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Subprime Immaturity

The opinions expressed by columnists are their own and do not necessarily represent the views of

Headline stories about the now infamous subprime mortgage mess and its associated credit crisis have been on the media front pages since late last summer; its tremors are still shaking the confidence of investors and financial institutions world wide. Suddenly unaffordable mortgage payments, a dramatic rise in foreclosures and fall in home equities, an abrupt drop in lender revenues, a painful crunch in the mortgage and bond insurance industry, the collapse of confidence in “derivatives,” global doubt about American assets, and a fit of paranoia about how much one bank dares lend to another – all of this has precipitated great wailing and gnashing of teeth, panicky increases in liquidity by the Fed, and an ill-conceived government “stimulus package” to save the world at U.S. taxpayer expense.

While the causes of these financial agonies are vigorously debated from economic and political perspectives, the psychological factors behind them have been largely ignored. That’s not a good idea. A close look at the way people operate financially shows that our current national housing problem and our current global credit crunch are really problems of how individuals at various levels think and feel about money and investing and about buying and having things. More specifically, these crises reflect a childlike mindset that believes you should have whatever your little heart desires even if it’s immoral, fattening, unrealistic and unaffordable. In psychiatry, we say that people who seek such short term pleasure at the expense of long term security are living by the pleasure principle. Sometimes called hedonists, these folks seek things that are too expensive, including houses. (They indulge themselves in other ways, too, but that’s another article}. They borrow more than they can afford to, and they think too much about the benefits of what they seek and too little, if at all, about the risks. The motto they live by is “If it feels good, do it.” People who live this way are sometimes called “cool” or “free spirits – until they’re broke. Then they’re called victims of predatory lenders.

Mature adults, by contrast, live by the reality principle. They too seek short term satisfactions but protect their prospects for long term happiness and security by setting reasonable investment and financial goals and living within their means. Mature adults are not “cool” in today’s culture. Hedonists call them “uptight,” “old fashioned,” or “anal retentive.”

But even casual observation reveals that these cool persons are in fact immature and irresponsible. They are part of a larger permissive culture of immaturity and irresponsibility called modern liberalism, although these days they are likely to call themselves “secular progressives,” or just “progressives”– as in progressively unreasonable. For the sake of this discussion, I suggest the term ‘liberal’ to denote those who live by the pleasure principle. They are liberal in spending money and taking risks with it. And let’s use the term ‘conservative’ to denote those who live by the reality principle. They tend to conserve money and avoid debt and risk in order to feel secure. The differences between liberals and conservatives are reflected in, among other things, how they deal with investing, lending, borrowing and owing money at every level of the economy, especially when it comes to home buying. Let’s look at what happens at some of those levels.

Liberal governments think it’s okay to make mortgage money easy to get by drastically lowering interest rates. They also think it’s okay to increase the total money supply, create inflation and depreciate the value of the dollar. Liberal governments think that lenders should make liberal loans to marginal buyers -- or be accused of “redlining.” But the same governments also think that liberal lenders are “predatory” when the marginal buyers default on their mortgages.

Liberal homebuyers think it’s okay to take out a big mortgage loan they can’t afford. When they find they can’t make the payments, they think liberal government should bail them out, because homebuyers shouldn’t have to take the harsh consequences of bad decisions. Liberal politicians like Jesse Jackson and Hillary Clinton think that adjustable rate mortgages shouldn’t adjust up.

Liberal mortgage lenders think it’s okay to make big mortgage loans to liberal buyers, because then they can make big profits. They hope the buyers won’t default. But they also think government should bail them out of their bad lending decisions if the buyers do default.

Liberal investors think it’s okay to invest in securities that aren’t really secured and hope that all goes well. If it doesn’t go well, then they think that their investments should also be bailed out by the government, especially if they are well known investment bankers, because it’s important to liberals to maintain investor “confidence.” For the same reasons, liberal insurance companies think it’s okay to give high quality investment ratings to bundles of securities based on little more than wishful thinking.

Liberal governments, liberal buyers, liberal lenders, liberal investors and liberal insurers are all acting like short term hedonists who are in denial about risk, affordability, contract obligations and long term consequences. They are major players in the modern financial culture of immature, permissive and irresponsible liberalism. They routinely make bad financial decisions because they have a liberal mindset that includes ignorance of or contempt for financial realities. Irrational beliefs and expectations about how things work, and how things ought to be, are part of that mindset. Conservative beliefs in such traditional virtues as prudence, caution, restraint or risk aversion are seen as too stifling. Liberals are “free spirits.” They are “spontaneous,” “creative,” “imaginative” and “visionary.” In the liberal mind, those qualities trump realism. Besides, if you live in America you are entitled to “The American Dream,” which now means that you should own a home even if you can’t afford it. This is all very childlike and self-deluding and irresponsible. That’s why modern liberalism’s policies, whether economic, social or political, are so destructive. Short term hedonism is lots of fun – until the reality principle ends the party.

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