I've never run a business any larger than my own solo writer-editor endeavour, and didn't enjoy the paperwork of that very much. I don't like reading business magazines, I don't play the stock market at all, and most financial analysts on TV, radio, the Web, and newspapers give me the heebie-jeebies. So I'm no financial expert.
Still, in the past few years, I couldn't understand why anyone in the U.S. could think a subprime mortgage (better called a "high-risk mortgage" or a "poorly qualified mortgage") would be a good idea for anybody. I heard some stories about them, but it wasn't really an issue in Canada, so I thought these mortgages were a silly, fringe thing and pretty much forgot about them.
People borrowing from banks and mortgage brokers and other finance companies who offered these mortgages were betting that house prices would keep going up indefinitely and interest rates would stay low, no matter what. The firms and financial analysts were, insanely, betting the same. Sometimes the companies loaned people more money than their houses were worth at the time on that assumption—and didn't check on their customers' ability to pay either!
I'm only 38 years old, but I've seen several economic booms, busts, and recessions in my lifetime. I remember when interest rates were 17% and higher in the early '80s, and my junior high school classmates and I—barely comprehending teenagers at the time—laughed out loud when our teachers said loan interest used to be 4% and lower. We never thought that would happen again. And if it did, we knew that could change. The dot-com boom and bust are less than a decade old too.
So I agree completely with Daniel Gross when he writes at Slate that bankers and financiers, now getting pounded in the markets because the subprime mortgage situation (which is vaster than I could have imagined anyone letting it get) is now shooting holes in the U.S. economy, are acting like a bunch of spoiled toddlers:
Children typically display an unwillingness to reckon with the consequences of their own actions. They look to parents to pick them up when they fall, and spare them from responsibility for their misbehavior. And parents will go to great lengths to insulate their offspring from the jolts the world can deliver.
The same might be said about Washington's current economic ministrations. The nation is now nursing a seriously skinned knee because of reckless housing and credit practices. But rather than force consumers, borrowers, and bankers to face the consequences of their own actions, Washington is functioning as a helicopter parent.
As we face another recessionary slump (maybe insulated a bit here in Canada), we're all going to pay for that childishness, because governments don't have enough money to do anything but cushion the blow a little. Steven Pearlstein put it even more simply in the Wall Street Journal almost a year ago:
Bankers shouldn't make—or be allowed to make—mortgage loans that require no money down and no documentation of income to people who won't be able to afford the monthly payments if interest rates rise, house prices fall or the roof springs a leak. It's not a whole lot more complicated than that.
What I do wonder is, when people are losing or walking away from homes they shouldn't have been able to buy in the first place, and also losing jobs as the economy weakens, why do the well-paid supposed mavens of Wall Street, and other finance types around the world who bought into this scheme, still have jobs?
And why do investors continue believe them when they're wrong more often than weather forecasters used to be before we had satellites?