The rest of the story: A few thoughts on sub-prime mortgages

One of the best things about going out and grubbing around in the dirt is that it tends to take your mind away from other, less pleasant things. But the universe is stacking pointers up on me again, so I need to abandon gardening for a moment and get some thoughts down here.

Yesterday I got a few things planted. Then it started to rain, and I came inside to find that the mail had arrived. It included the latest issue of The Economist. If you’re not familiar with this publication, I recommend it for its breadth, if nothing else. But there’s plenty more else, too. ;^}

The headline story for this issue is the current implosion in the U.S. mortgage market, complete with lots of speculation, both optimistic and pessimistic. It also contains a few exemplary stories. This whole thing depresses me almost beyond belief. It also raises a bunch of questions that I’ve been asking myself for some time now. It doesn’t, unfortunately, help me answer them.

The 19th century English novelist Anthony Trollope wrote a book titled The Way We Live Now. Several years ago, PBS made it into a wonderful miniseries, for “Masterpiece Theater,” I think. It starred David Suchet (the wonderful Hercule Poirot in another miniseries) as Melmotte, the greedy financier with a gift for pyramid schemes. He would go to any lengths to advance himself, and “to the devil” was his attitude toward anyone who got hurt in the process. He had an equally greedy and self-centered daughter on whom he doted. Sophie (I think that’s the right name, but I’m not sure) only wanted whatever she wanted and she wanted it right now. If ever there were two icons for our time, these two are it.

Winston Churchill is reported to have said that if a person is not a liberal in his twenties, he has no heart, but if he’s not a conservative by the time he is forty, he has no brain. This is a position with which I largely agree. I’m a firm believer in personal responsibility. I’m more than willing to forgive youthful foibles (even well past the age normally associated with such things), but it seems to me that part of becoming a fully functional person is to understand not only yourself but your environment. In short, we all have an obligation to know the rules and play by them. But we also have an obligation to look out for our own interests rather than expecting someone else (or many someones, aka “the government”) to do it for us.

But that’s the perspective of someone who was raised in a fairly poor household but by intelligent parents who wanted their children to a) play by the rules, and b) better themselves. If our family didn’t have a lot of money when I was growing up, we had extraordinary assets in our parents and the amount of parental attention we got. I’m not foolish enough to think that everyone has those assets. Nor am I foolish enough to believe that everyone is willing to “play by the rules.”

So, one of the questions this whole thing raises in my mind is this: When is government intervention appropriate? I certainly don’t think any level of government should step in and rescue people or companies who have been too foolish to manage their assets. I’m including all sorts of things here, from individuals who live beyond their means to Chrysler Corporation.

On the other hand, I think it is fairly evident in this situation that predatory lending practices were employed and that greedy mortgage brokers deliberately misled folks who were naive for the sole purpose of collecting their loan fees. Some of these stories are truly heartbreaking. But what should be done about them? It strains credulity to think that a 75-year old woman who had struggled for 30 years to make the payments on her home would really believe that someone wanted to give her $25,000 with no downside. But someone obviously persuaded her that was the case.

I’ve heard a few remark, “She should have read the loan agreement.” Well, that’s true, but I can’t help but think of all the times I signed paperwork without reading four pages of very fine print. I did it because I trusted the person I was dealing with, and I’ve never been burned. But that makes it hard for me to blame someone who acted the same way.

If you’ve read my previous rants about the chaotic nature of society today, you’ll know why I’m not surprised that a 19th-century work of literature would have so much relevance for us today. I think what we’re living through bears more resemblance to the Industrial Revolution than to any other period in human history, and I expect the results to be equally momentous in whatever form they take.

But I’m bothered by this story, as I’m bothered by other stories where significant numbers of people seem to have forgotten that we are all human, One of the main responsibilities associated with that recognition is that we must treat each other with respect. These things frighten me. It frightens me that our government would condone this type of behavior to be able to point to a “strong economy” bolstered by “high levels of home ownership.” I wonder what sort of spin they’ll find when this house of cards finishes collapsing. I can only hope that it’s not a tailspin that affects all of us.

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20 Responses to “The rest of the story: A few thoughts on sub-prime mortgages”

  1. Jeff Moriarty Says:

    Mortgages and credit cards… how much money can we squeeze from our fellow man? Then we fuel it by convincing each other we need more. More stuff, more toys, more computers, more gadgets, more clothes, more hair products.

    It’s a dark little pyramid scheme, and you are right – we should all “know better”, but what do we do when some of us don’t. We all make bad decision from time to time so what is the balance between personal responsibility and helping each other out? It is going to be interesting to see how we figure it out as a culture.

  2. mklekacz Says:

    I don’t know the answer to your implicit question, Jeff. Toqueville says that one of the consequences of democracy is that people tend to withdraw from community. He sees that as one of the dangers. He might be right.

    It seems to me that if you feel yourself part of something larger, it’s harder to screw the other guy, but maybe I’m just being silly.

  3. whig Says:

    Without compassion, any system fails.

  4. OmbudsBen Says:

    The Industrial Revolution comparison is apt, in that the technological advances we’re seeing over the last 20- 30 years are profoundly re-shaping big parts of our society.

    I think of the stratification we’re going through now as a lot like the Gilded Age. There is a similar reverence for laissez faire capitalism now, and a similar stratification of wealth and a near-deification of the wealthy. This “market correction” as some will term it, will serve as another reminder of the importance of regulation, too.

  5. melanie alquist Says:

    hi marianne – first i just want to tell you that i’m so glad i found your blog. i was scrolling thru intel employee blogs and came upon your tome from last year. i remembered your great circuit articles and wondered – where the heck did marianne go, anyway? until i saw your october post. i’m in intel hr comms and want you to know i really miss your literary voice in the environment. just so you know – i enjoyed your writing alot.

    now in response to your latest thoughts, it made me think of george bailey in “it’s a wonderful life.” too bad creditors can’t be more like george – with a connection to community and understanding that the inherent purpose of providing a means for people to borrow includes uplifting friends and neighbors. and maybe helping to empower individual and family circumstances. but life’s not like the movies, is it? there are more “mr. potters” than “george bailies” in the the real world. unfortunately i think that’s just a sad fact of life.

  6. mklekacz Says:

    Whig, of course you’re correct. That’s one of the dangers of withdrawing and one of the benefits of community.

    Ben, I think I would point to instant global communications as the main driver in this shift. More on that elsewhere.

    Melanie, how nice to hear from you. It’s always nice to feel missed. I’m glad you found me, come back soon and let me hear from you again. Greed seems to b e the preeminent emotion of our time. I think that’s why I though Melmotte was such a wonderful icon (“The Way We Live Now).

  7. MoskerVenice Says:

    The under and middle class voting (and those in power making it easier for them to do so) would help. Forget the rubber stamping of the Patriot act or the Iraq invasion, the real reason to kick out members of both parties is the blanket approval they gave to the banking bill that was almost verbatim what the industry lobbyists presented as a “suggestion” for “reform”.

    Not putting people into debtor’s prison is one of the greater advances we made as a financial society. It’s also interesting how views of the sin of usury have changed and how it’s viewed religion to religion.

    In terms of worldwide, I think considering the growing difference between rich and poor is going to make Venezuela’s post-Cold War move towards land redistribution worth watching.

    Sorry for the messy response, but it’s a messy topic.

    Am I rambling? Sounding irrelevant? Possibly — because all of the personal debt and bankrupcy costs combined is pennies compared to corporate welfare and CEO salaries. Little guys are simply easier to screw with a few carefully arranged statistics. It’s much like some of the arguments regarding illegal immigrants (and mind you, the ER’s in L.A. are closing down due to lack of funds)…the cost of taking care of all of the uninsured illegals showing up at hospital emergency rooms is almost negligible compared to the uninsured everyone else’s.

    Is there

  8. mklekacz Says:

    Dave, all topics are messy today. It is criminal that in a country as rich as the U.S. people who are willing to work go hungry and without medical care. Of course the naysayers will point to people who are unwilling to work or are “homeless by choice.” But I think those bear as little a portion of the problem as the situations mentioned in your last paragraph.

    I’m not up on Venezuela’s situation, but I hope it works out better than Zimbabwe’s land distribution initiative.

  9. whig Says:

    I’m inclined to think land redistribution is unnecessary if the power of taxing land value could be applied without disturbing the present holders.

  10. whig Says:

    It has the further advantage of being a continuous reform and not a one-time expropriation which merely puts new landlords in place of the old.

  11. mklekacz Says:

    Whig, I could almost agree with you except for one fact: I live in a state where something like half of the real property is owned by the federal government–forest service, BLM, and so on–which is exempted from any real estate taxes whatsoever. It’s a major problem in this state, which relies heavily on real taxes for its income.

    But it’s rather like the flat tax concept. If you were willing to eliminate any exemptions–government, church, and so on–from real estate taxes, your plan might work. I don’t know, because it doesn’t address the issue of the tax that low income renters pay by virtue of having to pay rent that includes the cost of real estate taxes. I do know that based on everything I’ve seen, a flat income tax with a generous living exemption would raise more money and affect fewer “real” people (except in a positive sense) than any other tax proposal I’ve seen.

  12. whig Says:

    Marianne, I think my point here was in response to what MoskerVenice was saying, and as a tool of economic progress, independent of a tax for revenue purposes.

  13. whig Says:

    In other words, you’re arguing for one extreme — abolition of all taxes except a flat income tax. MoskerVenice is talking about nationalizing the land.

    I think a middle-ground might be better than either proposal, especially if it is something that we can all live with in peace.

  14. whig Says:

    I would be willing to propose a constitutional amendment to abolish the income tax altogether if it provided a land value tax as a replacement.

  15. whig Says:

    At least as to individuals. Corporations should not have limits on how they can be taxed, they are not even entitled to exist except by special permission.

  16. mklekacz Says:

    Well, I think we’ll just have to agree to disagree on this one. And probably no one in power cares about what either of us thinks. . .;^}

  17. whig Says:

    I understand and recognize this is your space, so I hope I don’t cause you offense by responding to your commenter. It is his attention my response was directed to, as I said before. Folks in power are in power because we allow them to remain. It’s that simple, really, and they care more than you might realize about what well-connected bloggers think.

  18. mklekacz Says:

    Don’t be silly, Whig. I chose the name for this blog because a “salon” is supposed to be a place for spirited discussion. Chime in whenever you think it’s appropriate, or even when you just want to. . .All comments are welcome, and all are considered.

  19. Great Achievements of the So-Called Brainless « Ombudsben Says:

    […] run into variations on this quote numerous times, most recently on my friend Marianne’s site. My father heard it attributed to a New York Times editor, told his son was a communist, who […]

  20. ombudsben Says:

    Marianne,

    I tried to comment to this post earlier. This is the second time this has happened; I’ve written a comment, and it hasn’t taken.

    On Monday I tried twice to comment to this post, and the second time wordpress gave me a dialog box telling me they had already received an identical comment.

    Anyway, I expanded on the comment and posted it on my blog instead; as you are the catalyst for the post, please feel free to swing by — hopefully any comment you have will meet with better luck than mine did.

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