In his analysis of the housing market’s crash of 2008, Frank keeps discussing the irresponsible lenders and traders who caused the crash. He is absolutely right in that their actions deserve to be investigated and condemned. However, Frank avoids the discussion of the other side of the equation, namely, the irresponsible borrowers. Unless we recognize that the Tea Partiers express a legitimate grievance of many against those who borrowed huge amounts of money they had no hope of repaying, there will be no opportunity to address the economic and political situation in this country in any productive way. When a very well-paid professional whose job it is to analyze finance drives himself into bankruptcy by irresponsible borrowing just because he needed to feel “gangsta”, can we really condemn those who work hard and try to live debt-free for feeling outraged?
The irresponsible lending goes on. In my neighborhood it definitely does and it horrifies me to imagine into what fresh round of drama this will lead us. But my neighborhood bank would not have been able to hand out the record number of zero-downpayment mortgages last month, had there not been people willing to snap up these loans. “The Bad Neighbor Doctrine” of the Tea Partiers that Frank condemns makes a lot of sense to me, a passionate Liberal.
If anything, Frank’s Pity the Billionaire made me feel an unexpected affinity with the Tea Partiers. He works hard to refute any accusation of racism and religious fanaticism that might be directed at the Tea Party. According to Frank, a regular Tea Partier is an educated, polite, blog-reading and blog-writing fan of Ayn Rand who believes that small businesses are the backbone of the economy and who deeply respects the entrepreneurial spirit of the Americans. Does this description remind you of anybody? Right you are, Frank’s typical Tea Partier is . . . me. There has got to be something wrong with the kind of analysis that does not distinguish between ultra-Liberal Progressives like myself and the followers of Glenn Beck.
The part of the book that I found the most disturbing is Frank’s profound and inexplicable hatred of small-business owners. According to Frank, they are so bogged down in their puny little concerns that the larger picture always eludes them. Small-business owners, Frank suggests, contribute nothing of value to the economy while, politically, they represent very regressive forces for the simple reason that they are too stupid to understand any complex phenomenon.
I am one of those ignoramuses who believe that small businesses (and, of course, small business loans) are, indeed, crucial to any healthy economy. What’s more, my barbarity is such that I see the American entrepreneurial spirit as not only unique but also profoundly admirable. Probably this is why I didn’t like Thomas Frank’s new book at all.
Clarissa's Blog 
Thank you for this very balanced view. I completely agree.
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Ayn Rand? Seriously?
Anyway, I think it’s nice that people do what they are supposed to do, but they don’t deserve any special praise for that.
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I think that many people have no idea how large a mortgage they could realistically repay, so they turn to lenders for advice. When I was in my twenties, there was a general belief that you could afford a house price equal to twice your annual income. I have not heard any such generic advice lately, and so people mostly have no clue. Some will wildly underestimate what they can afford; some will wildly overestimate. And the ones who wildly underestimate are not a problem at all, but those who wildly overestimate fall prey to lenders who, being merely brokers, have no risk to bear when a mortgage is not repaid. I think outlawing mortgage brokers and the selling of mortgages to someone other than the original lender for some period (ten years at least, maybe?) would go a long way towards solving the problem, ongoing.
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I think that today, after the debacle of 2008, nobody can reasonably claim that they don’t know that zero-downpayment, floating interest rate, balloon payment in 5 years mortgage will lead them to disaster. If they still haven’t caught up to why this is a bad idea, they never will, in my opinion. This is willful ignorance of terrifying proportions.
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I think that even 10 years ago people had no excuse. When people purchase something as expensive as a house, it is in there interest to ask questions about the payment structure. If people hadn’t been greedy and had asked three simple questions, much of this mess could have been avoided. The three questions should have been as follows: How much do I make today on a monthly basis? How much is the monthly mortgage payment over the next five years? What will the mortgage rate become five years from now when it adjusts?
The problem was that nobody asked themselves these questions because they all assumed they could sell their homes for a hefty profit or refinance before their zero interest rate loans adjusted to usurious ones. In essence, they made bad investments. Should the bankers be blamed for enabling this behavior? Partly. That said, grown adults made bad investment decisions. Blaming someone else for one’s willing entrance into a risky contract fails to lay the blame where the blame is due.
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“Should the bankers be blamed for enabling this behavior? Partly. That said, grown adults made bad investment decisions.”
– That’s exactly what I’m saying. And I don’t see why we need to exempt irresponsible borrowers from personal responsibility for their bad choices. Especially when they continue making these bad choices right after the entire economy tanked because of such practices.
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I completely agree.
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I agree crackheads are responsible for their addictions, the thing though, we have laws(and use them) against the crack dealers.
Is the banking system as applied recently that much different?;)
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I agree that borrowers claim some responsibility, and I get frustrated that I can’t state that most places without people thinking that I believe that out of privilege or cluelessness.
I believe that because when my husband and I bought our house, when we were in our 20’s, we were pushed by our realtor and lender to get way more house than we thought we could afford. When I objected to the high payments, we were pushed to take out an ARM, which I refused to do. This was in 1992, during the height of the Gulf War and an uncertain economy, and I had bad credit at the time. We were being set up to fail. I knew better not because I was a wiz at finances, but from making a budget and reading basic money advice in the newspaper. Most other people don’t know better because they don’t want to know better.
A few months after we bought our house, the company I worked for imploded and I was without a job. We were still able to make payments on one salary until I found work, but just barely. Later, friends who bought “the biggest house they could afford” gave us a hard time about our neighborhood and our tiny house. Over the years, one declared bankruptcy, one borrowed a bunch of money from parents and they were all house-poor for years. Now we have a healthy investment account and they have…big houses.
To me, telling people to take responsibility for their house purchases is no more Tea Party than telling people not to believe everything TV commercials tell you.
Frank’s disrespect of small business owners just confuses me.
Thanks for your review, Clarissa! (And thanks for the space to rant.)
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“To me, telling people to take responsibility for their house purchases is no more Tea Party than telling people not to believe everything TV commercials tell you.”
– Exactly!
“Frank’s disrespect of small business owners just confuses me.”
– I was very thrown by that, too. All of a sudden a small-business owner is the biggest enemy of this economy? Seriously? Ooh, that scary Mom and Pop corner store is about to cause the market collapse.
“Thanks for your review, Clarissa!”
– Thank you for saying nice things about it. I have already been branded a secret Tea Partier at a certain website for writing it.
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“And I don’t see why we need to exempt irresponsible borrowers from personal responsibility for their bad choices.”
I don’t think we have exempted irresponsible borrowers from personal responsibility. They’re the ones who lost their houses, living in tent cities, with no hope for a better life and exactly zero net worth. What we as a society have exempted are the irresponsible lenders, the banks, who got bailed out. How many bank executives do we see in jail? Exactly.
You invest your money in risky mortgages and collect any profits but outsource all losses to the government. Is this how capitalism works now? The banks had to know what they’re doing. All those PhD quants working for them and they couldn’t figure out if it was a wise decision to give a loan for a $500,000 house to someone in southern california making $35k a month? Really? The banks did it because they knew there was NO risk here. Why else would Countrywide *forge* the mortgage applications of borrowers so they would qualify for loans? If it was Countrywide’s money on the line would they have done that? This is not capitalism, this is a farce.
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Nobody is disagreeing that the banks have acted criminally. Nobody disagreeing that the governmental bailouts are a complete and utter disgrace. However, the crowds of people who borrowed too much acted irresponsibly. And they are still doing it. Every day. Since the banks can keep lending with impunity – and they do because there is nobody even remotely interested in stopping them – I see the only hope for this economy in the remote possibility that people will wake up and stop playing this ridiculous game.
And yes, this is no capitalism. More than anything, it resembles Soviet-style economy with its “too big to fail” bailouts.
“All those PhD quants working for them and they couldn’t figure out if it was a wise decision to give a loan for a $500,000 house to someone in southern california making $35k a month”
– Why were the quants supposed to care? They cared about their own well-being. The borrowers should have cared about theirs half as much and we wouldn’t be in this mess. Frank condemns everybody who feels resentful against the irresponsible borrowers. And I think he is wrong.
“They’re the ones who lost their houses”
– No, they aren’t. That’s the mentality that got us all here. They didn’t have “their houses.” The houses belonged to the banks. I can’t begin to tell you how much this myth of ownership of things people get on credit bugs me. “This can be yours for zero money down” is a sentence that should be made illegal for all the suffering it has caused.
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35k an *year*
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No, they aren’t. That’s the mentality that got us all here. They didn’t have “their houses.” The houses belonged to the banks. I can’t begin to tell you how much this myth of ownership of things people get on credit bugs me. “This can be yours for zero money down” is a sentence that should be made illegal for all the suffering it has caused.(Clarissa)
It pretty much reminds you of a “pyramid” scheme. The one’s at the top take the money and run. I think the term “Robber Baron” is pretty appropriate in this situation. Even more brilliant on their part is the fact that they get the taxpayer to bail them out on top of the original slight(theft).
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FSU countries suffered gorribly from pyramid schemes in the early nineties. People were not prepared for capitalism and had no idea how things worked. Still, there were always those who didn’t buy into the schemes because they did their own thinking.
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Still, there were always those who didn’t buy into the schemes because they did their own thinking.(Clarissa)
Or typically they are the ones capitalizing on the ones who dont do their own thinking. 😉
I always find it amusing that people tend to view organized crime as people who only participate in obvious criminal activity. As I have seen countless times, the best organized criminals are the ones who have turned their attention to so called legitimate enterprises. Can you say Joe Kennedy……
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“Or typically they are the ones capitalizing on the ones who dont do their own thinking. ”
– Yes, that’s capitalism. You’ve got to think for yourself and bear responsibility for your own choices. That’s why I like it.
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@Clarissa
Capitalism, two edges to that sword, that is why I like a little bit of socialism too. 😉
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Thomas Frank hates small business owners (and, I’d guess, self-employed folks as well) because they do not fit neatly into the Manichean view of the world common to progressives like Frank: You are either labor or management/capital, and the small business owner or self employed person has no place in that worldview.
And I’d guess Frank thinks small business owners and self-employed folks are likely to vote the ‘wrong’ way.
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I agree completely.
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