Sunday, September 09, 2007

How Convenient to Always Blame the Individual

While getting my oil changed the other day, I overheard someone say: "you know blaming the mortgage bankers and brokers for this subprime disaster is like blaming McDonald's for fat people."

I couldn't disagree more with this kind of analysis, wherein the "consumer" is wholly to blame for bad choices. The fact is that a choice is only meaningful if you have full information about what you are buying. But the subprime mortgage scandal is problematic for a whole lot of other reasons that people signing bad mortgage contracts or borrowing more than they can pay. The companies that made lots and lots of money originating these loans and then selling them off to Hedge Fund managers or making them available as securities in other ways are to blame as well.

The desire to make a hearty profit certainly creates incentives for companies to exploit the less educated consumer. Anyone who saw SuperSize Me should have a hard time thinking that the obesity problem in this country is the result of individuals making "bad choices." When you have a huge corporation trying to hook in young children as consumers from an early age, when you have schools serving fast food for lunches, and when you hide the nutritional information from the consumer, well, you get an obesity epidemic.

The subprime mortgage collapse is similar. You have eager mortgage lenders offering tantalizing deals to people who want a piece of the American Dream: home ownership. You don't have full disclosure of the terms and the lender just wants to get that mortgage signed so they can quickly sell it off as a security. They don't care about how likely a borrower is to make good on his or her payments. They won't be keeping the loan. The riskier the loan, the better for those hedge fund managers. High risk=High reward. And to make that profit, you need to exploit either the uneducated, the desperate, or the greedy.

What do you all think?