Sunday, June 27, 2010

Class struggles, debt and happiness

I've written about credit-related causes of the Great Recession: ridiculously lax underwriting standards (with sponsorship from government and the GSEs), overuse of ARMs (because the borrower couldn't qualify for a fixed rate note), cash-out financing and artificially low interest rates.  I've paid less attention to the Wall Street factor (i.e. securitization of those obligations and excessive risk-taking) because:

1) the Street factor already gets most of the attention in the press,
2) regulatory reform for banks is a foregone conclusion,
3) Wall Street's culpability came after credit issuance to anyone with a pulse, not beforehand

It's the third point that is lost on some who look only at the Wall Street role in this disaster.  It could only have been possible with easy credit extended to in-over-their-heads borrowers, like our federal government -- that operates the same way -- in the red. 

Even today many journalists treat sympathetically, those homeowners who walk away from their mortgages when the principal amount owed, exceeds the current market value of a property.  That's disturbing.  (Experts say, that between 20 and 25 percent of all outstanding mortgages in this country are under water.)

Author User:Brendel at

Excessive consumer debt and government debt affect the rest of us who keep our promises and pay our obligations.  The ways we pay for the selfishness and poor judgement of others are innumerable.  Yet some debtors and their advocates continue to ply us with excuses.  I have given you examples, but here's another one, which I'll call the Jon Stewart excuse:  You can't fault them because they were just "optimistic" about the future.  (If you're an optimistic borrower with bad credit and thus in need of a co-signer; please seek out Mr. Stewart.)

A new book by Arthur C. Brooks called, The Battle: How the Fight Between Free Enterprise and Big Government will Shape America's Future is reviewed by Matthew Continetti in the June 21 issue of National Review

Mr. Continetti, an associate editor at The Weekly Standard in his article titled, "The Happiness of Pursuit", notes that Dr. Brooks thinks 30% of the American public believes " enterprise is unfair and the government ought to do more to ensure equal outcomes" and that wealth redistribution is a justifiable anecdote.  Is this part of the "optimism" Mr. Stewart spoke of on his TV show?

Continetti notes that conservatives believe "redistribution is inefficient, or unfair to those from whom the money is taken, or a recipe for unlimited government" but he points out that Arthur Brooks has additional reasoning. 

Based upon what Continetti calls an "abundance of empirical data" Brooks believes feelings of low self-worth, not inequality, actually make people unhappy and giving a man a fish not only won't help him fish, it won't help him feel good about himself either.  Brooks believes that earned success which he defines as, "the ability to create value honestly" is a proven prescription for happiness.

What troubles me most, is that according to Brooks, 30% of Americans believe that wealth re-distribution is justified.  Apparently, the 30% does not realize (or care) that continuing down this slope could have apocalyptic repercussions for our current way of life that enabled America to flourish in the first place.  Perhaps despair is the parent of all Socialist states.

I'm genuinely sympathetic to people that suffered tremendous misfortune that contributed to their financial problems.  Examples may include catastrophic medical issues or sudden death of a primary wage maker, but here's the point lost on so many --- people in those types of circumstances constitute a small percentage of the people defaulting on their obligations. 

I  haven't found a better phrase than, "Live within your means" and I now think of it as our second-most important Golden Rule.