Monday, December 22, 2008

Dueling Across the Pond

Gary Younge, meet Theodore Dalrymple.

I think it's absurd to paint greed as an American value, or to claim that greed is what led to the current economic issue. Frankly, I think "greed" has no real meaning anymore. While it invokes images of Gordon Gekko, it wasn't greed that brought his end, but amorality. There is nothing wrong with the desire for wealth beyond all bounds—so long as it is sought honestly. The issue is not even a willingness to take excessive risks (often associated with greed) in order to prosper.

Is it greedy to attempt to create wealth, as the financial markets do? Is it greedy to funnel capital to the places that can benefit from it? Is it greedy to take a cut as payment for being skilled at these activities? None of this is greed. And greed was not what caused the crisis.

Two things did: pity and miscalculation. The banks were overleveraged. In a pinch, they did not have enough cash to cover their debts. That's what caused their collapse: they miscalculated how much they could safely leverage. Not greedily. Greed would be doing the calculation and saying "screw it, let's overleverage anyway." No one knew they were overleveraged, no one thought they could get away with it. No one saw that coming. I invite you to find evidence otherwise.

The second was pity. Why pity? Okay, maybe pity isn't the right word. Empathy? A collectively bleeding heart?

Why did the pinch come? Because of a massive number of loans issued to people who couldn't afford to pay them and never should have been approved. Why were they approved? Because the government decided that more people needed to own homes, because it was unfair that they couldn't. This is what put the strain on the overleveraged banks, and eventually that strain combined with their miscalculations led to the current crisis.

If anything about American morality caused this crisis, it is the desire of some Americans to be more like Europe in our form of government: more handouts for those who haven't earned them, even if it means the collapse of entire financial systems. See here.

We're seeing it again right now with the bailout of the auto industry: undeserving recipients that the rest of us are going to have to carry.

Meanwhile, Brits, quit your whining. Bring back that stiff upper lip.

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