The Great Read-cession, Part X

We’re done with the book reviews, but John S isn’t done breaking down the books of the financial crisis. We still have a few things left to cover, most importantly….

The Whole Truth...

The Whole Truth…


Obviously I wasn’t going to read 16 books and NOT rank them.

It was a little hard to determine the criteria. Some of the books were well-written, but not especially good at delving into the causes; others were thorough but boring; some were great but a little off-topic. If someone asked me to recommend one of these books, I wouldn’t answer until I got more information about what exactly she was looking for. If, however, she were somehow unable to clarify, I would recommend them in this order:

16) A Colossal Failure of Common Sense

15) Reckless Endangerment

14) The Quants

13) The Greatest Trade Ever

12) Crash of the Titans

11) On the Brink

10) Bailout Nation

9) Financial Crisis Inquiry Report

8) Confidence Men           

7) House of Cards

6) Griftopia

5) More Money Than God

4) Too Big To Fail

3) The Big Short

2) Bailout

1) All the Devils Are Here

Some Questions, Answered

 So, um, whose fault was it? 


Well, okay, that’s not really helpful or correct, but there is certainly plenty of blame to go around. Any attempt to pin it on one group or one institution is both doomed and counterproductive. It won’t be completely correct, and it will allow others who deserve some of the blame to get off scot-free.

Perhaps, though, it would be better to answer this question by focusing on who doesn’t deserve blame, and the answer to that would be: poor people and homeowners. Yet no group has received more criticism, abuse, and obloquy, and been the beneficiary of less leniency, reform, and debt-forgiveness than common borrowers.

If you’ve been paying any attention at all, you’ve probably heard about all those people who bought homes they couldn’t afford, who spent more than they earned, who built pools and bought second homes. Heck, entire political movements have been spawned by blaming the crisis on “losers’ mortgages.”

One of Suskind’s favorite sources is Carmine Visone, the former manager of Lehman’s real estate portfolio. Visone is the kind of guy who reporters love: He has a great personal story and he’s good at telling it. The son of a bricklayer, Visone joined Lehman in 1971, got a night-school degree from Pace University, and was one of the last partners without an Ivy League pedigree. He talks a lot about value and tangible assets, and Suskind makes a big deal of his trips to local soup kitchens* to serve food to New York’s homeless.

*Yet another recurring theme in these books is that if rich people give money or time to charity, then that redeems whatever they do for the rest of their day.

But Visone comes off as a despicable embodiment of Wall Street’s flaws. He deliberately shows up late for meetings to avoid waiting for people; he insists that nothing he did was wrong, and that he is entitled to everything he has. Towards the end of the book, Suskind quotes him giving a Pontius Pilate-like tirade for two pages, where he completely absolves himself of any culpability for the crisis:

“So don’t blame me because I manufacture capital, okay? …You wanna blame me for that? Where’s your responsibility? Your self-discipline? I have no sympathy. I have no sympathy because you never should have been there to begin with. You should have exercised restraint every step of the way. Just because the drug dealer is on the corner, you could have walked right past him. You bought the drugs. I didn’t sell you the drugs, you bought the drugs.”

Not even Walter White employs moral logic this perverted.

It is frankly sickening to hear and read this total inversion of the concept of “personal responsibility.” Not only is it morally repulsive to blame society’s failures on those who have the least power and influence in it-—it is also completely at odds with the facts to blame common borrowers for the crisis. For one, it is a borrower’s job to get the best deal or the lowest rate he can get. Nobody forced the banks and lenders to give out these loans—in fact, they were lining up to do it. And if this means a borrower can get a lower rate or a bigger house, he should by all means take advantage of that. Blaming a buyer for getting a good deal is like blaming a defense attorney for getting his client acquitted.

Did some borrowers stretch beyond their means? Did some lie about their income or assets to get a bigger home or a lower rate? Did some use home equity to take lavish vacations and buy new cars? Sure.* But this is a constant fact of the world of credit—there will always be people who borrow more than they can afford. Part of a bank’s job is to watch out for those people. The crisis was not caused by some new influx of greedy homeowners.**

*Though it’s worth remembering that it is not a CRIME to owe money. It’s easy to forget that, since society does effectively jail people for their debts nowadays, but it is not criminal, or even particularly immoral, to have debt. The primary cause of bankruptcy today is, by far, illness. In other words, most people who are borrowing more than they can afford are literally doing it to save their lives.

But even setting aside medical debts or student loans, why do we stigmatize consumer debt, while simultaneously lionizing consumption? When we talk about the “losers’ mortgages” and what they are doing with their borrowed money, it’s worth remembering that, for the most part, they are doing what we all do: They are taking vacations with their families and buying homes to raise children in and buying Christmas presents for friends and having weddings and funerals and birthday parties. Should we ask them to stop living their lives because they are incurring too much credit card debt?

**For more on the moral confusion around the issue of debt, and I strongly recommend David Graeber’s book, Debt: The First 5,000 Years.

More importantly, to say that the crisis was nothing more than the result of a bunch of greedy homeowners neglects the massive abuses that entered the mortgage industry during the crisis. There were countless cases of lenders talking borrowers into rates that would reset, assuring them that they could simply refinance when payments got too high.

In many cases, lenders would encourage borrowers to take worse deals than they could have possibly qualified for, sometimes by just not telling them that they were getting a worse deal. Such incentives were explicitly written into the deals lenders had with the banks that ultimately bought the mortgages—lenders would get paid a “yield spread premium,” which was essentially a bonus for getting borrowers to accept higher rates.

And of course there were cases of outright fraud—lenders encouraging borrowers to lie or misstate their income, in many cases writing it in for the customer; corrupt deals between lenders and appraisers, who would inflate the price of a home; lenders who flat out lied to borrowers about the rate they were getting; etc.

In other words, there were systemic abuses that went way beyond the abuses of even the greediest homeowners. The crisis really came down to an institutional failure on the part of lenders and banks. The people and institutions that are supposed to protect against bad loans not only missed them, but actively encouraged them.

And what happened to them? The banks have been bailed out, forgiven, made whole, and are currently recording record profits. Meanwhile, the wave of foreclosures (often improper) is only just now ending, and homeowners still have to face the permanent damage done to their credit.

OK, so, what did the banks actually do wrong?


Alright, that’s not really a fair answer. For one, I’ve been using phrases like “the banks” and “Wall Street” as imprecise shorthand that lumps every bank together. Obviously there are huge differences between commercial banks and investment banks, between regional banks and national banks, between banks that failed completely and those that weathered the crisis fairly well, etc. Some banks were culprits and perpetrators of fraud, and others were victims of the fraud of others. And it’s sometimes hard to tell where the line between those banks is drawn.

But if there’s one thing that all of the major American banks—commercial and investment banks, big and small—got wrong, it was that they collectively misjudged the housing market. There was a pervasive but mistaken notion that housing prices “always go up,” and that it was thus a safe investment, particularly if they were diversified by region. The reality was that, though housing is a generally safe investment, it has rarely been an especially good investment; historically, it has only modestly outpaced inflation. And yet, the idea that “housing always goes up” led to a bubble mentality.

Investment banks in particular also misjudged how this would lead to declining lending standards. On some level, investment banks didn’t even care about the quality of the loans—after all, if housing prices only go up, then borrowers who couldn’t afford their mortgage could simply refinance when the value of their home increased.

But several of the books make it clear that many financial institutions weren’t even aware of what they were buying. As Lewis tells it in The Big Short, several risk analysts at AIG, when asked to estimate how many loans in their average credit default swap were subprime mortgages, guessed around 10 or 20%. In reality, it was 95%.

This type of willful ignorance of the market also led them to miss the bubble they were creating. There is a common myth, propagated largely by Alan Greenspan, that you can’t identify bubbles while they are happening. This is nonsense. There were countless signs about the housing bubble. FBI reports of mortgage fraud rose fivefold between 2000 and 2005; the number of subprime and ARMs skyrocketed, even as interest rates started to rise*; there were frequent reports of accounting fraud and abuse among national lenders like IndyMac and NovaStar.

*Is it obvious why subprime loans should go DOWN when interest rates go up? Interest rates going up should make it especially hard for the least qualified borrowers to get loans.

All these things were major warning signs that were effectively ignored, both by the Federal Reserve, which kept the Fund Rate at then-historic lows for nearly three years after 9/11 and only raised it slowly and modestly when it did begin to lift it, and by the banks in general, which kept buying loans even as their quality was decreasing.

The reason wasn’t that it was impossible to see the bubble, but that there was no incentive to see it. Many of the books, particularly All The Devils Are Here, talk about how all the major investment banks went public by the 1990s, and how this led to an emphasis on revenues at the expense of risk. As long as the banks were still partnerships, the partners could be liable for losses, and so they were vehement about protecting their balances. But as record revenues increased share prices, which led to massive bonuses for executives, the long-term interest in potential losses was vastly outweighed by the short-term interest in profits. You can certainly see something like this at work in Greg Farrell’s description of Merrill Lynch (though Merrill went public way back in 1971, so it’s hard to really blame that one thing).

This lust for revenues is partially why many refer to investment banks as just “giant hedge funds” now. Rather than serving merely as a vehicle and conduit for the investments of others, the vast majority of revenues at these banks come from their own proprietary investments, which can lead to cases where the interests of a bank’s clients and its own bottom line are at odds.

Yet another way in which these banks mirrored hedge funds is their reliance on leverage. In fact, banks leveraged to a far greater extent than any hedge fund can (as Mallaby’s book makes clear). Part of this is simply because banks have other assets to borrow against—its clients’ accounts or, in the case of commercial banks, deposits—but it was also the result of a cozy relationship with their regulators. The SEC and the Federal Reserve essentially allowed the banks to set their own limits on leverage so that they could pursue more investments.

This helped lead to the emergence of what the FCIC’s Report calls the “shadow banking” world. Shadow banking consists of the repo market—which I’ve already attempted to explain—and the market for “commercial paper,” or unsecured short-term corporate debt. The shadow banking world was essentially made up of short-term debt backed either by no collateral or collateral that hadn’t been fully evaluated—it relied largely on trust between the parties. Still, most major firms used it as a cheap way of borrowing money to meet day-to-day expenses. By 2005, in fact, there was more money in the shadow banking world than the traditional (and regulated) banking system.

Of course, one of the effects of the cheap, quick loans that made up the shadow banking sector was that they could disappear quickly, which is exactly what happened to many firms in 2008. It got so bad, in fact, that, according to Sorkin’s Too Big To Fail, even Jeffrey Immelt, CEO of General Electric, then the nation’s largest corporation, called Hank Paulson to complain that he couldn’t get funding.

And investment banks were even more susceptible to market uncertainty as the holders of all the housing debt. If banks hadn’t been so reliant on the repo and commercial paper markets, it’s possible they could have withstood the shock of the housing crisis. As the Bear Stearns example shows in House of Cards, it was a lack of liquidity that ultimately did in most banks.

In general, there was a pattern of disregard for risk at the banks, whether that meant risk in the housing market or the overnight lending market. Why were they so dismissive of risk? Partially, it was because institutions like credit rating agencies and government regulators had erroneously downplayed the risk. But ultimately they outsourced the risk because, as things would play out, they didn’t end up bearing it.

Speaking of those credit rating agencies, why did they screw up so badly?

Poor Moody’s. Poor Standard and Poor’s. Poor Fitch. The credit rating agencies really have no defenders out there. At least Wall Street CEOs get to have senators and congressmen grovel before them, but nobody really respects the credit rating agencies. As one banker told Michael Lewis, “Guys who can’t get a job on Wall Street get a job at Moody’s.”

And it certainly seems fair to criticize the credit agencies for the job they did rating housing bonds and CDOs. Data in the FCIC’s report makes it clear: Of the mortgage-backed securities given Moody’s highest rating (Aaa) in 2006, 83% would be downgraded the next year. All of those rated Baa were downgraded. Of the tranches given investment-grade ratings in 2007—meaning tranches that were supposed to have very low to moderate credit risk—a full 89% were downgraded to junk status.

This is terrible. This is not like predicting sunshine when it rains—this is like predicting sunshine after the sun has burned up and all humanity has perished. How on Earth could agencies designed to rate credit do it so poorly?

For one, the incentives were again perverse. Since credit ratings agencies get paid by the companies that issue the securities being rated, there is an incentive to give them the ratings they want. It’s true that credit rating agencies have leverage, since there are only three sanctioned by the government, but most securities only need to be rated by two of them. In All The Devils Are Here, MacLean and Nocera show how Moody’s obtained a dominant market share, at one point reaching 98%. This meant rating thousands of mortgage-backed securities. Since Moody’s got paid based on volume, and since high ratings assured more volume, Moody’s profited enormously even while its predictions were so wrong.

But the portrait the books paint of the ratings agencies is not really one of corruption, but of stupidity. It’s true that they didn’t really have an incentive to be honest, but it’s hard to see if they could have identified the real risk had they wanted to. For many bonds, Moody’s didn’t seem to differentiate based how many of the underlying loans were subprime. When the agencies looked at the loans that made up the bonds at all—which seems to have been rare—they focused on only the FICO scores of the borrowers, and even then on the average FICO scores of all the borrowers. Most famously, the agencies would rate some CDO tranches AAA even if the entire CDO was made up of BBB* tranches from other CDOs.**

*S&P and Moody’s use slightly different grading systems (which is annoying). The highest rating at S&P is AAA, while at Moody’s it’s Aaa. Below that at S&P is AA+, and Aa1 at Moody’s. BBB is the lowest investment grade rating at S&P.

**As Josh points out, there is a plausible explanation for this: Tranches made up of loans from BBB tranches in one CDO might be rated higher in another because the diversification of the loans is better, but since Moody’s and S&P rarely paid attention to the individual loans in the tranches, they had no way of knowing this. The better rating was only the result of weird financial alchemy that turned junk bonds into great ones.

Why were these models so bad? Well, for one, the agencies were generally understaffed and underpaid, so they were unable to attract the best talent. But it’s also worth pointing out that rating tranches of CDOs was not what the credit ratings agencies had historically done. For most of their existence, their main focus has been on rating corporate debt.

Quick: Do you know how many American corporations have AAA credit ratings? Four. Apple does not. Google does not. GE does not. Even the American government no longer has a perfect rating. It’s just Microsoft, ExxonMobil, Johnson & Johnson, and Automatic Data Processing. And yet credit rating agencies issued thousands of top ratings to mortgage-backed securities and CDOs that turned out to be worthless.

Evaluating the risk of a corporate bond and the risk of a bond backed by consumer loans are very different things. Corporations have lots of things you can look at: assets, revenues, long-term debt, expenses, payment history, etc. But the agencies obviously couldn’t evaluate every home loan individually, nor were they equipped to. According to the FCIC report, “Moody’s did not even develop a model specifically to take into account the layered risks of subprime securities until late 2006, after it had already rated nearly 19,000 subprime securities.”

Instead it appears that the ratings agencies relied mainly on information provided by the banks issuing the securities and the structure of the bonds themselves. That is, tranches were rated AAA if they were the safest bonds within that security and not based on the safety of the underlying loans.

These fundamental problems should really have doomed the credit rating agencies. Under normal circumstances, customers would have lost faith in their ability, likely in such great numbers that they would no longer be viable. Yet even though the crisis doomed so many companies, the credit rating agencies still stand.

This is because they are essentially enshrined by the federal government. Ever since 1975, the SEC has recognized only a few Nationally Recognized Statistical Rating Organizations, or NRSROs. As of now, there are only nine, though only the Big Three (Moody’s, S&P, Fitch) have any real relevance on Wall Street. There are laws and regulations that rely on the ratings of these NRSROs—many pension funds, for example, can only buy AAA-rated assets. This means that any security issued must be rated by at least one of these three firms, ensuring them ongoing revenues.

Though the logic behind the NRSROs is obvious—to ensure some external review of securities issued by banks—the harm is equally obvious. The government is stifling competition, and so when the NRSROs screw up, they suffer no consequences. They effectively serve as gatekeepers to the financial industry, but when they let start letting anyone through the gate, there is no way to stop them. This is yet another example of the strange relationship between government and the financial industry.

Stay tuned for tomorrow’s grand finale of The Great Read-cession, when John S wraps this whole thing up….

11 responses to this post.

  1. Posted by Douglas on October 16, 2013 at 4:42 PM

    I think it’s important to clarify that while common borrowers may not be culpable for the crisis itself, that doesn’t make their behavior excusable. Saying that a lack of personal responsibility among borrowers is a constant in the credit industry doesn’t mean that it’s not a problem. Saying that it’s not a crime doesn’t mean that it’s not a problem, either.

    Regardless of their contribution to the scope and magnitude of this particular crisis, borrowing and spending habits are still an issue that many people aren’t willing to admit, especially in relation to themselves. And when you’re dealing with a crisis that’s so complex and difficult to understand, it’s much easier for the common borrower to blame everyone else but themselves and fail to learn a lesson in personal responsibility–or even any personal lesson at all.


    • Posted by John S on October 16, 2013 at 5:45 PM

      I’m not sure that I agree, but I think it depends on what you mean by “common borrowers.” If all you’re saying is that people who lie on credit applications or commit other types of fraud are behaving immorally and irresponsibly, then sure, I agree. But I think it’s unfair to refer to those people as “common borrowers,” since they were still in the minority, even during the crisis.

      BUT, if you’re saying that people who borrow more than they can afford to pay back are inexcusable, then I very much disagree. Loans are inherently risky – that’s why interest exists. Sometimes people aren’t going to be able to pay back their loans. That’s not only inevitable, it’s in some ways desirable: If everyone always paid back his loans, then there would be no incentive to loan money wisely.

      Certainly, there are times when people make ill-advised personal decisions – they run up too much credit card debt, or buy a home that’s too expensive – but those are personal choices, and it’s very hard to criticize them on a general level. Especially because they are almost ALWAYS made with imperfect information. Students take out college loans and then the economy tanks and they can’t find a job, couples buy a home hoping to raise a family in and then they get divorced when the housing market is slumping, etc. There’s simply no way that people can anticipate all of these things, and if people stop investing in their future, then not only does the economy slow down, but quality of life dramatically falls off.

      Lenders are the only check on these risks, and it’s their responsibility to make prudent loans. Honestly, when talking about “personal responsibility” I don’t think common borrowers get enough credit. Almost 15% of current mortgages are underwater, down from almost 1/3 last year ( and yet people continue to make regular payments even when it would be more rational to just walk away from the mortgage. Why? Because they’re being “responsible.”


  2. Posted by Douglas on October 16, 2013 at 8:57 PM

    On a large scale, interest protects against risk, but it’s an oversimplification to say that interest exists because of risk. Interest is also widely used independently of risk to account for opportunity costs and transactional costs associated with lending money. And I’m not sure that the incentive to loan money wisely is important enough that I wouldn’t vastly prefer everyone to pay back their loans.

    You say that people often make ill-advised personal decisions. I would agree, but I would also refer to them as “business” decisions, and contrary to what you say, I think they’re extraordinarily easy to criticize on a general level. For example, the median annual household income was recently reported as $52,100. Another study reports that for people 10 years away from retirement, the median savings is $12,000, and that one third haven’t saved anything at all. For a population with a median income of $52,100 to approach retirement with a median of $12,000 in savings reflects a widespread failure to conduct personal business with sufficient responsibility. In many of these cases, what you might call “investing” in their future, I call “borrowing against” their future.

    Furthermore, I think you have to be very careful to assess the various players in the crisis with appropriately consistent criteria. Examples of incompetence such as having a lack of liquidity, failure to research markets, improper leveraging–these things plague individuals as well as large financial institutions. Yes, there is an appropriately higher standard for financial institutions given their resources and influence. But on the other hand, when compared to successfully running a major bank or brokerage, managing the finances of a household is much, much easier.

    Take for example, a slight adjustment to your argument:

    “There’s simply no way that large financial institutions can anticipate all of these things, and if institutions stop investing in their future, then not only does the economy slow down, but quality of life dramatically falls off.”

    Clearly that’s no excuse for the irresponsibility of those institutions. I’m concerned that your type of reasoning would romanticize the everyman, as if he isn’t often making nearly identical errors in money management that the rich are. Again, the consequences vary wildly, but fundamentally the issue is a question of sound financial planning. If you’re making $52,100 a year and have nothing saved for retirement, then maybe you shouldn’t buy a half million dollar home. I don’t have much sympathy for people who make that “personal choice” and lose.

    It is precisely because of highly variable factors that more people should be averse to it–or at the very least own up to the fact that they mismanaged their risk when it doesn’t turn out.



    • Posted by John S on October 16, 2013 at 10:56 PM

      Yeah, I disagree pretty violently with pretty much everything you say in this comment. So let me go one at a time:

      1) “You say that people often make ill-advised personal decisions. I would agree, but I would also refer to them as “business” decisions…”

      Really? If someone loses his insurance because he gets laid off, and then his child is diagnosed with an illness, is the decision on how to treat that illness a “business” decision? If Medicare will only offer so much to pay for an assisted living facility for an elderly parent, is the decision about who will care for that parent and what his standard of living might be a “business” decision? If a child works hard and gets into an elite private college, but financial aid won’t cover the whole bill, is the decision on where she spends the next four years of her life a “business” decision?

      You can accuse me of cherry-picking examples, but 60% of personal bankruptcies come from medical debt and student debt recently surpassed credit card and auto loans. But let’s take an example that should seem to be a plainly “business” decision: someone who takes out a loan to start his own business. Sure, this seems like a business decision, but the for the person doing it, it’s also a major life choice. It’s a major risk, not just because of the finances, but because of the emotions at play: what it will mean for his family, his future, his goals, etc.

      All of this is to say that people making these decisions are almost NEVER making purely business decisions. (Especially the decision to buy a home, which often goes hand in hand with the decision to raise a family) This is why I say it’s the lender’s job to examine the soundness of a loan—a lender is a (presumably) neutral party who can view it as a strictly business decision. And so if the loan is bad, it’s really on the lender for giving a bad loan (which, of course, is something banks KNOW—they don’t take it personally when people default), it’s not because a borrower has behaved irresponsibly.

      2) “For a population with a median income of $52,100 to approach retirement with a median of $12,000 in savings reflects a widespread failure to conduct personal business with sufficient responsibility”

      OK, let’s talk about that. Let’s talk about WHY someone with an income of $52,100 would have only $12,000 of savings for retirement. Is it because of, as you say, “failure to conduct personal business with sufficient responsibility”? Or is it maybe due to the soaring costs of health care, education, places to live, and basic amenities? Is it maybe due to the fact that wages have barely moved at all since 1970, while the cost of living has gone up 67% since 1990?

      As I said in the post, it’s not like common borrowers are using their money to finance some hedonistic bacchanalia—they simply can’t afford to save AND live their lives.

      The natural reaction to this is to say, “Well, just spend less.” What are people supposed to do? Not get sick? Sterilize themselves so they don’t have kids? Is the problem in America today really that the poor live too lavishly? You can make all the semantic distinction you want between “investing in” or “borrowing against” the future—the truth of the matter is often that people are doing neither. They borrow money because they have to.

      3) “Examples of incompetence such as having a lack of liquidity, failure to research markets, improper leveraging–these things plague individuals as well as large financial institutions.”

      Well, yes, but it seems to me we ought to hold financial institutions to a higher standard than the average person since it is, you know, the whole reason they exist. This is kind of like saying you shouldn’t sue a negligent doctor for botching simple surgery because, hey, he’s still a better surgeon than the patient…

      4) But on the other hand, when compared to successfully running a major bank or brokerage, managing the finances of a household is much, much easier.
      Take for example, a slight adjustment to your argument:
      “There’s simply no way that large financial institutions can anticipate all of these things, and if institutions stop investing in their future, then not only does the economy slow down, but quality of life dramatically falls off.”

      No, no, no, a million times no. This is beyond a false equivalence.

      Look, you and I both know that neither of us knows “statistics” all that well. But it’s pretty obvious that, again, the entire purpose of financial institutions is to pool risk. Therefore, it’s much HARDER for an individual to stay solvent than it is for a bank.

      Suppose I decide I’m going to lend out every single cent I have to my friend Geoff. I’m confident because I’ve decided there’s a 90% chance he’ll pay me back, and that seems pretty high to me. Still, assuming I’ve calculated the risk perfectly, I’ll lose everything 10% of the time. But if I lend all my money out to 1,000 Geoffs, there is virtually no chance at all that I’ll lose everything. I’ll almost certainly come out ahead, even assuming about 100 defaults.

      Again, defaults are part of the lending business. Even when people borrow money for only the most clear-headed reasons, and even when they’ve planned out everything meticulously, the vicissitudes of life are such that, basically, shit happens. And when that shit happens, people lose their investment and they default. But if a bank has managed risk correctly and diversified its investment enough, they should not matter. Of course, an individual doesn’t have that luxury.

      5) “ I don’t have much sympathy for people who make that “personal choice” and lose.”

      I suppose you’ll accuse me of “romanticizing the everyman” (I can’t say I haven’t been guilty of that before), but I generally do have sympathy for people who make personal choices and lose. After all, how much of the difference between “winning” and “losing” is foresight, and how much is dumb luck?

      It’s also instructive, as I said, to look at the history of debt (why I recommended the Graeber book), and how this idea that “all debts must be paid” has become a very insidious piece of propaganda. It’s possible that virtually all of history’s great crimes can be traced back to somebody owing someone else money and feeling like he HAD to pay it back. A healthier attitude towards debt would go a long way toward alleviating some of the injustice in the world.


      • Posted by Douglas on October 17, 2013 at 12:19 AM

        Well let me clarify that I’m not saying that people who end up bankrupt or losing a lot of money are morally bad people. But I do think they are bad entrepreneurs, and I think that in a common sense sort of way, they deserve their failure. Not that they deserve to be subject to every obstacle and injustice in their path–but that they deserve to be accountable for the consequences largely attributable to their actions within that framework.

        1) Yes, yes I would say that those are business decisions. Is it necessarily right or fair that people have to make decisions with really tough, personal trade-offs? Not always. But again, once you’re in the framework…

        I’m pausing here to again say that I don’t think that economic “losers” are bad people. In the same way that “blame the victim” can lead to horrible reactions in cases like rape, there are obviously moral and consequential hierarchies. I am not arguing that borrowers are PRIMARILY to blame, or that they got a fair shake. But in the same way that walking through a crime-ridden area with large, visible sums of money in your hand is a bad idea, sometimes the would-be victims aren’t taking the necessary steps to manage the situation, regardless of how flawed it may be. There is such a thing as common sense, resolve, and adaptation–and people who fail to display those things shouldn’t be held fully immune on account of a greater injustice.

        2) Assuming an age of retirement of 63, you could hit $12,000 with a principal of $250 at age 23 and a monthly contribution of just $20 with just 1% interest. It’s just not that hard.

        Granted, things come up. I’m not saying that nothing could ever stop you from saving that much–and with things like medical expenses, some people undoubtedly cannot. But then by that logic, it should be nearly impossible to spend $20 a month on, say, bar and restaurant tabs. But of course, people have a convenient way of funding the needless things they happen to really WANT.

        Again, you’re drifting into general problems that, valid or not, don’t change the fact that people can adapt accordingly. What are people supposed to do? Here are some ideas:

        -Do what it takes not to have kids before you’re ready.
        -Buy good health insurance according to what you can afford to risk.
        -Don’t buy new cars, designer clothes, high priced electronics, and other assets that retain virtually no value.
        -Live in housing you can afford.
        -Don’t quit your job until you have the next one lined up.

        Of course it’s not going to work out in some cases. But I thoroughly reject the idea that there aren’t droves of people borrowing money who don’t really have to do so. I think that many of them are simply unwilling to forego things they feel entitled to: like having a nice house, the latest phone, a cool car, an apartment without roommates, a weekly bar tab, etc. And this isn’t just the poor–every class is susceptible to it and sometimes the rich are the worst, particularly the young and rich. There are plenty of people who are not circumstantially “destined” for financial woes as you would have me believe, but who end up there as a result of poor choices and an unwillingness to sacrifice. No one says that you have to be rich–but you can’t make willful decisions that lead to less money and complain about having less money.

        3) The conclusion I’m making is not to excuse the institutions, but to point out that individuals have responsibility according to the same standards and bodies of knowledge. It’s more like blaming a doctor for not taking good enough care of college kids who binge drink. The doctor clearly has a greater responsibility when it comes to health care–but that doesn’t mean that the kid who drank 30 shots is a victim of a broken system that won’t let him live his life, or that he should be held above blame from his peers, who have so callously dared to suggest that his intake of 30 shots was perhaps a poor “business” decision.

        4) Again, I don’t intend to suggest that the crisis is the fault of borrowers. I think that’s a completely untenable position given that, as you say, the behavior of individuals has been relatively constant before and after the crisis. I’m only trying to partially assign consequences (which were admittedly exacerbated by the crisis) on an individual basis as they correspond to the individual decisions made. So yes, if you lend all your money to your friend, you’ve already made an irresponsible choice by the very fact that you’ve failed to diversify.

        Yes, shit happens, but that doesn’t excuse people from a lack of responsibility. Take two equivalent cases with the single difference that one person makes more sacrifices to be able to save than the other person. So when they both get laid off, one of them can still afford his apartment for six months and finds another job. The other racks up credit card debt in order to make rent. Why should we act as if both of those options are both equally okay, since hey, shit happens and the deck is stacked against the poor anyway?

        Put another way, I’m currently making well below the median income. And yet I’m vastly outperforming median statistics for saving–not without advantages, but still. There are people in my exact situation with the same advantages and disadvantages who are simply not saving that much. In fact, there are people with decidedly MORE advantages who are not saving that much. But they DO have cable, iphones, and used BMWs. Is that a hedonistic bacchanalia? Not exactly, but it’s a business decision that, if continued, will lead to a wealth disparity in 20 years that they will likely complain about as if they had no way of preventing it. Which leads me to…

        5) I suppose it all depends on the case. Someone with exorbitant medical expenses seems pretty sympathetic. Someone who works a job making $7.15 an hour who buys $3 worth of drinks and candy every day on their lunch break–not so much. Middle class businessmen who buy their $5 footlongs at Subway every day not realizing that they have a $180/mo lunch plan that costs more than their car payment? Not so much. 20-something investment bankers who splurge for bottle service three nights a week and then hit on tough times when their firm goes under? Not so much.

        I agree that it’s not easy. But I don’t buy into the mental image of your typical American as a noble foot soldier crunching the numbers in his budget every night just desperately trying to make ends meet while his poor sick mother cries out for better pain meds. I see him at McDonald’s in an SUV he can barely make payments on, with a wife in jewelry and make-up that costs more than a month’s supply of baby formula for their third unplanned child, and an even longer list of complaints about what he can’t afford because of those fat cats on Wall Street.


        • Posted by John S on October 18, 2013 at 1:39 PM

          Yeah, I just have a hard time seeing it from your perspective, particularly when you begrudge someone working minimum wage for buying $3 worth of candy…

          For example, you say, “people who end up bankrupt or losing a lot of money…are bad entrepreneurs, and I think that in a common sense sort of way, they deserve their failure.” But why is being a “bad entrepreneur” a personal failing for normal people? Nobody expects everyone to be a good doctor, or a good artist, or a good HVAC repairman. But for some reason everyone gets held to a higher standard when we’re talking about financial issues.

          This seems particularly absurd when your definition of “business decisions” seems to include every single fucking thing. I simply reject any view of the world that defines entrepreneurship so broadly and then holds people to such a rigid standard in their behavior. Heck, we’re somehow more forgiving of moral failings than we are of financial failings.

          (A quick sidenote on language: I think it’s interesting that you chose the robbery-in-a-bad-neighborhood example as your comparison. We can both agree that person made a bad decision, but presumably you’d never say that person “deserved” to be robbed, right?)

          And, look, I’m not saying that people in America wouldn’t be better off saving more money, or that all of the poor are these noble, hard-working mensches who are crushed by the system. Most people, rich and poor, are lazy and annoying. But that’s the whole point: People are GOING to make stupid decisions. They are fallible. It just seems like we’ve arrived at a decision in this country where there is one class of people (the rich and upper middle class) who are free to make stupid decisions and be careless with money and one class of people (everyone else) who are held to such rigid, exacting standards and then are offered no leniency when they fail. That seems unfair to me.

          Take your prescriptions for the poor. They seem pretty straightforward at first. But then they become unbelievably loaded: “Do what it takes to not have kids before you’re ready”…well, define “ready.” Does that mean you’re married? That you have a good, stable job? Because those don’t really exist anymore…

          Or “buy good health insurance…” Well, THAT is certainly easier said than done. Even setting aside the inanities and the opaqueness of the current insurance market, how is someone supposed to measure the probabilities of all the health risks he or she faces? That is an incredibly complex task.

          The others all have similar problems. But, worse than that, they seem borderline fascistic to me. “Don’t quit your job until you have the next one lined up”? Well, what if I really hate my job? What if I decide I have a moral objection to the kind of work I’m doing? I should just keep doing it until something better comes along because otherwise it would be bad financial planning.

          Similarly, it’s easy to criticize poor people for buying “new cars, designer clothes, high priced electronics, and other assets that retain virtually no value” but those are also things that help make life enjoyable. It just seems like you are consigning people without financial stability (again, the vast majority of Americans) to a very dull, austere lifestyle, and saying any attempt to enjoy themselves is unwise.

          This, of course, is totally ignoring the issue of status, which is difficult to quantify but certainly a hugh part of these purchases, and the fact that many people who buy “high priced electronics” need them FOR work.

          So you take your example of the two equivalent situations, which is basically just a reworked Ant/Grasshopper story: “Why should we act as if both of those options are both equally okay, since hey, shit happens and the deck is stacked against the poor anyway?” Well, I’d flip that question and ask, Why is one of these options inherently better than the other? Why does one class of people get to choose which they want to do, and the other basically forced to live like the Ant? Most importantly, why are the consequences for behaving like the grasshopper so dire?

          And, this, to me is a crucial distinction. You say that bad business decisions “will lead to a wealth disparity in 20 years that they will likely complain about as if they had no way of preventing it.” But I don’t think the chief complaint is that there IS a wealth disparity. Most people accept that as a natural result of capitalism.

          The complaint isn’t that there are some poor people, but that being poor is so HARD. One bad decision, one stretch of bad luck, or $3 worth of candy a day and suddenly you’re on the brink of bankruptcy and desperation. This seems unfair. It seems like the kind of system you’d only want if you basically wanted one group of people to be forced into doing things they hated for the benefit of others. Which we now call “jobs.”


          • Posted by Douglas on October 18, 2013 at 3:37 PM

            I picked $3 worth of candy and drinks specifically because those are not necessary items, and because they can easily be bought in quantity for a much lower weekly cost. So there are at least two bad decisions in a $3 daily drink and candy habit, and a third if you count the potential contribution to poor health. Yes, being poor is hard, but planning ahead for a cheaper lunch tomorrow is hardly an insurmountable challenge.

            But I’m actually not sure that we’re disagreeing as much as I thought. I think we’re probably just focusing on different aspects of a situation. I mean, yeah people don’t have to be good doctors–but if their careers don’t go very well, that’s probably as it should be. No one is entitled to be a successful doctor without being good. In the same way, no one is entitled to financial stability without being a good entrepreneur–a term which I use in a broad sense to refer to personal finance management (so a doctor would also be an entrepreneur in that sense.)

            And I don’t see everything as a pure business decision–I just don’t see so many things as purely personal decisions either. When it comes to a dying person going into medical debt trying to save his life, I’m happy to call that a personal decision rather than argue the business elements of it. But when it comes to things like gifted students choosing colleges, I think the scales aren’t as unevenly balanced. Of course it’s a highly personal decision, and moreover it probably SHOULD be far less of a business decision than it is. But given the circumstances, it is a definite business decision as well.

            Nor would I say that a careless person getting robbed on a dangerous street “deserved” it more, no. But I think they are far, far less sympathetic than someone who was robbed in their own home, for example. There are ways to suffer consequences that have to do with poor risk management, and it’s a general flaw that people don’t like to view them that way. Think of a person who gets a speeding ticket for going 37 in a 35. Yeah, the cop was probably too much of a hard ass. But driving 37 in a 35 isn’t some inevitable daily event–it’s very easy to do and very hard NEVER to do, but it is possible to never speed, or to speed so rarely that you greatly minimize your chances of getting a ticket. So the point is that even when things seem unfair, there are often elements of personal choice that get ignored because of the greater injustice. Of course, as I’ve said before, greater injustices SHOULD get way more attention, obviously. But that doesn’t mean that we can write off personal responsibility just because we didn’t “deserve” it, strictly speaking.

            Regarding your point about the double standard for different classes (you didn’t explicitly say double standard, but it seems to be your implication)…there’s an important difference between double standards and different standards, and it’s easy to confuse the two. Think of parents who drink but don’t let their teenager drink. Despite the teenager’s likely assessment, this isn’t really a double standard because the consequences are demonstrably different for each party. It doesn’t mean that the parents are necessarily right, but it’s not necessarily a simple matter of prejudice, either. A person making $75/hr who buys $3 of candy on his lunch break is also making the same bad decisions, but it’s appropriate to factor in the mitigating effect of his higher income. But in general, I agree with you, and as I said I think some of the absolute worst offenders are the young and rich. Why the hell anyone ever needs to spend $500 on bottle service is completely beyond me.

            It’s definitely a tricky call when it comes to things like having kids, which is intensely personal but which also has huge financial implications, not only on the parents but also on the future children. There’s a spectrum, I suppose…you’re entitled to have 10 kids if you’re making minimum wage, but you aren’t entitled to not suffer financially for that choice. In general, I would say that yes–you should have financial stability and a steady source of income if you plan to raise a child. Even if that delays your desired life plan, I don’t think it’s that controversial to say that you should be very, very confident in your ability to provide for a child before you create one–perhaps more confident than you should be in any other decision, given that your decision affects another life so profoundly. And yet, of course, huge numbers of people abysmally fail to do this. And we don’t need statistics to tell us that the typical story of such failure isn’t a young couple who did everything right before being struck by a national financial crisis just one day after their child’s birth. A lot of the time, people didn’t even plan at all.

            As for health insurance, it isn’t really about assessing the probabilities. It’s about assessing the risk. And the system is incredibly flawed–I wouldn’t argue that. But think of it this way: Mark Zuckerberg could opt out of health insurance right now. As a young guy, if he assesses the probability of huge medical bills to be low, and he can pay them anyway, then he’s taking a CHANCE–let’s not call this part of it a risk–by not having health insurance. And there’s a good chance that he could come out ahead for that. But importantly, if he made the wrong bet, his RISK is a very small portion of his wealth. But if I made the same choice, even with extremely low probabilities of something bad happening, my risk is much higher because while I might not be able to afford some occurrences even with health insurance, I definitely couldn’t afford them without it. Is that a reflection of the fundamental problems with health care? Absolutely. Does it therefore mean that buying health insurance isn’t a matter of personal and financial responsibility? Absolutely not. You don’t have to know very much about complex probabilities to understand what you’re risking without health insurance.

            Again though, and this applies to all of my examples (like not quitting your job): I’m not saying that you have to be rich. I’m not saying that you can’t begrudge heavily flawed circumstances that stack the deck against you. But I’m saying that if, given the reality we live in, you choose not to guard yourself against financial ruin for the sake of some other cause, you have to accept some personal accountability for that. And depending on how extreme your views/the circumstances are, that can be more or less sympathetic. I wouldn’t necessarily encourage a person who could easily lift themselves out of poverty through prostitution to pursue that route, and were I in that situation, I might decide that moral character and self-respect is more important. But then I would at least acknowledge that there was something I COULD have done about it, and that I made the more important choice to me. This is why I’m saying that I think we disagree less than I originally thought–I think that there are behaviors and lifestyle choices that I find palatable or at least endurable that you find unacceptable.

            But that brings me to your final point, which is that yes, being poor is very hard, and some people are especially disadvantaged. But it’s also not THAT hard for a lot of people–it’s really nothing like my “prostitution or bust” example for most people. It’s more like my $250 + $5 per WEEK example that brings you to the median retirement savings. Half of our population couldn’t possibly manage that? Of course they could. Or even just anecdotally: how many young people do you know who would commiserate about being poor, or about the financial challenges facing our generation? How many of them are saving to the point that they’ve adopted a joyless, austere lifestyle where no further savings are even fiscally possible? I would bet that if you examined the spending habits of every single person you know, 95% of higher would have room for highly manageable sacrifices that would not diminish happiness as much as you assert, and would have a substantial impact on their future finances.

            A helpful analogy might be losing weight. Yes, it’s really hard and can take years to make a transformation. And yes, some people barely have to work to achieve what they want while others are virtually destined never to succeed. BUT, there’s a spectrum in between those two ends, and the number of people who group themselves among the latter and use it as an excuse never to try are failing to take personal responsibility. Obesity has skyrocketed with the help of a variety of external factors, but it’s obviously quite possible to be thin in today’s world. A small minority of people are perhaps “doomed” to be fat. For everyone else, there are at least two key facts: it’s easier to stay thin than it is to lose weight once you’re fat, and it’s not that hard to lose weight if you follow the basic quantitative rule: your caloric intake has to be less than your caloric expenditure.

            So it is with money. For a HUGE percentage of the population (much larger than I think you’re willing to admit) there are two key facts: it’s easier to make sacrifices to stay solvent than it is to pay off massive debt later, and it’s not that hard to avoid debt if you follow the basic quantitative rule: your spending has to be less than your income. Of course there are complexities beyond that, but generally speaking people have a lot of room for improvement on these simple counts alone.

            You can live like the grasshopper and I don’t think that’s inherently worse…but accept that it’s your choice to do that. (Which means certain things, like not expecting money from the ants to pay your medical bills when you failed to buy insurance.) Saying that you’re simply choosing to enjoy yourself when you carelessly spend money–and that hey, as a human being you deserve a little of that every once in a while–is the exact same rationalization that fat people use when they eat junk food. It’s more or less a false dichotomy between total happiness and total sacrifice. And if that type of spending is actually what truly makes you happy, then okay. But own up to the choice if you’re worse off in twenty years for it. Others will pursue the path of delayed gratification and perhaps enjoy greater success later in life–but should they die young or face extreme financial burdens so great that their sacrificed short-term happiness never pays off….well, then they have to own up to that choice, too.

            When it comes to something like the financial crisis, there are clearly a lot of people who are far more at fault for the specific scope and magnitude of the economic consequences than any class of poor people…but that doesn’t change the fact that I think a lot of ordinary people still have at least a little owning up to do.

  3. Posted by John S on October 18, 2013 at 5:20 PM

    Sorry, I wasn’t clear in my example: When I said that not everybody has to be a good doctor/lawyer/etc., I didn’t mean that not every doctor is expected to be GOOD (which I guess is technically true but beside the point). I meant that not every person is expected to be a good doctor. You and I, for example, are usually not faulted for our inability to perform surgery. But for some reason it is incumbent upon us to be good financial planners.

    I think this is an important distinction in this case because what we’re really talking about here is the housing market, which was the source of all these troubles. But the housing market is very complex. Plus, since most people are paying mortgages over the course of 20+ years, it requires very long-term thinking. Over the last 20 years the economy has changed drastically – entire sectors have been decimated, people have been laid off, salaries frozen, etc. I don’t know how or why we expect people to be able to anticipate those things. And it’s not like there are many other options (paying for a house in cash? renting forever? constantly flipping homes as you’ve saved more money?).

    Instead, there are basic heuristics that people use when buying a home (“Homes always appreciate in value,” “location, location, location,” “a mortgage payment should be X% of your monthly salary,” etc.), many of which proved catastrophically wrong during the housing crisis. So Billy gets it wrong and loses a lot of money – but he works for a bank, so the government gives him money to make up for those losses. Bob gets it wrong and loses a lot of money – but he works at Arby’s and ends up losing his house and filing for bankruptcy.

    The other major point I want to make (I have minor points, which I’ll save for later) is that I think you’re way off when you say that “it’s not that hard to avoid debt.” 2/3 of college graduates graduate with student loan debt, and the average debt load is over $20,000. And given the growing importance of a college degree in the labor force, it’s very hard to call this a luxury or an indulgence akin to $3 candy. But it also means that most people essentially enter the workforce with a $20,000 tab. And often their first jobs are hard to find, or unpaid internships that barely cover living expenses. God forbid they have the audacity to get sick during this time, lest they incur even more debt.

    Basically, it’s not that I think that there are grasshoppers and there are ants, and that they should both be treated equally – decisions should have consequences. But I think grasshoppers ought to be treated like grasshoppers, ants ought to be treated like ants, regardless of your race, your gender, or your social class.


  4. Posted by Douglas on October 18, 2013 at 6:55 PM

    Well, in a sense, it’s not that hard to avoid debt because it’s not that hard NOT to go to college if you can’t afford it. And there are of course steps that help mitigate student debt that many don’t take (such as employment before and during college), but your point is fair. That’s why I acknowledged some complexities. Home ownership is another example of debt that is generally viewed as productive–the “right” kind of debt.

    But as always, it doesn’t take personal responsibility out of it. There’s still a matter of degree. Going to a high-priced, low tier school to make mediocre grade in pursuit of a Bachelor’s in a low-paying, shrinking field is not a sound “business” decision. Not that college is or should be a purely business decision, but again, if you struggle to afford college, it becomes more of a business decision.

    So it is with homes. I’m not trying to make the case that it’s easy to understand markets or that there’s no way you can go wrong. But there’s a spectrum in how you do it. Not everyone lost their home in the crisis. People who owned their homes saw the listing value plummet–but that wasn’t as much of a problem for people who intended to continue living in their homes, and in a sense they fulfilled the purpose of their original purchase, which was to have a home. Other homeowners who stretched their budgets to buy bigger, nicer houses in bigger, better neighborhoods than they could afford–counting on the fact that they could always sell–suffered more. And that makes sense.

    Look, I don’t want to sound like I’m saying that no one should ever take any risk. Or that anyone who ever does should have simply taken slightly less risk to avoid their current problem. But I’m saying that when it comes to front-end decision making, when you look at broad populations of people–the same populations who can’t save for retirement, be faithful to their spouses, and believe in shockingly high numbers that every word of the Bible is literally true–it’s not like these people did everything right but for some huge, unforeseeable crisis.

    Even the examples you list facetiously have some degree of merit. Paying in cash IN FULL or renting FOREVER are tough options, but budgeting for a home where you can put an aggressive amount down and renting for a few extra years until you can afford a home aren’t bad ideas. Getting excited because the bank only “made” you put a certain amount down and only “makes” you pay a certain amount each month probably isn’t the best reaction–but you and I both know that many, many people view it exactly like that.

    Markets are complex, loans are complex, buying a home is complex. But understanding what it means to assume debt, on a basic level, is not. In most cases, you’re buying something that costs more than what you have, agreeing to the terms of a sale, and agreeing to the terms of a loan to facilitate the sale on your behalf. I think that many people suffered not because they didn’t understand that concept, but because they were too dismissive of it, by choice. To be sure, there were large percentages of people who probably planned conservatively and with expert advice and who still suffered at the hands of banks and lenders–but there were just as certainly large percentages of people who exposed themselves to total collapse when they could have weathered the crisis much more easily through better financial planning.


    • Posted by John S on October 19, 2013 at 3:44 PM

      If, when you say that it’s not that hard NOT to go to college if you can’t afford it, you simply mean that the act of avoiding college is easy, then fine. But if you mean that choosing not to go to college because you can’t afford it is easy, then you’re just wrong. It’s incredibly difficult to determine if a college degree is “worth it”—there are dozens of conflicting studies and lots of competing data out there. I personally think fewer people should go to college, but I’m definitely in the minority, and I at least recognize that the choice is incredibly complicated, particularly when you factor in all the variables for any given individual.

      Plus, the concept of being able to “afford” college is murky. Because loans are backed by the government, there are ways for almost anyone to afford college, provided they are willing to incur debt. And since determining the value of a degree is so complicated, it’s not obvious whether or not incurring that debt is wise. Not to mention you are basically asking an 18 year old to make a prediction about his life and the state of the economy for the next 10+ years…

      But, returning to my general point, you insist that, “it’s not like these people did everything right but for some huge, unforeseeable crisis,” and you’re right. But my point is that it’s unreasonable to expect people to DO everything right (of course, I would also question what you mean by the word “right” there, but that’s a different argument). People are going to make mistakes. Sometimes those mistakes are innocent, and sometimes they seem stupid and borderline negligent, but it’s silly to expect people to behave perfectly. There’s all kinds of behavioral economics research exploring the problems people have understanding risk.

      And I’m not saying that people who make mistakes shouldn’t face repercussions for them—I’m just saying the repercussions shouldn’t be so disproportionate to the level of the mistake, and that they shouldn’t be visited so inequitably on people depending on their position in society.

      Look, it’s worth remembering that we’re not having this conversation in a vacuum, and that the stakes here are not just our moral judgment. People who incur debt really suffer, to the point of actual imprisonment in some extreme cases ( More generally, they struggle to find jobs, housing, and emergency loans. You might say some of this is appropriate, but I think it’s excessive, especially considering how generous the legal system is to the very wealthy when they make bad financial decisions.


      • Posted by Douglas on October 21, 2013 at 2:51 PM

        There’s no question that the poor are treated differently for their mistakes. And to a limited extent, they should be–for the simple reason that when the stakes are higher, one should be reasonably expected to exercise a higher standard of caution and judgement. But that’s easier said than done, and there’s a definite limitation on that kind of judgement. While it’s problematic for a number of reasons to romanticize the poor, I agree that the rich are undeservedly romanticized (which came up in your post about Taibbi’s book). Particularly insidious is the (typically) white upper middle class idea that anyone can simply rise up or avoid ruin by just making the “right” decisions, despite the fact that white upper middle class people have the luxury of making many “wrong” decisions without major consequences and will never personally face the hardships that seem so easy to resolve from a distant, intellectual position. I absolutely agree with you there.

        But perhaps a simpler way to sum it up, and possibly too simple of a way to say it, is this: Many rich people who look down on the poor would be FAR “worse” if the roles were reversed–far less willing to sacrifice, far less accepting of their situation as a matter of personal choice, and far less willing to view wealth disparity as a “just” phenomenon, But by the same token, many poor and middle class people who blame the rich would be much worse in the same reversal–far greedier, far more irresponsible, far less productive with their wealth, etc. Of course, I’m definitely not saying this would be true of EVERYONE–on balance, we would probably see an eventual equilibrium. But the point is that on both sides, there are people who are quick to judge from a unilateral perspective.

        And although I’m probably hoping in vain, I think it will be interesting to see if popular attitudes on either side are affected at all by Eike Batista, who lost over $30 billion dollars in just under 2 years as a result of, among other things, highly speculative investments. I don’t think most people–even if they would have admitted the theoretical possibility–ever really thought it was practically possible for mega-billionaires to lose all of their money. I think that sheds some valuable light on both ends of the spectrum. Of course, Batista will almost undoubtedly still end his life a wealthy man by virtue of various privileges, and in that sense he still won’t suffer to the same extent as a typical poor man would. But by the same token, a big piece of the narrative surrounding his story appears to be a personal character attack on his hubris, irresponsibility, impatience, fiscal incompetence, etc.–things that you won’t often see about poor people whose ruin is attributable to the same types of behaviors and attitudes on a smaller scale.

        I also think you’re right that people have a hard time understanding risk, which is all the more reason that cases like the financial crisis should be used as an opportunity to include, although perhaps not as a highlight, some degree of reflection on personal responsibility and how it can either amplify or mitigate otherwise entrenched inequities.


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