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 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 enough 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 en.wikipedia.org

Consumer debt and government debt are inextricably linked, in that excessive amounts of either 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, I remain intrigued by the ways some debtors and their advocates continue to ply us with excuses.  I have given you examples, but here's another excuse, which I'll call the Jon Stewart excuse:  You can't fault them because they were just "optimistic" about the future.  When someone optimistic with marginal credit needs 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 "...free enterprise is unfair and the government ought to do more to ensure equal outcomes" and wealth redistribution is a justifiable anecdote.  Is this the "optimism" Stewart spoke of on his show?

Continetti notes that common reactions from conservatives are "redistribution is inefficient, or unfair to those from whom the money is taken, or a recipe for unlimited government" but that 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.

I think both factors may contribute to unhappiness.  That is, I may not feel good about accepting public money to improve my life, or if I felt that the system was stacked against me.

What troubles me, is that 30% believe wealth re-distribution is justified.  More importantly, they do not realize (or care) that continuing down this slope could have apocalyptic repercussions.  Perhaps despair is the parent of socialism.

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.