When it comes to economics, I am woefully ignorant, both on a macro and a micro scale. I make no pretenses to even be an amateur scholar of such things, and all anyone has to do to prove me an ignoramus is to look at my bank account, tax returns, and credit rating.
But I do remember some things, and can occasionally piece them together.
I have no grand unified theory that explains the collapse of the subprime mortgage industry, no overarching explanation for the events that led to the collapses that have shaken Wall Street to its very core this week (if that is what happened — I’m not even up enough to know how much of the hysteria is hype), but I do recall certain things that seemed to me, at the time, bad ideas that would lead to major problems.
Many years ago, there was a huge push to approve a lot of mortgages that the banks had been refusing. There was a huge stink about “redlining,” where banks were compelled to issue loans in areas they didn’t wish to invest. And in the last couple of years, “creative” mortgages were all the craze — especially the “no-documents” loans, where the applicants would just say how much money they made and the lenders would say “sure, we trust you!”
In the first case, I can understand why the government stepped in. There were some very bad reasons why these banks didn’t want to invest in certain neighborhoods — racism, bigotry, and the like. That shit needs to be stomped down, and stomped down hard. But there were also some good reasons that got shoveled under with the rush to end discrimination.
And just who the hell thought that “you say you make that much in a year? Sure, your word’s good enough for us! No need to show us any documentation!” was a good idea? I’ll tell you who — those who have a vested interest in certain loans being made, regardless of whether or not they’ll ever be paid off. Mortgage brokers, and those who want to point to record home sales and take credit for it and brag about how great it is — i.e., politicians.
Politicians like, say, Barack Obama, who was #2 on Fannie Mae and Freddie Mac’s list of favorite politicians, as measured by how much money they gave him.
The fun part of that list is that Obama’s second on that list that is cumulative over 20 years — and he’s only been in there four years. Other politicians had up to 16 years’ advantage on Obama, but they (apart from Chris Dodd) were left far in the dust. They really, really, REALLY like Obama.
Other politicians I’d like to shovel a good chunk of blame on are certain Republicans who liked citing home ownership as a measure of economic prosperity. The problem there is that you start thinking of the indicator as the goal — you are tempted to rig the results by pushing the metric, even beyond the limits of reason and common sense.
In my utterly uninformed and uneducated opinion, what is happening in the financial world is the rude triumph of reality over fantasy: the fantasies that good intentions and government power can make things better, that social engineers and activists and “community organizers” know economics better than those who make it their livelihood, that attempts to make things “more fair” will never end in disaster; that “equality” never means “everyone’s equally miserable,” that combining the benefits of government entities and private enterprises will never end up with the worst of both worlds; and no matter what happens, some politician will be eager to tell you that it’s not your fault, and he or she has the perfect solution for everyone.
I’m fairly confident that in the long run, things will be OK. Yes, there are some parts of our economy are in serious trouble, but I happen to agree with John McCain — at its core, in the big picture, America’s economy is on sound footing. Our current problem is caused by a bunch of idiots and greedheads in some very high-profile areas who have finally been exposed as the incompetent assholes they are — and those who they fooled for so long are paying the price for believing their bullshit.
That’s my take on the matter. What’s the difference between what I say and what the experts are saying? The main one I can think of is that I don’t even pretend to know what the hell I’m talking about.