October 11, 2011
OPINION by GORDON MULLIN
When I do my taxes, I don’t ask myself, “what’s the fair amount I should pay?’ Nope. I just attempt to follow the byzantine tax rules as best as I can hoping I don’t make a mistake and find myself on the receiving end of an IRS audit. I work hard, spending a great deal of time looking for write-offs trying to make that “taxes owed” number on my 1040 just as small as possible. And I must confess, never has it crossed my mind to pay more than what the rules tell me. Greedy me.
My Webster’s Unabridged defines greed as “excessive or rapacious desire, esp. for wealth or possessions.” With the continued downturn in the housing markets and banks tottering at cliffs edge, we’ve been hearing the word a lot.
We now have entire swaths of occupations deemed to be populated by the greedy- bankers, lenders, Wall Street brokers (ouch-too close to home), mortgage agents and, of course, the usual suspects- lawyers, developers, and every single employee of insurance, drug and oil companies. Wall Street is merely the target du jour.
However, it strikes me that we’ve become so accustomed to hearing greed used to describe others that we’ve come to think of these people as somehow different than us regular folk and I don’t think that’s true. I know we all like stuff-owning stuff, possessing stuff; using stuff. Shopping itself has become a pastime for many-kind of a hobby. “What do you want to do today, dear? Why don’t we go shopping? That’d be fun.” Ever heard that?
I think we’ve simply mislabeled a common and normal human inclination, the pursuit of self-interest, when it is in others we’ve chosen to castigate. This month it’s Wall Street brokers who sold subprime loans and financial gurus who packaged those mortgages and sold them to banks, hedge funds and your 401k provider. Recall that in 2007 they were doing the exact same thing and everyone was fine with that. There were a few voices warning of an impending bubble in the housing market, but like the tech stock bubble of 2001, no one wanted to listen.
Three years ago, Harry, the guy next door who bought his home in 1974 for $30,000 and now could retire on the gains, felt those unplanned riches were his just due and no one considered him greedy for pocketing the eye-popping profits.
The mortgage broker at the bank who offered a suite of alternatives to Maria, the buyer of Harry’s home, perhaps knew that Maria was over extended but Maria was old enough to make her own decisions and there were plenty of other places she could look for advice and options. She hadn’t saved up any money for a down payment but the lender was willing to finance 100% of the home, encouraged by Congress’s ‘Minority Assistance’ mandates. She’d be paying only the interest for a couple of years but she wanted, not the starter home, but the nice one, the expensive one and she knew that of course prices would continue to climb, she’d get that raise, and things would turn out well.
The bank packaged up Maria’s mortgage along with hundreds of others and sold them to Fannie Mae who borrowed in the market at government subsidized rates to buy Maria’s loan so that the mortgage was off the bank’s books and didn’t drag on their capital requirements.
Fannie Mae in turn offered AAA credit rated bonds with excellent returns that everyone knew was implicitly backed by the government and investors, mutual funds and retirement plans of public employees, gobbled up the bonds of Fannie Mae, all enjoying the safety of government sponsored returns.
Three years ago, everyone was pleased with the situation. No one considered an entire financial industry greedy. All was well. Till the housing market bubble burst. And now we look for scapegoats finding them, most recently at, where else, Wall Street.
We are all inclined to desire wealth and possessions. When the times are good, we’re content but when times are bad we seek out those we deem responsible, label them greedy, and demand our politicians regulate, regulate, regulate.
We should not seek the regulation of greed for that is truly beyond the reach of government. We can and should demand honest and fulsome disclosure by all, both lenders and borrowers. Bubbles will occur again; they always do. But we should not ask for solutions based on the regulation of greed- that’s a distraction from our problem and leads us down a path to where there are no answers.
We merely find ourselves.
Gordon Mullin in a registered financial adviser in San Luis Obispo.