American Madness

On the 4th of July, I got into an argument with a cute Wharton grad who is now working on Wall Street. As she was clearly a red state Republican at heart, I asked if she was part of the sub-30% of Americans who give George Bush a positive approval rating. She said she was, and we began arguing about the War (a noble mission to make us safer, she said), the intrusion on civil liberties (she was fine with being wiretapped and even said the government could come conduct a warrantless search of her home as she has nothing to hide) and finally the economy (doing great!).

I leave it to you, dear reader, to judge the objectivity of the first two points, the second of which puts her at odds with our Bill of Rights.

On the last point, I argued that the growing subprime meltdown, which is likely to result in mass foreclosures, was not evidence of economic health, but of economic froth, and that, under the myopic (or blind) eye of our current administration, lenders had been allowed to take advantage of poorer Americans. Her response: caveat emptor. Oh, that lovely phrase: “let the buyer beware.”

Upon reflection, I realize that there are many people, especially on Wall Street, who need the concept of caveat emptor, who cling to it lest they be bothered by a pang of conscience.

After all, Wall Street exists to broker information. They earn their fees in an honest way most of the time, but when there is real money on the line, some brokers are likely to withhold information and eek out a greater profit, even when the information withheld (their true feelings on a stock or bond rating, for instance) could save a great many less educated, less intelligent and less guileful people from a great deal of pain.

Caveat emptor is a cruel concept, much less preferable than “love thy neighbor.” You hardly ever hear that chestnut on Wall Street, because loving your neighbor means telling him the truth and often that’s less profitable.

As the New York Times editorialized yesterday, variable-rate subprime mortgages were frequently sold as an alternative to safer fixed-rate mortgages without due consideration given to whether their borrowers would be able to pay and keep their homes.

This isn’t an abstract concept. It’s about whether people will be able to afford a place to sleep, live and raise their children. It’s a national issue and a human rights issue.

The lenders did not care, because they quickly turned over these loans to Wall Street brokerage firms, which bundled and sold them to other banks, insurance companies, pension plans, and the hedge funds that manage money for banks, insurance companies and pension plans, as well as foundations, endowments and wealthy individuals.

Did Wall Street look deeply into the credit-worthiness of those to whom the lenders lent? Or did they just want a commission?

The naked truth, Wharton grads and others, is that most Americans are not as smart as you are, as savvy as your are, as capable of making good choices, or as likely to realize when they should be wary of an indecent financial sales pitch.

As a moral concept, caveat emptor sucks and has no place in a civil society. People should have a right to deal in good faith with their financial institutions, the same way they don’t have to doubt that their tap water is drinkable or that the fire or police departments will come if called.

When it’s possible that institutions might not deal in good faith and especially where the opportunity for greater profits would naturally create a conflict in doing so, we have decided as a social collective to have our government create laws and enforce those laws by intervening to make these institutions take the moral action.

Watching these last six years as the government has done little is one reason that I am part of the 60-odd percent who think George Bush has fallen far short of competence in improving our economy. The rising tide doesn’t lift all boats if you don’t have a boat, and when you are swimming alone it can drown you.

This entry was posted by Josh Friedlander on Tuesday, July 10th, 2007 at and is filed under American Madness. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.