The Bailout and Human Nature

Eyes and ears are poor witnesses when the soul is barbarous.    Heraclitus 

Posted mid-Sunday, as bail-out talks continue.  

Pinker complains in The Blank Slate of the increasing emphasis in the 20th century on nurture.  This may well have increased our sympathies for others, but has led us to undervalue human nature and therefore not consider moral hazards that tempt it.  Our experiences are so variable and their impact so ambiguous, we may be quick to assert effect where none existed – or emphasize it when convenient.    Indirectly, we came to devalue that third and most personally consequential component – human agency.   We say, “Officer Krupke, I’m down on my knees” and grin, but we aren’t always ironic.  Our experience and history, however, should make us more optimistic and also wary:  men can be good (and remarkably so) and men are fallible.  (Sinners some might say, while the Deists find us prone to errata.)   A culture’s use is in restraining us from being our worst and encouraging our best; the more those restraints and rewards are internalized the smoother, more productive, and happier our lives. Our goal is not too many laws but good ones, not many restraints but necessary ones. 

The general consensus is that increased subprime lending encouraged by Congress led CEOs to make bad loans.  We are selfish, our vision narrowed to our time and our profit:  the home buyers may have been naïve but also wanted a free lunch; the CEOs wanted to please Congress – the source of their jobs, power & money; Congress wanted to buy votes, increase campaign contributions, and purchase their own houses cheaply.  Those least likely to feel the consequences of their follies are in Congress.

Which is a long way around to the point:  What the hell were Dodd and Frank doing writing a version of the bailout?  Why do they think they should?  Why does anyone else listen to them?  Isn’t having a dog in that fight exactly the reason for recusals?  Is there no moment when we say your history has undermined your authority?   

Oversight/transparency:  Onerous, unworkable and repetitive reporting and oversight requirements, hindering proper implementation of program. 

Bankruptcy “Cramdown” (aka, trial bar give-away):  Included so-called “cramdown” provisions allowing bankruptcy judges to reduce mortgage principal under the guise of helping those at risk of foreclosure.  If enacted into law, the provision would be a bonanza for trial lawyers and undercut the effectiveness of any economic recovery effort by making it even harder to value mortgage-backed securities.

 Affordable Housing Slush Fund (ACORN Fund):  Included a giveaway that would force taxpayers to bankroll a slush fund for ACORN – an organization fraught with controversy for, among other scandals, its fraudulent voter registration activities on behalf of Democratic candidates. 

None of us is immune, but surely extending moral hazards farther – to unions & trial lawyers & Acorn workers – doesn’t ensure virtue.  Nor does their inclusion seem disinterested or unconnected with benefits that accrue directly to Congressional Democrats charged with oversight.

The tension between the French and the English Enlightenments (so clearly defined by Himmelfarb), that between Adams and Jefferson, underlie arguments today.   Choosing the wrong model can lead to partial blames for the mess – and therefore encourage partial solutions.  Populism tugs at our heart strings – we have sympathy for “the folk.”  And we are drawn to our factions.  We assume some representative or group is virtuous – the poor, the intelligentsia, the rich, the agrarian, the urban, the masses, the enlightened despot, the . . . .  Of course, we see ourselves as righteous.  But the voice in our ear, the voice of history or religion or common sense, should make us hesitate.  Eighteenth century Anglos would observe that an aristocracy of meritocracy is still made up of humans.  And history should keep us humble.

I often quote Abigail Adams; she represents our enlightenment well: 

I am more and more convinced that man is a dangerous creature; and that power, whether vested in many or a few, is ever grasping, and, like the grave, cries, “Give, give!” The great fish swallow up the small; and he who is most strenuous for the rights of the people, when vested with power, is as eager after the prerogatives of government. You tell me of degrees of perfection to which human nature is capable of arriving, and I believe it, but at the same time lament that our admiration should arise from the scarcity of the instances.

 Letter to John Adams (1775–11-27)

She warns but also implies the grandeur of maturity & responsibiity.  A belief in the universality of human nature assumes all can transcend their own interests with remarkable altruism and all are tempted and vulnerable.  We are conscious agents.  Himmelfarb argues that neither the British nor the English placed man’s reason as the ultimate goal of their revolutions, but rather as a means to an end.  The Anglosphere was always seasoned with a sense of human fallibility.  Ben Franklin laughed wisely at his own rationalizations:  “So convenient a thing it is to be a reasonable creature, since it enables one to find or make a reason for everything one has a mind to do.”   

And, wasn’t this crisis not unlike 9/11?  Hadn’t voices been raised in the past, hadn’t we seen what we knew was risky (and selfish and disproportionate) behavior?  I know that I was insufficiently engaged, just as I was in that series of attacks prior to 9/11.  Bill O’Reilly asks Karl Rove why didn’t someone tell “the people”; Rove responded he could send O’Reilly the warnings linked on the post below.  We didn’t want to know – we didn’t want to think about it.  Most of us – the us who will probably get stuck with the bill and the us who will have trouble running our businesses without those loans that buy supplies that let us grow, the us that will work a few years longer and those that will work a few years harder – just didn’t want to think about it.  So, of course, we are responsible, too.  Admitting that should make us sympathetic to the banker, the congressman, the loan recipient.  But responsibility should be assessed; transparency (and shame and clarity) instituted. We should be more “awake” and help guard against moral hazards we understand all the more because we, too, are vulnerable.