Thursday, September 25, 2008

Blaming Our Optimism?

"But another, much admired, habit of mind should get its share of the blame [for the financial crisis]: the delusional optimism of mainstream, all-American positive thinking."

Barbara Ehrenreich, "The Power of Negative Thinking," New York Times, September 24, 2008

I have a problem blaming homeowners for the foreclosure crisis, or at least a part of it, even though I've seen many instances of exhuberant megahouse overreach. Individual decisions took place within a house of mirrors of bad mortgage products, lack of adequate transparency, the wild bundling and selling of exotic paper, and the lack of old-fashioned government and private sector oversight.

For many people on the lower end of the income spectrum, stagnant and falling wages and rising prices made subprime mortgages for pulling out equity even more attractive -- and necessary.

A policy-related conclusion Ehrenreich does not draw is to throw more financial literacy at the problem -- doses of realism, after the fact, or before the next round. Many local and state governments are doing just this. While skill building is important, the effectiveness of more seat time is ambiguous at best.

Navigating ever-more complex financial, health, workplace, and education worlds requires more skills, more skepticism, and more sources of good advice. But consumers will also need government to keep the playing field level and fair as we struggle to dampen our optimism and become more frugal savers.

No comments: