The American Economy and the Greedy People

September 18, 2008 by Sarah Viets
Filed under: Economy, Politics 
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The federal government has now bailed out three major US financial institutions: Freddie Mac, Fannie Mae, and the American International Group. Some folks disagree with this decision. You hear people shout, “No More Big Government.”

The people who support the popular catch phrase, “Big Government,” believe that the free market can fix itself. Free market die-hards, like libertarians – Ron Paul’s Revolutionaries – believe that human beings are rational enough to fix the mortgage crisis and inflation (the rise of food and gas). Libertarians believe that a person’s financial interests will always supercede a person’s emotional desires, like greed.

But if that’s the case, why did white business owners before the 1950’s only take money from white customers? Or better yet, how can libertarians categorize a person’s financial interest as rational thinking? Because to me, it seems when folks are more concerned with following their own pocket books, they can get a little greedy and act completely irrational.

Take a look at today’s economy. The American financial system is in shambles. Not one economist will predict an end to America’s financial crisis, and the federal government is running out of strategies to bail out Wall Street. And now taxpayers have to pay for their mistakes.

Now, I’m not against taxes. I’m glad I won’t have to pay for my kids to go to school K-12. But I am against die-hard free-market thinkers, and I blame them for today’s 6.1% unemployment rate and the mortgage crises.

Why? Let’s not forget that more Americans could afford to buy homes because mortgage bankers decided to lend money to Americans who weren’t financially secure. It wasn’t because the wages of Americans increased. They let people buy houses with little or no down payment and they gave money to people who couldn’t afford to have three months rent sitting in the bank.

This all sounds a little risky, and it was. Americans have been roughly making the same amount of money since the 1970’s (when you consider how much the cost of living has increased). So when inflation started to rise again about two years ago, Americans couldn’t afford to pay for their new homes; an outcome Wall Street desperately tried to ignore.

At the same time, it’s also nice to give moms and dads the opportunity to buy a home. The problem is that mortgage investment banks didn’t think the cost of food and gas would rise. Moreover, business owners have been unwilling to raise real wages for American workers for years. Maybe if CEOs would’ve shared a tiny bit of their million dollar bonuses, the American economy would not be so bad.

Maybe the libertarians are right. Maybe a person’s hunger for money drives all human behavior. While “Big Government,” gave Wall Street the reins, the big bosses followed their personal pocket books so they could personally benefit while Middle America fell apart.

It’s too bad this libertarian theory doesn’t benefit all Americans, or maybe it’s not intended to.

But the next time you hear someone say they’re against “Big Government,” ask them if they want to pay for their kids to go to school K-12. And then ask them if they think human beings are greedy. If the person seems a little baffled by your questions, ask her/him to explain the accounting scandal a few years ago with ENRON and Arthur Andersen, and why American wages have continued to stay the same.

I’m not saying I want a huge bureaucratic government involved in my personal life, and I’m not against Wall Street. But I also don’t want someone that’s more powerful than me to make a bunch of risky irrational greedy decisions with my hard earned money. Because even though I don’t own any stocks, that doesn’t mean my personal paycheck isn’t directly tied to the American economy, and therefore, Wall Street.

So let’s be clear, the people who shout “No More Big Government,” believe Wall Street watches out for American’s financial interests, and that human beings only act out of compassion and not greed?

(Interesting. I’d like to ask the family who just lost their house.)

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Comments

2 Responses to “The American Economy and the Greedy People”

  1. noema on September 30th, 2008 1:15 am

    Though I share your sentiments regarding the faith that the great invisible hand will correct all wrongs, the essential point of that argument remains: mom and dad have to loose their home and investment banks have to fail.

    The phrase “moral hazard” captures this concept quite well; capitalism works because people take risks (e.g. offer lines of credit) with the expectation that, they won’t in the worst case, take any losses, and receive a return greater than the amount invested.

    Ethics and games of chance aside, the term “moral hazard” refers to the philosophic moment in which capitalism is itself compromised: if there are no consequences to taking on extreme amounts of risk, whats the point of playing the game? In other words, if mom and pop don’t loose their house for taking on an “investment” they couldn’t afford, and those darn rascally Wall St. fat cats don’t loose their shirts for taking on highly leveraged risks, how does our system resemble anything that resembles capitalism?

    When Uncle Sugar owns 79.9% of one of the worlds largest insurance/financial services companies, when 5 TRILLION dollars of U.S. housing debt has been nationalized, when…, we have witnessed a move toward a socialized economy.

    Sweden employed maneuver that hopefully the essence of the plan currently under discussion will try to emulate. The tax payers qua the Swedish gov’t. received stock in every firm that was “bailed out.” After the firm in question recovered, the gov’t. sold this stock on the open market for a sum greater than the amount paid, thus reducing tax payer liability.

    It also remains that many of these “toxic” assets may indeed have value. For the most part, the toxic components of the instruments will indeed go belly up. But the essential idea of the instrument remains to be tested: derivatives exist to make assets of assets and thus diversify risk; given enough time, say, 30 years, and provided the asset mix was well balanced, these instruments may approach projected cash flows and prove to be extremely lucrative. Selling the securities on the open market, or better yet, securitizing them as a marketable government security may prove to be a great revenue generator/and or financing vehicle for our government.

    Some finer points, not to be snarky, but just for general discussion: there is no such thing as a “mortgage investment bank,” I think you meant to say “investment banks that were heavily involved in securitizing mortgages.” And, though inflationary effects have disturbed the economy in general, it remains to be seen whats the chicken and whats the egg.

    Lets not forget that lots of people (on Wall St. & Main St. alike) took on risks they new they couldn’t afford. The assets in question started to turn sour because housing prices (the underlying value of the asset) started to fall, causing certain individuals to find themselves in the unfortunate position that highly leveraged people often face: you’ve got way more debt than your assets are worth.

    Come on, 500 large on a 20,000 dollar budget!? A great deal of these cats fancied themselves the next Donald Trump. “I’ll flip that shit” they thought. Buy now with no money down at a grossly over inflated value and sell to the next guy (who’s buying now with no money down) at a even greater grossly inflated value. That kind of market does not sustain itself for long. Eventually the scales must balance.

    But, back to the essential point at hand: so here we have a moment where the market fixes itself and in order to do so it must socialize its most fundamental components. Some time in history, heh?

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  2. algie123777 on October 11th, 2008 8:44 pm

    Greedy rich people don’t care that children in the US don’t have health insurance. They don’t care about senior citizens that have to choose between food and medication. They don’t care that the child poverty rate in the US
    has steadily risen every year from 2000. They don’t care that the US rates #25 out of 26 for children living below their national poverty limit (Mexico #26). They just keep telling us the economy is getting better. What they fail to mention is that the main group benefiting from today’s economy is the rich. It’s not about the left, or the right, it’s about an elite group of well connected rich power mongers.

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