“Consequences not suffered from bad decisions lead to lessons not learned, which leads to bigger failings down the road,” says Ethan Penner, former CEO of Nomura Capital in a well-written editorial in today’s Wall Street Journal.
“And so we have the insidious modern trend to shirk responsibility and blame others for our missteps. This trend, this ‘victim mentality,’ is a path toward personal disaster.”
Mr. Penner discusses the ‘non bail-out’ of Bear Stearns by the Fed. He also notes that “in a bear market–with losses looming for investors, homeowners, financial services executives, homebuilders and the average stretched consumer–the hue and cry for the government to save everyone is reaching a fevered pitch. Even avowed capitalists who enjoyed the benefits of bull markets are now advocating government intervention.”
Add to this the pressures of a disputed democratic primary where the candidates are daily trying to step to the left of their opponent and you end up with: demands to halt or delay foreclosures, demands that mortgage lenders reduce the principal loan amounts for houses that are ‘underwater’ (worth less than the mortgage), and significantly increasing conforming loan limits.
Of course, Mr. Penner notes that during the run-up in house prices, “no one was calling up his congressman to complain that home values were appreciating too quickly.” Homeowners moved up to bigger houses with smaller, or no, downpayments based on loan applications based on ’stated income’ (from the latin, “liar loans”). Many buyers had no skin in the game. Those that did “drained that appreciation regularly through refinancings to pay for vacations, new cars and other pleasantries, all of which created the prosperity for whcih politicians were pleased to take credit.”
Which is to say that we all loved the reward we reaped from our risk, but now clamor for government protection when that reward turned to downside. “The lesson we all must take away now is that leverage is not a one-way path to wealth with no risk of loss.”
“The unstated premise [behind this clamor for government protection] is that, with better government oversight, we would not be suffering today’s bear market and financial chaos.”
Mr. Penner ends by concluding that “[h]omeowners must learn that there are risks to using a home as an ATM. Investors who borrowed to flip condos must learn the downside of such risk. …. And, much as it is impolitic to say, people who took money from lenders and signed without considering how they’d repay those loans must also be held accountable.” “It is each and every citizen’s job to manage our own affairs, make our own decisions, bear the fruits or painful consequences and learn our lessons.”
“The free market is the essence of our society’s strength and is rooted in the Lincolnian precepts of accountability and responsibility. When decisions are made and actions taken (or not taken), there are consequences. These consequences are models for us to learn from and serve to stimulate social growth and advancement.”
Bravo to Mr. Penner for saying what no politician will. I would add that the same politicans who are pushing for government intervention to stop foreclosures and allowing prices to fall are the same politicians who decry the lack of ‘affordable housing.’ We must allow the market to correct by allowing prices to decline. In the end this will make houses more affordable. [See my article in the California Real Estate Journal entitled “Is Affordable Housing The Right Thing To Do?”] Unfortunately both sides of the aisle (and, also in today’s Wall Street Journal, even the last hold-out, John McCain) are giving into the populist rhetoric of the campaign season. It is also ironic that, on one hand, it is acceptable for home prices to shoot through the roof but we must have goverment intervention to stop gas prices from doing the same. There is now a push for gas prices to be capped or reduced (”windfall profits”) while we must have government intervention to stop home prices from going down.
Link to the Wall Street Journal Article.
