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Maybe this isn’t the fault of a few bad apples?

February 17, 2010 Leave a comment

Mooched from NKS

Quoted from the article Portrait of the Banker:

“It’s the way humans are, and that’s a shame, but that’s how the thing works. People think that there’s one guy who plays the system. There’s not one guy. Everyone plays it a little. It’s a chain, and it’s harmless, but altogether it’s a disaster.”

It certainly is easier to just blame somebody else though, than, you know, actually finding a solution. By solution I don’t mean one towards the economic recession. It becomes much more difficult when we realize the problem begins not in others but ourselves. Everyone plays it a little.

Or we can build the jenga tower back up again. Lets just save the shock when that thing falls again. It’s made to fall when we are all pulling some pieces…..

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Categories: Economics Tags: ,

Father Zosima vs. The Financial Crisis

January 26, 2010 Leave a comment

Excellent responses friends (the checks are in the mail) to my most recent post. A couple things….

Kevin wrote in the comments:

“Moreover, I think you are misappropriating responsibility to the architects of good legislation, instead of the seedy mortgage brokers who exploited it.”

I am not sure what he means by “good” legislation, perhaps morally sound or perhaps structurally foolproof. Regardless, the fact that mortgage brokers could “exploit” it, I think would mean quite the opposite here (I hate the word exploit in general because of its vagueness) My post was not to absolve mortgage brokers of guilt either, but I do think the issue becomes if they are not breaking the law; (in some cases, the law was actually breaking them per Thomas Sowell; throw in minority and underprivileged quotas you’ve got bigger issues pressing the backs of these lenders) You actually wonder how much some of these brokers knew? Just like Wall Street-ers relied heavily on faulty ratings and fees incentivizing transaction volume, I think I could safely say some brokers made assumptions that everybody else was making, including buyers. There were definitely snakes out there, but I attribute it more to a stunning lack of due diligence on both sides.  I bring this up because:

A) Its unremarkable, a lot of people screwed up and weren’t necessarily malicious in intent, in the sense I don’t think your average mortgage salesman anticipated he would trigger a massive financial crisis. Remember this was a popular product because it “worked” in a favorable interest rate environment and housing market etc.
B) I still think its unequivocally greedy and f’d up; and speaks to the infinite and insatiable desires of man

Government securing housing for those who couldn’t afford it, and actively encouraging it. Lenders seeing clients as transaction fees for their pockets. Buyers not understanding their inability to cover debt service. Hrmm. Its a macrocosm of Daddy encourages teenage Madison to get a no-limit high interest credit card and Payless Shoe Stores (where the hell do women shop?) suddenly thinks its rich! Notice this cycle perpetuates itself across nations, races and social class.

Regardless, the post is not one purely of political culpability, rather a moral/personal one. The operative quote here is from one of my favorite books, and a book everyone should read, The Karamazov Brothers (the way it really is titled sounds kinda just goofy):

“Each one of us is guilty before everybody for everything, and I am more guilty than anybody else.” Father Zosima

Neil wrote:

I treat human behavior as more or less exogenous and constant. Efforts to temper it, either through faith, institutions, norms, and culture usually fail. What we instead have is a means of organizing society around a given set of behavior preferences – namely sin. If greed is the primary driver of economic growth (Smith), then it is also the driver of crisis.

A really great point there and the topic of which I really want to hit. Thus the biggest problem I see in society is As a Christian who believes in personal redemption, I have to politely disagree. There are many reasons why.

1) Good rules don’t just restrict people they help them learn and process what is right – Take most children (microcosms of sin in my book). A kid might hit his brother to steal his toy. Now one could say he only stopped because of the fear that he was gonna get severely beaten by parents for being a deviant sociopath. Perhaps. But somewhere along the way I think conscience prevails and makes that action impermissible; it becomes unacceptable to him to see his brother needlessly go through pain just because he can’t get what he wants. The rule might be a good disincentive, but it also helps mold the child into understanding why he shouldn’t hit somebody he loves.

2) It’s depressing to consider our status merely subject to a series of exogenous variables – We certainly don’t behave this way. Only the sickest parents would treat their children as pawns in a social game, rather then children who can be nurtured to be responsible and loving beings, not just robots. People marry with the hopes that the covenant they undertake could help shape one another’s character and deepen their love for each other.I think by treating the human condition as immutable (sentiments that are echoed by fatalistic scientists, Amir? Neil?), we also take away a lot of the joy in life. Put it this way, if this were the final solution that was figured out by society, what really is the incentive for people (especially the lesser of us) to”live life to the fullest”?

3) Making rules is an incomplete and unsatisfying solution – as Kevin wrote before about legislation regardless of the rules, people will exploit them. More regulation is purely a palliative measure, I would argue this would only create incentives for people to rent seek with more lobbying/gov’t work instead of ripping off people on the private end.  We can continue to insist on making better and better rules, or we could start looking at the supply side and look towards heart transformation. I find Neil’s argument useful because reality presents transformation as insanely difficult; as a Christian I would actually say impossible purely by the strength of our own convictions.  Going back to Father Zosima and his thoughts:

“Love redeems and saves everything.”

This is the hope that I have in humanity. This financial crisis is painful, I know firsthand. I also know it was a lot more painful to others with more immediately dire circumstances. This is unmistakeably tragic,  yet all we are doing is addressing the issue of pain, we change the doses, prescribe stronger medicine but are unwilling to address the disease itself.  Humanity will never change if only presented with that option; its depressing to think  we are only left to find ways to numb the pain. Call me naive or innocent, but I think humanity has a much higher upside, not merely confined to the same patterns of behavior ad infinitum.

I have every reason to suddenly pretend I hate the banking industry, I don’t though. This cycle of behavior is not unique to them. Crucifying the bankers is numbing the wound but leaving it open to infection again. What is the idea of love I think is most convicting? I look at the idea of the Cross: Christ dying, not for personal gain, but but what was a selfless act done for others. Yea I know, perhaps its goofy and silly, or even offensive to some, I’ll admit it tough to really get a grip on this idea sometimes myself.   But I think this (the Cross) is the new cycle of behavior this world needs; the thing that makes transformation possible and what Zosima tells us can redeem all.

Romans 12:2

You’re greedy! But wait, so am I?

January 22, 2010 7 comments

So my buddy Neil wrote about Obama’s plan to tax wall street. Read it. He’s a smart guy and has a legit writing gig although definitely too Democratic party for my tastes. =)

Originally, I was going to write a rebuttal discussing how a punitively natured tax is bad form; whats to say banks won’t conduct their shenanigans outside the US, or move taxable liabilities off the books….yada yada. Well then again, Obama asked nicely, so maybe they’ll oblige:

“Instead of sending a phalanx of lobbyists to fight this proposal, or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities,”

Regardless, lets talk about greed for a sec.

People are quick to point the finger of blame at “greedy, Wall Street businessmen” maybe rightfully so. It should piss people off that comapanies which were ostensibly on the brink of failure and bailed out by taxpayer money are now dishing out loads of bonus money to the very people who might have caused part of this crisis. But lets temper those sentiments for a second. Certainly it might be easy for us to excoriate the “rich” for their excess and greed, but the beginning symptoms of this problem manifested themselves in the form of people who had no business paying their mortgages. As Michael Lewis wrote about AIG,

“Millions of people borrowed money they shouldn’t have borrowed and, not, typically, because they were duped or defrauded but because they were covetous and greedy: they wanted to own stuff they hadn’t earned the right to buy.”

Are we to pretend that the vice of greed is only exclusive to rich people? Was the average American not buying homes they could not afford and taking out credit cards their income could not justify? Lets remember what happened here: Ordinary Americans taking out ridiculous mortgages, banking on the fact that home prices would continue to rise (astronomically too) and having no capability of covering their debt otherwise. How about you with the credit card app in your hand? You put down 100,000 as your income, even though you work at Mickey D’s? Greed was just as rampant in Downtown Detroit and Suburban Springfield as it was in Midtown Manhattan.

As I was discussing this topic with a friend today, we analyzed at a very general level how this mess got started in the first place. A point was made that the finance guy peddling what we now know see as toxic assets obviously did not understand the implications of his actions. He was assured by others that these were “triple A” and “risk-free” securities. He bought insurance to ensure that even if the securities failed they would be backed up. He looked across the street saw his buddy making a killing selling these products. He saw his buyers absolutely enthralled that they were getting stellar returns. Nobody did any homework and boom goes the dynamite.

This recession did not occur because a few ill-willed finance douches decided to incur their wrath on society. This more akin to a bunch of smart ass kids teaming up to do a group assignment, and when due date comes, everybody assumed somebody else did the work. I don’t know about everybody else, but these shortcomings don’t sound so spectacular or dramatic at all.

And maybe that is the exact problem. We are all used to games like Jenga, since we can clearly label the loser. The tower is fallen and the culprit is holding the proverbial piece of the puzzle. Yet in this grand economic version of Jenga, surrounded by our crumbled towers, we are all holding THAT piece. Our most clever solution has been to just rebuild these towers and in these vulnerable times its easy to embrace such a solution. Even the best of us, only slight scathed, are collecting our scraps and wondering how we can achieve that wondrous state of satisfaction. Yet its an illusory hope, the achievements we have mustered today become increasingly boring and irrelevant tomorrow. (see Michael Jordan)

That is why its silly for us to ask ourselves these questions about why OTHER people screwed up. Are these not questions we could fiddle around a bit with and ask ourselves? Its clear we all need to rebuild, but something tells me it goes a little bit deeper than credit cards and mortgages. What we really seem to be ignoring is our very human condition. Nowadays it might be taboo to say it, but Christians call this word sin. Dah! BDK How can you call me a sinner???? Sinfulness is reserved for  Hitler and Kim Jong Il and of course, George W. Bush, not me!!

Perhaps with a little introspection we can begin embracing true humility. When we realize we are just pretending when we think our deeds our so much better than others, we fail to see excess creep in other ares of our lives. Preaching savings, thriftiness and moderation is wonderful, but doing it is ten times more difficult.

“Why do you look at the speck of sawdust in your brother’s eye and pay no attention to the plank in your own eye? How can you say to your brother, ‘Let me take the speck out of your eye,’ when all the time there is a plank in your own eye? You hypocrite, first take the plank out of your own eye, and then you will see clearly to remove the speck from your brother’s eye. “

You see the systematic issue here was not just easy credit, or greedy executives or even dumb homeowners. My point is we are satisfied with blowing our noses but not curing the damn cold! This was a scramble to prove our worth to society, to distinguish ourselves in society as “Big Swinging D!cks” and “Masters of the Universe”. Unsatisified even in our state of blessedness, we need to inflate our human balance sheets with hope the enormity of our assets make us somewhat unique, different or better. If only I can run faster! if only I can be smarter! if only I could make more money! Humanity needs to embrace a true heart change; one that doesn’t base its self-value on a successful stock portfolio or the square foot of a home.

Until we can get to that point, we shouldn’t be surprised when our own Jenga towers crumble again. I wonder why we keep on rebuilding the tower even though it eventually falls down again.

Gather together and come; assemble, you fugitives from the nations. Ignorant are those who carry about idols of wood, who pray to gods that cannot save. Isaiah 45:20

We’ve all stopped playing stupid games like Jenga; maybe we can stop finding our redemption in our own temporal gains.

Romans 3:23-24

Gather together and come; assemble, you fugitives from the nations.
Ignorant are those who carry about idols of wood, who pray to gods that
cannot save.
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