Sunday, November 15, 2009

Stupidity, hypocrisy or both?

When I have the same conversation many times in a row, I know it's time to do a blog post on the topic. This time it's a discussion (somewhat outside of usual scope of my posts but relevant anyway) of the causes of financial crisis, framed as "who is to blame" question. This thing is, I refuse to join the "darn banksters and their greed got us where we are" chorus. Not because I have some particular reason to love banks and bank people, mind you. I simply can't see how you blame something or someone acting according its nature and doing so within the framework you yourself created.

Any explanation, any description, any user manual is by definition simplification of things. Let's simplify this.

If you put a carrot in rabbit's cage - carrot will be eaten.
If you put a rabbit in wolf's cage - rabbit will be eaten.

Putting carrot in rabbit's cage or rabbit in wolf's without understanding what fate awaits for both is stupidity.
Bemoaning carrot's and rabbit's fate, blaming rabbit in carrot's "death" and wolf - in rabbit's is hypocrisy.

Pushing lenders to lend to barely or un-qualified borrowers; Lowering lending standards; Repealing laws and rules that kept such unsafe practices at bay; Guaranteeing those unsafe loans via GSEs; Keeping super low rates for too long - all this created a framework where profits could be had while risk was mitigated or masked by those guarantees. Creating a situation where a profit-oriented by its very nature organization can make a profit while relegating risk to someone else's shoulders and not foreseeing the inevitable failure is stupidity. Creating such situation, observing that organization doing just that and blaming it for following its very nature is hypocrisy.

Should banks be excluded fully as entities having their hand in everything that happened? Lord no. But the idea that the bank by itself is some kind of evil organization or that people working in or for the banks are necessary bad is ummm... how do I say it softly... stupid? Yet it's just the mindset that is being propagated. Let's all hate banks and solve our problems by materializing this hatred in this or that form - while real culprits are all too happy to channel the anger away from themselves.