In the spring of 2008, months before Lehman Brothers became the largest bankruptcy in US history and the world as we knew it went to hell in a hand basket, I wrote a post about a Wall Street Journal editorial by the former CEO of Nomura Capital, Ethan Penner, in which he decried the bailout culture and the lack of personal responsibility it both reflected and fostered in America.
And so we have the insidious modern trend to shirk responsibility and blame others for our missteps. This trend, this "victim mentality," is a path toward personal disaster.
Perhaps if the Fed had raised short-term rates more aggressively, the excesses of the bubble could have been avoided. Maybe regulators could have noticed that the criteria for achieving an AAA rating had weakened markedly and inserted themselves early on. Yes, we can hope that the government takes the appropriate steps to ensure that the regulatory system improves as a result of this crisis. However, we citizens also need to accept our share of the responsibility.
Homeowners must learn that there are risks to using a home as an ATM. Investors who borrowed to flip condos must learn the downside of such risk. Individuals who steered money from insured bank deposits into uninsured money market accounts to pick up 1% more yield – like the institutional investors who purchased complex securities with little due diligence – need to know that in an efficient market, extra yield means extra risk. Those who played the derivatives market, focusing more on computer-driven pricing models and less on managing counterparty risk, must pay for that oversight. And, much as it is impolitic to say, people who took money from lenders and signed without considering how they'd repay those loans must also be held accountable.
In one of this year's primary debates, Ron Paul said it is not the president's job to run the economy. I'd add that it is not the government's job either. It is each and every citizen's job to manage our own affairs, make our own decisions, bear the fruits or painful consequences and learn our lessons.
The free market is the essence of our society's strength and is rooted in the Lincolnian precepts of accountability and responsibility. When decisions are made and actions taken (or not taken), there are consequences. These consequences are models for us to learn from and serve to stimulate social growth and advancement.
Less than six months later, the collapse occurred, the big bailouts ensued, and as we all know, the lessons taught by the adverse consequences of poor decision making were not learned. At least the world economy didn't tip over into total depression, but eight years later, we still haven't fully recovered from the meltdown.
Last December, Michael Burry, a main character in the book and movie, "The Big Short," gave an interview to Jessica Pressler which was published in New York Magazine, in which he, too, bemoned the unlearned lessons of the events leading up to that collapse. When asked if the crash resulted in any "positive changes," he responded negatively.
Unfortunately, not many that I can see. The biggest hope I had was that we would enter a new era of personal responsibility. Instead, we doubled down on blaming others, and this is long-term tragic. Too, the crisis, incredibly, made the biggest banks bigger. And it made the Federal Reserve, an unelected body, even more powerful and therefore more relevant. The major reform legislation, Dodd-Frank, was named after two guys bought and sold by special interests, and one of them should be shouldering a good amount of blame for the crisis. Banks were forced, by the government, to save some of the worst lenders in the housing bubble, then the government turned around and pilloried the banks for the crimes of the companies they were forced to acquire. The zero interest-rate policy broke the social contract for generations of hardworking Americans who saved for retirement, only to find their savings are not nearly enough. And the interest the Federal Reserve pays on the excess reserves of lending institutions broke the money multiplier and handcuffed lending to small and midsized enterprises, where the majority of job creation and upward mobility in wages occurs. Government policies and regulations in the postcrisis era have aided the hollowing-out of middle America far more than anything the private sector has done. These changes even expanded the wealth gap by making asset owners richer at the expense of renters. Maybe there are some positive changes in there, but it seems I fail to see beyond the absurdity.
The postcrisis perception, at least in the media, appears to be one of Americans being held down by Wall Street, by big companies in the private sector, and by the wealthy. Capitalism is on trial. I see it a little differently. If a lender offers me free money, I do not have to take it. And if I take it, I better understand all the terms, because there is no such thing as free money. That is just basic personal responsibility and common sense. The enablers for this crisis were varied, and it starts not with the bank but with decisions by individuals to borrow to finance a better life, and that is one very loaded decision. This crisis was such a bona fide 100-year flood that the entire world is still trying to dig out of the mud seven years later. Yet so few took responsibility for having any part in it, and the reason is simple: All these people found others to blame, and to that extent, an unhelpful narrative was created. Whether it’s the one percent or hedge funds or Wall Street, I do not think society is well served by failing to encourage every last American to look within. This crisis truly took a village, and most of the villagers themselves are not without some personal responsibility for the circumstances in which they found themselves. We should be teaching our kids to be better citizens through personal responsibility, not by the example of blame.
Burry's another smart guy who condemns the consequences of a culture in which "personal responsibility" is a foreign concept. If the vitriol of this election season has emphasized anything to me, it's certain that most of us are no closer to looking in a mirror when it comes to assigning blame for the bad things that happen to us today than we were in late 2008. In fact, after eight years of non-governance, with Nanny State organs like the CFPB "all fired up and ready to go" with the task of finding others to blame for every single instance of inequality of condition, and with an apparent choice between (as Peggy Noonan put it) a criminal and a crazy man for the title of "Leader of the Free World," we appear to be farther down the road to perdition than we were in 2008, and with a heavy jackboot pressing the accelerator pedal all the way to the floor.
Not that I expect anyone to really give a rat's tukus about the foregoing, this being an election year in which every person seems to be polarized by the zeigeist. However, maybe we ought to be concerned by the prospect of "deja vu all over again." Ben Lane at Housing Wire pointed out this past week that during the first quarter of this year, Mr. Burry's hedge fund liquidated its portfolio of a number of big bank stocks. Lane states that "[t]ime will tell if Burry’s bet is proven right again." Although that's true, based on his track record, this should not allow anyone to sleep well at night. Unless, of course, you, too, are "going short."
[Edited to clean up typos and the brutal overuse of the verb "decry."]