OH, NO, SIR, IT’S NOT YOUR FAULT!

1/27/11

Much discussion over the last few days has revolved around the report issued by the Financial Crisis Inquiry Board, the panel of bureaucrats, politicians, politically connected business people, and similarly connected academics charged with diagnosing the roots of the economic crisis from which our public servants are supposedly delivering us. For example, an op-ed, entitled “What Caused the Financial Crisis” and written by three panel members, was published in today’s (i.e., Thursday, 1/27’s) Wall Street Journal.

As with most crises, which aspiring Chicago politician Rahm Emanuel pointed out are terrible things to waste, the financial problems we experienced over the last few years have provided a ripe opportunity for a vigorous exercise in pointing fingers and assigning blame. Some blame greedy financial firms, others blame lax regulation, still others blame Fed policy. While all of the above alleged miscreants deserve some share of the blame, the panel, due primarily to the timidity that seems to be a prerequisite for politically sensitive jobs and secondarily to a failure to understand the nature of the crisis, misses the most blameworthy players in this crisis.

The mistake the Financial Crisis Inquiry Board makes is in assuming, as does virtually every other “expert,” self-styled or otherwise, that the “crisis” from which we are reportedly emerging was a housing crisis. It wasn’t. As I have said ad nauseam in the past, what we experienced was a debt crisis, not a housing crisis. People’s houses just happened to be, in many, probably most, cases the vehicle they used to borrow money. But the essential problem was that people simply were borrowing money and far too much of it. People assumed that they were entitled to a lifestyle they could not afford and were taught by “experts” who were misguided, conflicted, or both, that borrowing excessively was normal, indeed, mandatory not only for borrowers to achieve the lifestyles they deserved but to keep the economy functioning properly. They were further taught that the most financially savvy way to borrow was to, first, take out first mortgages that were beyond their ability to pay and, second, take out second mortgages, euphemized as “home equity loans” designed to “tap the equity in their homes” that they had somehow “earned,” to finance a lifestyle commensurate with the homes that they now “owned.” Borrowing against their homes, by the way, did not seem to dissuade people from also maxing out their credit cards, and why should it have? The “experts” told them they could always refinance high credit card balances (“bad” debt, if such a thing were possible in the modern American lexicon) with one of those “home equity loans” (“good” debt, the adjective “good” being completely extraneous in the modern American financial lexicon) because, after all, the price of real estate “always” went up, don’t you see.

So while some of the blame goes to lax regulation, insane Fannie and Freddie policy, greedy lenders, and the most overrated man of all time, Alan Greenspan, most of the blame goes to the American people themselves who, in an attempt to live like the people on the television shows with which they anesthetize themselves on a daily basis, borrowed more money than they could pay back. It IS as simple as that.

Some might argue that since the financial industry, with at least the connivance of the government, was willing, in order to employ the cheap capital Dr. Greenspan’s monetary insanity made available to it, to lend people money they couldn’t pay back who can blame the borrowers for taking advantage of the lenders’ stupidity? This argument, though, is specious for at least two reasons. First, we are ultimately responsible for our own actions, debts, and decisions, the last good or bad. Second, personal finance is not rocket science; as radio host and personal financial guru Dave Ramsey says, it is only what your grandmother (and mother of father, if you are of my generation) knew and probably taught you, if you bothered to listen.

We won’t hear this from the politically connected types who compose the Financial Crisis Inquiry Board, though; people get ahead in politics, and in big business, flattering people and helping them deflect blame, not telling them the truths they don’t want to hear. Talk about origins of the crisis!