1. Lately me and Republican Friend have been engaged in a mobius strip of an argument about who is to blame for the financial crisis. He says people spent more than they were making for longer than the economy could sustain it. They deserve, in short, the unemployment and repo manning we're all going to live with the next three years.
2. He's not wrong, really. We did spend too much for too long. People like me, with incomes that aren't below the poverty line but can see it from their house, shouldn't have iPods and flatscreens and new winter wardrobes and cars that smell like new cars without that tree dangling from the rear view mirror.
3. But it's more complicated than that. Americans spending beyond our means wasn't just something that happened because the Greed Index spiked one summer in 1992. Getting people to spend more than they have has been a deliberate business strategy for much of American industry for the last two decades.
4. Credit card companies, for example, targeted subprime borrowers (i.e. poor people) who were likely to pay their monthly minimums but not their full balance. This kept 41 percent interest strapped for years to the backs of people struggling to spare $50 a month.
5. And look at this parenthetical aside in a great article about the car industry bailout:
(In the 1980s, by contrast, Spinella says the average car loan lasted only three years and required a 20 percent down payment, which limited the kind of negative equity problem seen today.)
For the last 10 years, car loans have regularly topped seven years, with cupholder-sized down payments. The article shows how rolling trade-ins and seven-year payment had some people paying $40,000 for a Ford Focus.
6. Subprime house loans, subprime car loans, subprime Visa. The economy was bobbing on a vast wading pool of interest.
7. But look, Republican Friend says in my head, these people should have known better. This other great article mentions a California fruit-picker earning $14,000 per year who was able to get a mortage for a $750,000 home. Why should my tax dollars help out this idiot?
8. The problem with this 'they were greedy! Let them rot!' ethos is twofold:
- First, choosing to do something, stupid or smart, never takes place in a vacuum. You don't think the mortgage agent had a duty to deny that loan to the fruit picker with two-car-garage dreams? In the case of car loans, were we relying on car salesmen to convey the moral hazard of rolling debt to their customers? The entire economy, from Wall Street to Best Buy to GM to Starbucks, had an incentive to encourage you to spend money you didn't have.
- Second, blaming consumers isn't all that useful. Yeah yeah, we suck for having three credit cards for every letter in our GED, but now what? The job market is going to suck for the next few bubble-less years. If it turns out that the best thing for the country is to help people pay off their mortages, or forgive a shitload of debt, or extend unemployment benefits, so be it. We shouldn't be debating how to punish jobless people who have flatscreens.
9. So the closest thing to an opinion or a conclusion about all this I can come to is: Everybody failed.
- You failed because you bought a bunch of shit you didn't need.
- The mortgage agents and car dealerships and credit card companies failed because they exploited their expertise in an area that most consumers don't understand, and told you it was acceptable to take out a loan to buy a latte.
- The government failed for letting them do this to us, and (still) failing to punish the people who exploited their influence and expertise. If doctors started advising patients en masse to undergo risky procedures just so the hospital could pay its shareholders enough and on time, we certainly wouldn't be debating how much to blame the armless.
10. I don't really know what any of this means for the bailouts. I couldn't work up too outrage about them because they were so obviously inevitable, just like the 2012 New York Times headline, 'Report: Bailout Funds Mostly Benefited Already-Rich'. All we can do is wait the crisis out until the economy appoints a new demographic group to replace the middle class as the nation's pooper scoop. In the meantime, enjoy your iPod.