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Fury of the "Winners"

There was a lot of self-delusional and semi-fascistic talk among conservatives during the late stages of the presidential campaign blaming the entire economic calamity on poor people and minorities who supposedly blew up the Boom Times by taking out mortgages they couldn't afford to pay. As an exercise in right-wing populist "wedge politics," it didn't work. But it didn't go away, as witnessed by yesterday's now-infamous on-air tirade by CNBC business reporter Rick Santelli from the floor of the Chicago Board of Trade.

You should watch the video itself, but the main thrust of Santelli's jeremiad was aimed at Obama's new foreclosure relief proposal, which rewarded "losers," and will place the United States on a trajectory to become just like Cuba. The sheer self-righteousness of Santelli's rant--inflated by attaboy cries (genuine or facetious) from the prosperous white men on the trading floor around him--was what was remakable about it. As Ezra Klein brilliantly observed:

[W]atching the traders bray and cheer as Santelli calls for the streets to run green with the equity of the working class is an astonishing insight in the psychology of the crisis. These guys feel betrayed. America let them down! After all, they didn't buy the mortgages and default. They just bought the packages that then defaulted. They trusted Americans to be responsible and they were burned for it. And so you know what? Screw 'em. This is their problem. Let them default. They should lose their houses. Wall Street is tired of being ground under the thumb of the lower middle class. This country has coddled those losers long enough, and see where it's gotten us.

But I think something a bit deeper is going on here as well. Santelli's argument is not much more than a crude and boorish version of a lot of the sober "moral hazard" criticism of Obama's housing plan. You probably know the idea: when government helps people who have suffered from bad behavior in the past, it encourages bad behavior in the future. Better to make them object lessons of the consequences of bad behavior. What are a few million ruined lives as compared to the advantages of a country with improved moral muscle tone?

The problem with this "analysis," of course, is that there really weren't a whole lot of people who sat down one fine day and decided: "I think I'll buy a house I really can't afford and then default on the mortgage!" Put aside the blandishments of lenders, the national ideology of homeownership as a sign of middle-class status (and as a rare source of working-class capital), and the widespread expectation that housing values would continue to more-or-less improve for the foreseeable future. More fundamentally, it's difficult to wax angry at homebuyers who somehow did not anticipate losing jobs, health insurance, savings, home equity, and most of all the ability to sell homes at a break-even price. And you also have to wonder how many people who are upset at government help for housing "losers" were the completely accidental beneficiaries of more fortunate trends in the housing market in the past (e.g., those millions who bought at a price slough, built up equity without lifting a finger, and then used government-subisidized home equity credit to retire debt, boost savings, and acquire many nice things).

What may be at the bottom of some of the angrier "moral hazard" talk is even deeper than the habit of blaming victims, with the oft-accompanying strains of self-righteousness and sometimes racism. Big economic downturns challenge one of the most abiding myths that well-off Americans venerate: that economic success is a sign of personal virtue. The corrollary, of course, is that economic failures tend to deserve it. That obviously wasn't true in the depths of the Great Depression, when a fourth of the population couldn't get jobs. But the myth lived on, and precisely at times when it seems to be endangered by empirical evidence, it sometimes emerges in a nasty and vengeful manner, as when Rick Santelli indulged himself yesterday in sneering at Barack Obama for caring about "losers."

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The problem with this "analysis," of course, is that there really weren't a whole lot of people who sat down one fine day and decided: "I think I'll buy a house I really can't afford and then default on the mortgage!"

Meanwhile, in 2006-2007 there were over 500,000 people who took a "no doc" loan for over $200K and "defaulted" within a year...

What were they thinking?

I can only wish I would have thought like they did... I bought my condo in Aug 2005 after 23 yrs of 'renting' crappy apartments- I was so dumb that I wrote a check for the entire $141,700 price.

I should have bought that $300k condo w/ $0.00 down- losing my job in 2007 would have only ensured that Obama would be paying my mortgage today.

This country was built on the willingness of people who have no financial advantages to risk everything for the opportunity to make a better life for themselves and their families. The Kentucky territory, Ellis Island, The Oregon Trail, the 49ers, the Oklahoma Land Rush.
This is the American Mythology.
And of course this romantic portrayal is tempered by the realities that the latest immigrants have always been harshly treated and frequently loathed by the class of people whose success no longer required them to risk their welfare. People whose ambitions put little of real consequence at risk. People whose children got the best doctors and went to the best schools. People who gambled only for an ever bigger slice of the pie rather than a chance at a the most basic version of a healthy free life.
I wonder what would happen if Santelli were to lose it all tomorrow. Lose the ability to speak english fluently. Forgot all those advantages of education and opportunity that were carefully prepared for him by parents who dreamed of his future as they rocked him to sleep. If his children went to a bad school, in a dangerous neighborhood and had to raise themselves as both of their parents worked 80 hours a week for menial pay and little chance for advancement.
Might Mr. Santelli believe what the real estate guy was telling his wife? Might he believe he had a chance at the American Dream? Might he risk it, even though he didn't understand the perils of the over-inflated market?
And would he then, when his world turned upside down and the bank knocked on the to throw his family out in the street be as concerned about the moral hazard of the American Government stepping in.

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