Just a thought before I go to bed today. I’ve taken a short hiatus from writing to my blog over the weekend and now my trip to the mountains is over and I shall resume my efforts here.
Interesting economic situation we are in with one bank taken over by the federal government and the two main mortgage companies on the verge of collapse. Phil Gramm would tell all the investors of IndyMac they are imagining the locked doors and the federal takeover I suppose, quit whining, he might intone wisely from Washington.
Where was Washington in the build up to all of this economic trouble I wonder to myself. I am not uneducated but I am no economist and yet even to me it was glaringly apparent that we were headed to disaster in the area of credit in this country. The cycle of greed and consumerism was stark over the past twenty years. The idea of borrowing money against one’s home to buy consumer goods was promulgated by the federal government when they eliminated the tax credit for credit card interest. Everyone instead was encouraged to borrow against the value of their homes to buy what they needed and get a tax break for doing so. Add to this the artificially inflated housing prices that created phantom equity with which to sustain an endless shopping spree.
When the greed reached an ugly peak there were still no calls to put the brakes on spending, to stop charging, to stop drawing equity out of thin air to buy consumables. Washington has been silent and greedily benefitting from the tornado of credit purchasing that has generated taxes of all kinds plumping up the coffers and making legislators appear wise and budget conscious.
People I spoke with over the past ten years all agreed that the housing inflation could not be sustained. Everyone concurred that children were being hurt when both parents were forced to work to buy a house, when one parent’s salary was earned simply to pay a mortgage. I never found one person who felt that the housing prices represented reality in the marketplace but rather an aberration that was bound to correct itself.
And yet we spent, and spent and borrowed, and spent some more. We were careless in many cases and blatantly greedy in other cases. Fortunes were made and spent in the past twenty years. We squandered, we accumulated, we grasped, and we stood in lines for the latest shoes or the latest electronics.
I heard a speaker once, a brilliant professor from Colorado whose name I don’t recall now. He spoke about change and how to change people. His thesis was that it took what he called a “significant emotional event” to make change in people happen. I wonder if we have experienced that in this economic crisis to date. I wonder if the federal government suddenly springing into action after years of allowing this crisis to fester isn’t making a huge mistake. Are we going to miss the significant event because of government interference and thereby lose the opportunity for true learning and change?
Did the generation that lived through the Depression not gain important lessons from that experience and could it not have been defined as a significant emotional event? I don’t think we’ve seen it yet in this mess. True, we are a little uncomfortable, we are a little nervous; we are looking at mutual funds and cringing. But have we learned the lessons that with an economic upturn would keep us from sliding back into the mall with credit cards in hand only too ready to overspend? I would argue not in the least. I think tomorrow if the housing market rebounded and there was suddenly a lot of paper money created, there would be a surge in spending unrivaled in history. There is a pent up shopping itch waiting to be scratched that would bust out in all its sub-prime mortgage splendor if there were just enough good economic news to spark a run on Macys.
The federal government is taking actions that place more government influence in our lives through things like bailing our Fannie Mae and Freddie Mac through stock purchases, while they also delay or reduce the amount of pain that the citizens of this country are going to feel over the economic mess we have created.
Now before anyone grants themselves a pass on this because, “I didn’t buy a subprime mortgage and then proceed to go belly up on it”, “I didn’t spend all my equity on stuff”. Well good for you and you are in my eyes less guilty in creating this mess than those who did.
But, did we all take all measures of a prudent citizen to alert our representatives that we felt something was going terribly amiss with all this phony housing inflation? I didn’t. I sat back in my lazy boy and I enjoyed rising value of my property. I knew that it couldn’t last and I knew that people were getting in deep and in trouble but I never wrote a single letter to my congressman on the topic So I hold myself partly to blame.
When a guy I knew went to work for Ameriquest Mortgage and he told me about the egregious lying that was going on to get people loans and how the managers were all driving expensive sports cars as a result of their fraud. I did nothing. I didn’t call anyone and report what I’d heard. I sat back in my lazy boy and waited for the bubble to burst.
The bad choices made by so many people that have placed them in jeopardy of losing their homes, and which have placed the rest of us in jeopardy of experiencing a Depression level economic downturn must result in some significant emotional events. If we are kept from experiencing those, then no learning will occur, and no changes in behavior will be made that will last longer than the downturn in the economy.
Ever stood behind an old lady in the grocery line and watched her pick through a change purse for the exact change for the cashier? Or the little old lady that stands and counts each penny put into her hand for change? I doubt that many people under 50 do either of those things. We just whip out the extra dollar and dump the change in our pocket. Money has little value because there is so much of it and it was coming at us so fast that we didn’t even worry about what we had in hand at the moment because in the next there would be more.
I believe the generation that stands and counts out pennies and sorts through a change purse learned to do those things because they learned early on through a significant emotional event, the Great Depression, that money does not grow on trees, and it does not exist on paper, and that to really establish financial security one must work diligently and count each penny over a lifetime. The only real money in the end is the stuff you can count and hold.
It’s a bad idea for the federal government to insulate this generation from experiencing the significant emotional events that would produce learning that comes from overcoming economic mistakes. I would argue that depriving the younger generation of this lesson will make the country weaker. The people of the U.S. are tough enough to overcome our mistakes, the federal government doesn’t have to take over and hand-feed us pabulum and mush.