The WSJ on its website’s front page tells us what Obama is going to say in a speech today:
President Obama plans a speech in Manhattan in which he will castigate government that he says has too often forgotten the ordinary Americans who have suffered from its reckless irresponsibility.
Actually, that’s not what it said. It actually said:
President Obama plans a speech in Manhattan in which he will castigate a financial industry that he says has too often forgotten the ordinary Americans who have suffered from its reckless irresponsibility.
And it’s true–the financial industry has been irresponsible. Read Our Lot by Alyssa Katz and you’ll read some very depressing stories of how mortgage originators duped and misled and exploited people. (You’ll also read depressing stories of how government housing policy helped create a situation that encouraged the whole mess.) So yes, mortgage originators were irresponsible. Who financed that irresponsibility? Wall Street. Wall Street took those lousy mortgages (and some good ones) and relentlessly packaged them into complex securities that they sold and bought.
And who financed those purchases? Lenders who lent money to Wall Street and to financial institutions around the world. Wall Street firms borrowed enormous sums of money rather than use their own capital.
And who financed those lenders? They used their own money, but they didn’t worry as much as they should have about lending prudently because in the back or the front of their mind was the fact that for the last 30 years, the government has bailed out lenders whose loans to large financial institutions went bad.
So who ultimately financed a lot of those bad loans? We, the taxpayers did because politicians have been irresponsible with our money over the last 30 years.
This is the story I tell in my paper coming out in a week or so, Gambling with Other People’s Money: How Perverted Incentives Caused the Financial Crisis. (Link coming soon–it will be available on line.)
So it’s a bit weird to hear Obama complain about irresponsible industries. His policies and those of his predecessors enabled that irresponsibility. Trillions of our dollars have flowed to Wall Street. (And don’t tell me we’re going to get it back or that the Fed made a “profit” last year. Let’s wait till the final tallies are in.)
Obama’s like a father who tells his son that he’s got to start acting more responsibly in how he spends money. But the father keeps giving the son his credit card and raising the limit.
It is tempting to conclude that Wall Street is blameless and just responded to incentives. But Wall Street is the son who always charms his dad into giving him the credit card again even after running through the credit limit buying up a bunch of junk.
Until we the people rein in this system through our voices, our disgust and our votes, it is going to keep taking from us and giving to them.