In a review of John Cassidy’s book about the bad thinking that led to the global financial crisis, Satyajit Das offers an interesting take on the role that U.S. consumers played in this horrendous man-made disaster.
It’s not, as many in finance and corporate circles hold, that consumers were greedy, irresponsible and stupid (though many were, those attributes are evenly distributed across society.) Rather, it’s that most consumers were getting poorer while the marketplace and political establishment insisted they were getting wealthier:
Firstly, a lack of growth in real income, especially for middle and lower paid employees, made it difficult for [consumers] to achieve the material success that was daily sold to them by the media and advertising. Secondly, the rise of stated income and low or no documentation mortgage reflected the change in work practice where large parts of the work force were no longer employed full-time. Casual or part-time employment and contracting arrangements made the required proof of income difficult.
It’s not that the poor got into contracts they should have avoided, it’s that these contracts were being designed (created and marketed) for an increasing number of consumers trying to keep from losing their buying power — with the claim that such contracts, from credit cards to mortgages, would make these newly poor wealthier. Like magic.
This market in magic debt was no less pernicious than fake doctors who prey on the ill with miracle cures. (Imagine quacks selling a “clean bill of health” that is said to make the sickly bearer healthy again.)
When the contracts came due, relatively few (mostly in finance) were able to pass the buck, most were not. Our government, under the leadership of the prodigal son GW Bush, not only permitted such scams, it endorsed them with b.s. about creating a “society of wealth.” (More like a nation of debtors, from Wall Street to Main Street.)
Americans rejected this agenda in the election of 2008. Even the Republican candidates campaigned on change and learning to live with limited means. Palin touted a hardscrabble, “Alaskan frontier housekeeping” approach to domestic finance.
The Obama administration has proposed an agency that would prevent such consumer abuse, not unlike the way the FDA keeps companies from selling sugar pills to cure Cancer or meat made of glue and sawdust. That proposal may now be yanked given the lack of discipline among Democrats and the consistent discipline shown by Republicans (what the latter lack in ideas they more than make up for in groupthink.)
Nearly a century ago, the shocking scenes in the popular novel “The Jungle” by Upton Sinclair helped create an appetite for the FDA. Today’s equivalent would likely be a feature film or a prime time scripted series about the horrors of consumer finance; the perps, their victims and the toll on us all.
I worry that America will only get poorer and more desperate without such a moment of clarity.
