us while emphasizing the importance of classical music, literature, Latin and French dictum, the beauty of nature and of the world itself. It was always great fun to roam excitedly through the city dump finding all sorts of wonderful almost new items, and even scrubbing laundry in our bathtub before hanging items outside on clotheslines was satisfying to us. Pennies mattered greatly, and were not to be wasted nor were we to buy anything until we had sufficient money to pay for it in full, a habit which continues as part of me even today. My first job paid 25 cents an hour, minus SS, federal and state taxes, but it was glorious to feel I was able to contribute other than by canning our home grown vegetables and jams plus sewing and knitting. In college I realized what gifts my mother had given me! I had no idea I had any intelligence other than the normal, but our poverty had led us to music, books and story tales for amusement during bad weather, and my first day in college found me in advanced literature, physics, chemistry, physiology, political science, etc. heading into a fascinating medical career. Those were unusual circumstances for a young girl and woman, but I have many times been very thankful to have known hunger, cold and lack of proper clothing since the lack of all these treasures quickly illustrated to me the value of the world and of humanity itself.
Serves America right! pardon this expression. Yes, this credit card mentality and spending beyond one’s means and very little saving or saving for the future is happening not only in America but other parts of the world. Americans should learn from the Chinese, where truly every penny saved is every penny earned. On the average, each household in Taiwan, for example, would have at least half a million of savings by the time they are middle aged.
what is happening in the american society is just another proof of the social repercussion of vice. we can only hope that it is not something irreversible…
Yes! There is plenty of blame to go around. The old adages of the past are just as relevant today.
Whether it’s McCain ignoring his participation in the set-up for this disaster, or Obama pandering to every point on the compass regarding this issue doesn’t bode well for the future reclamation of fiscal integrity of this country (USA) or for that matter much of the rest of the world infected by the ‘Me now! syndrome. It all has to burn down and hopefully rebuild from the ground up. A lot of danger ahead for the whole world.
On savings… Sounds good, but there is not going to much opportunity for that given the financial burdens we will be bearing just to stay afloat.
A KNESAL ‘Fiscally Conservative Liberal’ “Little Beirut”
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