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The Mixed Messages of Modernism: Occupational hazards

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Occupy Wall Street (OWS) has built its ideology on a historical fallacy. If we believe its folksy altruism, that small businesses that limited their ambition to small markets and derided the desire to move forward gave America its wealth, we deceive ourselves. Occupy Wall Street has to come to terms with the fact that the utopia that they believe predated the repeal of the Glass-Steagall Act, and whose weakening required that act initially was not responsible for creating the middle class it so dearly wants. America, in large part, owes its success to its biggest businesses.

Corporate greed, fat cats and other caricatures of cigar-smoking, tuxedo-clad bankers are hardly the root cause of the financial crisis. They have always been paid handsomely, and the fact that most of our financial institutions remained solvent and have paid back the loans they received further speaks to the high ability that merits their pay. They work 80+ hour weeks. They give themselves over to their work. It is sensible that their commitment and competency, especially considering the risks involved, be reflected in their pay. We can say they are greedy, but we need people with this kind of dedication to do high-level work. If they weren’t paid so highly, fewer and less-qualified people would consent to the sacrifice of their 20s, their weekends and their sleep for finance.

The financial institutions that OWS hates made the highest level of home ownership ever in the United States possible. But if we are going to go about assigning blame, we have to understand that<\p>–<\p>at the most basic level<\p>–<\p>irresponsible individuals are the problem. People took mortgages they could not afford on the chance that their circumstances would improve or their houses would increase in value. They made ambitious gambles that failed, and that’s why foreclosures are at record rates. Homes are not being foreclosed so fat cats have a place to store their Fabergé egg collections. Even banks do not want homes in this depressed housing market. Homes are being foreclosed because people took out loans that they could not pay back. You can blame financial institutions for providing them, but for the last ten years the federal government has done whatever it can to try to get banks to lend to less appealing borrowers. The intent was good. The effect was catastrophic, and the banks have not been better off for it.

If we want to look for institutional problems that allowed underqualified borrowers into the system, we can easily see that the government, not private institutions, spurred such behavior. Looking into research by Edward Pinto, the former chief credit officer of Fannie Mae, we gain some perspective. As cited in a recent Wall Street Journal column by Peter Wallison, Pinto concludes that of the nearly 50 percent of mortgages that were deemed “subprime” (the borrower had poor or no credit history), Fannie, Freddie and other government agencies held 70 percent. The fact that the federal government mandated 55 percent (in 2007) of the mortgages they issued by these agencies be given to people with less than ideal credit, a gradual 25 percent increase over the 30 percent required in 1992, explains the huge numbers of loans to under qualified borrowers. The government even extended this mandate to private industry, when the Community Reinvestment Act of 1995 required banks and savings and loan associations to make a certain proportion of their loans to borrowers of lesser income. The fact remains that, though derivatives allowed aggressive speculation on these loans, the sheer amount of bad debt alone was enough to bring the system down. Derivatives and speculation on them merely spread the hurt.

As for the consistent complaint that the government bailed out the corporations but left the little guy in the lurch, I suggest a quick reconsideration. Who would have lost their deposits, their savings and their access to credit for recovery if the big banks had failed? The little guy. “Main Street.” Saving the big banks is fundamentally helpful for small business and normal people. Had they toppled, America would be in straits direr than we can imagine. The idea that the federal government has shirked its moral obligation to its people by saving the banks instead is ludicrous.

What is most troubling to me about OWS is that it reflects Americans’ tendency to accept theories with little evidence but great import without scrutiny. It seems altogether paranoid to me to think that 1 percent of Americans have, through lobbyists and other outrageously immoral means, commandeered our country. We have an independent media, with only one of the major television news outlets at risk of being called biased towards that 1 percent. We have extremely powerful and wealthy unions to counter the influence of lobbyists and there are dairy lobbyists, farming lobbyists and lobbyists from industries other than the “evil” oil industry. They all have a right to be heard, just as we citizens have a right to counteract their influence with our vote and our power to assemble en masse. Instead of doing what amounts to little more than a public demonstration of frustration, we could campaign for and donate to congressmen and congresswomen who pledge not to deal with lobbyists. It is not rational to find an unmistakably bad situation, chafe at the circumstances it leaves you in and throw a stone at the nearest possible blameworthy object. It is not productive and it does not, fundamentally, address the problems that caused the bad situation in the first place.

Spencer would like to hear your thoughts on this issue, so email him at dsnelson “at” stanford “dot” edu.