Fast Company - Why the Bailout Failed to Pass
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Why the Bailout Failed to Pass – Hoisted by Our Own Petard
by Mark Goulston
Hoisted by one’s own petard
1. (idiomatic) to be hurt, or destroyed by one’s own plot or device, of one’s own doing which one intended for another; to be “blown up by one’s own bomb”
He has no one to blame but himself; he was hoisted by his own petard.
Most people have a short attention span during non-stressful times and when they are afraid that attention span drops to zero. As a result people jump without thinking, onto what they hear, draw the wrong conclusion, and then remain fixated there resistant to new facts and evidence. Such a mindset is much stronger than all the logic and convincing in the world.
Witness how a tantruming baby can bring an entire dinner if not vacation to its knees.
This is what is happening in the current financial crisis and why once people are locked onto believing that the bailout is all about Wall Street and giving the pigs who caused it a second chance at the trough they will not change their minds.
Given how often I have seen people stay fixated on the wrong thing until the bitter end, I am not optimistic about their changing their mind soon in this crisis. I hope I am wrong.
What usually changes their mind is such a real threat (vs. “dire”) to their survival –losing that job, not having money to buy food, having their car repossessed, or junior returned from college for failure to pay tuition—that they finally see the light and being right or self-righteous doesn’t seem so important. People will keep choking on pride until something is literally choking them to death.
How did we develop such “jump to the wrong conclusionitis?” Americans by nature find reading, listening, thinking painful and will avoid all of them if they can. They have lost their curiosity and replaced it with what is exciting in the moment. They have become adrenaline junkies where they keep chasing after what is interesting at the expense of what is important. And that compulsion/addiction is reinforced everywhere. Why wait for something to be satisfying when you can get immediate gratification now? Why bother with college when you can become an American Idol? Why bother learning when you can be a “know it all” today?
Wall Street, sensationalistic movies, video game manufacturers, ipoderations and political candidates have done everything they can to take advantage of this increasing tendency to be both thoughtless and impulsive.
On the latter note, both candidates do everything they can in every ad they run to take whatever the other has said out of context, because they know they can hook you and me and bend you to their will.
Unfortunately, this devolution (reversing evolution) of Americans from thoughtful humans to thoughtless animals has now put us all on the hook.
September 29th, 2008 at 11:42 pm
[...] This is what is happening in the current financial crisis and why once people are locked onto believing that the bailout is all about Wall Street and giving the pigs who caused it a second chance at the trough they will not change their …[Continue Reading] [...]
September 29th, 2008 at 11:44 pm
[...] Why the Bailout Failed to Pass – Hoisted by Our Own Petard. Hoisted by one’s own petard. 1. (idiomatic) to be hurt, or destroyed by one’s own plot or device, of one’s own doing which one intended for another; to be “blown up by one’s …[Continue Reading] [...]
September 30th, 2008 at 9:08 pm
I have a different take on the issue. I just posted this on my blog: http://martynemko.blogspot.com.
The Root Cause of America’s Financial Problems…and a Good Solution
It all started with the people who wanted to buy something they couldn’t afford. Rather than save up until they could, they applied for a loan: for example, for a new car, a home, real estate investment, new furniture, jewelry, vacation, etc.
In earlier times, if their income suggested they would be unlikely to afford to pay back the loan, lenders would turn them down and the person would have been forced to save some money or increase their income before trying again to get a loan.
But in recent years, lenders had a lot of money to lend and methods–often deceptive methods–of making a profit even if the loan went unpaid, so lenders offered to lend money to unqualified borrowers.
And those borrowers accepted the loans, many knowing they were unlikely to afford to pay it all back but could later walk away from their car or credit card debt, or sell their real estate at a profit if the market went up or walk away from their mortgage if the market went down. And so now, for example, a record number of U.S. homes are in foreclosure. The number of repossessed cars has increased 10% last year and expected to rise 7-10% this year.
In short, the root cause of the problem is borrowers’ and lenders’ poor ethics.
If poor ethics is the core cause of America’s financial mess, then is the wisest solution to bail them out with $700 billion of your and my money? Especially a bailout that even its advocates are unsure how helpful it will be to us on Main Street or even to Wall Street?
Is the solution yet more government intervention, thereby shackling the invisible wise hand of the free market? Remember the government’s track record. Here are a few examples in the financial arena:
* Fannie Mae and Freddie Mac, massive government-sponsored enterprises, now in financial disarray and under conservatorship. Fannie’s stock price has crashed from 70 a year ago to 1.5. Freddie’s has plummeted from 62 to 1.7.
* The Community Reinvestment Act, which encourages lending to underqualified borrowers in the name of “social justice” and thus helped cause the current financial disaster.
* The Sarbanes-Oxley Act, which mandated that U.S. companies submit mountains of paperwork that cost companies and in turn consumers $1.4 trillion(!) without clear evidence of providing even a small fraction of that amount in benefit. You can’t legislate integrity; there will always be a way for unethical people to be dishonest.
In my judgment, a taxpayer-paid bailout and more government regulation are not the answers to America’s financial crisis.
If we are to get to the root cause of our financial crisis and of many other structural problems, a far wiser solution is to make the citizenry more ethical.
Of course, that’s no easy task. After all, every business major must take an ethics course and that has hardly solved the problem. But I’d certainly rather see the nation invest $700 billion on improving people’s ethics than to bail out the often sleazy lenders and borrowers and and to then try to use not carrots, but sticks, policing, to make people ethical. The latter would seem less likely to succeed than the War Against Drugs to eliminate marijuana use or Prohibition was in eliminating drinking.
How would I invest $700 billion to improve Americans’ ethics?
1. Parenting education in the public and private high schools, colleges, adult schools, churches, etc., including how to–from Day One–ensure that your child treats ethics as the highest priority.
2. A high-quality, critical-incident-based ethics curriculum from preschool through college. Many educators will claim that the school day is already overpacked, but I believe the time would be better spent on ethics than, for example, on P.E., history, art, and yes, even the currently sacrosanct multicultural education.
3. A public education campaign, much like that used to reduce cigarette smoking, to emphasize the primacy of ethics to the life well-led and an America worth living in.
4. Reinventing our system of electing leaders. Currently, it is rife with opportunity for dishonesty. We get the message that ethics is not primary in America when we see that our leaders get elected by accepting cash from special-interest donors, which is used to air deceptive commercials and to hire spinmeisters.
5. Enforce our laws. For example, if we allow 13,000,000 people to illegally step ahead of the legal immigration line, and if we bail out unethical lenders and packagers instead of punishing them, we, by example, learn that ethics is not primary in the U.S.
September 30th, 2008 at 10:10 pm
The Economic problems are a symptom of the real problem, all of our Institutions have lost credibility. Our President has lost faith with the Country. Our Churches have betrayed their flocks. Our business leaders have displayed incredible greed . Congress has no leaders. Banks have handed out loans to people who are undeserving, and the banks knew that. And we want what we don’t deserve or have earned. We have lost our way. We need to quit blaming others and take responsibility to lift ourselves out of this hole. It starts with ourselves and our willingness to help our neighbors. We need to quit waiting for the government to bail us out. They will only make the problem worse.
October 1st, 2008 at 4:10 am
Mr. Nemko statement is the best I have seen. I wish everyone would read this and give it some deep thought.
October 1st, 2008 at 6:23 am
Marty,
Amen. The root cause of this crisis is a moral failure of lenders and borrowers. Bailing them out will not deal with that root cause and removes the consequences (except to the poor shareholders who have lost all their investment in some of these institutions) and creates a moral hazard, not just for this industry, but for others who are going through or will go through a similar crisis (see the auto industry who has gotten at least $25B so far from the feds to cover their errors in business judgment). Failure is the best teacher in dealing with ethical problems. If we intervene in the way being proposed, the lessons will be incomplete and we will enable behavior we will see later and somewhere else.
October 1st, 2008 at 6:37 am
Mark, very insightful. I see the same behaviors. Maybe that’s why I beleive your thought to be so insightful?
Guy
October 1st, 2008 at 11:28 am
Check out this video to see what really caused Wall Street to crash:
http://www.youtube.com/watch?v=fiXwZI_YqHY
October 2nd, 2008 at 10:17 am
I agree with your premise that we in this country have developed a far-too-short attention span and become fixated on the quick-fix. In this case from my perspective it’s Congress that is the best example of what you are describing, not the public. Having been taken in on the rush to war, Congress is falling into the same trap in rushing to a quick-fix bailout that most likely will not fix anything for long. The public is saying, for a wide range of reasons many of which I believe are sound, “Wait a minute here! Let’s take a longer and better thought-out look at this.” There are actually a number of options with far better possibility to actually solving the problem.
This solution draws on the same system and accompanying assumptions that caused the problem to fix the problem and is doing so in a most inequitable way. Better options to consider might be - if we gave them serious consideration and thought - to:
1. Use STET funds as has been done successfully in that past whereby the system underlying the problem in this case would pay to correct it. (see http://www.thomhartmann.com/index.php?option=com_content&task=view&id=998&Itemid=1)
2. Or even better, handle the mortgage meltdown that underlies this crisis the way it’s done in England. When banks fail there and people default on thie mortgages, the property goes into government ownership and the parties living in the homes can pay rent to the government to continue living there. This is a win/win for all but those who wish to make even more millions on the suffering and mistakes of past abuses of the system.
3. Then of course there is Michael Moore’s solution, which if nothing else does the heart good to read. “The richest 400 Americans — that’s right, just four hundred people — own MORE than the bottom 150 million Americans combined. 400 rich Americans have got more stashed away than half the entire country! Their combined net worth is $1.6 trillion. During the eight years of the Bush Administration, their wealth has increased by nearly $700 billion — the same amount that they are now demanding we give to them for the ‘bailout.’ Why don’t they just spend the money they made under Bush to bail themselves out? They’d still have nearly a trillion dollars left over to spread amongst themselves!
Full article at http://www.michaelmoore.com/words/message/index.php?id=237
While this latter is, of course, infeasible it goes a long way to explain why a lot of people aren’t happy with the solution proposed.
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