osewalrus (osewalrus) wrote,

A Most Peculiar Dichotomy

I keep encountering folks who are mad at the subprime borrowers. "Because these people borrowed beyond their means, I am going to be screwed" is the basic sentiment. I find this mostly with armchair and amateur Libertarians (as opposed to the professionals, who are annoyed at the Fed and want to see the economy take its lumps for the overall good of the system).

What puzzles me is, why aren't these guys at least equally mad at the lenders?

(Rant follows, I expect religious Libertarians to be offended.)

I don't just mean getting mad at lenders who practiced outrght fraud. That's an easy case. I mean, why aren't all these folks who are mad at subprime borrowers equally mad at all those stupid idjit lenders who chose to make risky loans. When last I checked, no one forced these guys to make loans. No one forced Bear Sterns to take mortgage backed securities. And yet I never see these folks say "because lenders were idiots, I am going to suffer." No, it's always "I end up bailing out the morons who stretched beyond their means and took the loans."

But these companies, the great captains of industry, the wise and wonderful market that can do no wrong, positively chased after these high-risk customers. They panted after them like Spitzer text messaging a $5K whore. They begged, pleaded, cajoled, tempted, and lusted after these high risk loans and high risk investments. Then they lived beyond their means, lending and spending money they didn't have backed by securities they knew could turn out worthless. And, unlike the supposed morons and spendthrifts that I keep seeing blamed, these investment firms were (a) experts, and (b) did it again, and AGAIN, and AGAIN.

Yet nowhere in the personal blogs of professed free marketeers am I seeing anyone say "how could these lenders have been so stoopid as to go out and push loans on high-risk people?" No, it's all about beating up on the individuals at the bottom of the food chain, the poor schlubs who trusted the experts and responded to stimuli like rational actors and took the loans that all the experts told them they should take. These are the morons, the idjits, the fools that ruined the country. But for some reason, the even greater fools that built an entire industry on suck quicksand, the sophisticated geniuses who knowingly, willingly, and eagerly embraced the riskiest securities, remain free from censure.

And then it occurred to me. This isn't economic theory. It isn't even moral philosophy. It is religion. Surely the Gods of the Marketplace cannot have failed us. Surely those wise captains of industry, so much better than government regulation, whose wisdom is only constrained and caged by the New Deal era statues and rules that were designed to prevent exactly this. Surely they cannot be at fault. No, it must be those evil sinners. The foolish individuals who aren't smart and wise and conservative investors like me. For lo! If only these sinners had led wise lives like me, then the Markets would not be failing, the skies like lead, the ground like brass, and the need for a federal bail out upon the land.

As with all religions, we shall ignore the inconsistencies. For example, all those willing borrowers are as much part of the market as all those willing lenders. And if'n you can't stand the correction, then stay out of the economy. Because if any of these free market fanatics troubled themselves to study history, they would have come across something called the "boom-bust" cycle. It happens because all that wonderful enlightened self-interest that passes for virtue in the Church of the Gods of the Market Place makes a result like this inevitable. Rational actors great and small pursue their short term self interest with vigor, and a predictable percentage of them will ignore the risk and go for the reward, just like far more people train to be Olympic athletes than can compete -- never mind win a medal. The difference here is that the failure of this system screws the rest of us.

Which, of course, brings us back to the religious aspect. Unlike professional neo-cons, who accept this as a natural correction ad expect us to suffer the consequences as a necessary byproduct of achieving the rewards, the followers of the Gods of the Market Place (and it is a dreadfully common religion in fandom, especially among professed atheists) can't stand this. The Gods of the Marketplace promise prosperity to all who are worthy and only the sinners suffer. The Market rewards the smart, the determined, and the virtuous and -- in its Infinite Wisdom -- crushes the stupid and inefficient sinners with Its Invisible Hand. (Most, of course, have not actually read Wealth of Nations, but Atlas Shrugged (well, most of it anyway) should be enough.)

That many people and companies that are smart, determined and otherwise virtuous get crushed anyway either through ill fortune or other means is unacceptable. To go even further, to admit that market failure on this scale is a feature of the unregulated market cycle, to recognize that a return to the economic regulation of the Gilded Age creates not just a handful of Carnegies and Fords but ranks and ranks of "forgotten men" made broke and homeless by the operation of the market, is an idea so deadly it must be rejected as heresy.

And hence this most peculiar dichotomy. The most sophisticated players, the ones who made a business of risk, who made the same stupid loans again and again and again, who rested billions of dollars of commerce on this riskiest of foundations, they are held blameless. Instead, all blame is assigned to the individual subprime borrower, that evil sinner, that moral reprobate, that stupid moronic imbecile that singlehandedly managed to bring down the wrath of the Gods of the Market Place upon us and get us once again kicked out of the Libertarian Eden.

I could just laugh, but there is a serious problem here. Like substituting creationism for actual science, substituting the Church of the Market Place for real economics has serious problems. Because by shifting the entire blame to the borrowers, it prevents people from crafting solutions that would get at the actual root of the problem. Because as we all should have just learned (but apprently didn't) all those stupid, moronic, bad bad evil regulations that restricted lenders from making risky loans and imposed on lenders a legal obligation to meet certain standards had a purpose. Because lenders can be -- and real economics predicts they will be -- just as short-sighted, greedy, and willing to ignore risk as borrowers. So unless we're willing to get all "paternalistic" (as the armchair Libertarians would tell me) and start regulating lenders to protect them from themselves, we are going to keep seeing the same financial crisis over and over and over.

And, like good little worshipers, the followers of the Gods of the Market Place will keep blaming the sinners in the common herd and ignoring the sins of their pastors rather than coming up with real solutions.

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