by Lyle H. Rossiter, Jr., M.D.
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 â€˜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 â€˜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.
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.
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
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.
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
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.