Villains and victims in the financial crisis

Media coverage in the UK at least is very clearly assigning roles to various groups involved in the financial crisis. This is both in terms of the news, as well as in first attempts to dramatise events.

At the bottom end of the chain of events are those who were involved in the buying and selling of houses. The BBC drama ‘Freefall’ presented a family living in social housing (housing provided by the state), based on what looked like a traditional family unit with a husband working as a security guard (and so being the breadwinner) and a mother at home with children. Their house is clean and tidy, but they lack a new kitchen and possibly access to a good school. They are a family who would not normally be able to afford to buy their own home, the first group of people in the chain of events. One day the father meets a former school friend in the shopping centre that he works in. That old friend is now a mortgage broker, the second category of people.

The mortgage broker is a born salesman. He drives around in an expensive car, and sings along to the radio when he makes sales. He isn’t particularly scrupulous, selling people the dream of buying their own home, and getting them to sign application forms without explaining to people what they are getting themselves into. When selling the deal to his old school friend, he does explain that the deal is a ‘low start’ product where payments will go up, but completely underestimates how much they will go up by, even when we describes the worst case scenario. The mortgage broker is a selfish, self-centred individual who cheats on his girlfriend and is regarded as wide boy even by other mortgage brokers who work with him.

The outcome of this is that, a few months into their new home, the family receive letters notifying them of increased payments that they are unable to meet, the father works increased hours to try and get more money, but falls asleep on duty and gets sacked as result, and the family lose their home. The father goes to try and find his old school friend, but finds out he has ‘moved on’ from the mortgage brokers because of complaints about his practices.

The clear implication of this set up is that mortgage brokers mis-sold low-start deals to vulnerable people who didn’t understand what they were signing up for, and may even have been lied to during the process. Those who took out mortgages they didn’t understand are victims, and We still don’t know how widespread this practice was, but certainly the news coverage around US banks now making profits again portrays those whose houses have been foreclosed as victims of the crisis, and those who sold them their mortgages as villains. Unfortunately, as with most things, this is rather a caricature on the part of both the news and the drama.

We certainly seem to have created a perverse situation where brokers made money based not on the long-term viability of the loans they sell, but for selling mortgage products instead, regardless of whether they were sold honestly or whether the potential homeowner could actually pay the loan back. Anyone who has ever worked in sales on commission will know the temptations that come with that, and the possible lies that might get told in order to get a sale. There is clearly scope for villainy. However, presenting people who signed up to such agreements as so easily duped is rather depressing. Either they are adults expected to negotiate their way through the world or they are not. If we create a situation where people aren’t accountable for the decisions that they make, then we might as well give up on capitalism now. If people are fully functioning adults then we can expect them to make mistakes, but to portray them as innocent victims who didn’t understand the forms they were signing is to treat them as fools, and if we start from the assumption that vast swathes of our people are fools, then, again, we don’t have much of a future.

There is certainly a case for trying to increase financial literacy. However, whether this for schools or for the government in some other capacity is something of an open question. What seems odd to me is that firms spend hours wondering about how to get consumers to buy their products, treating them as complex and sophisticated decision-makers, but, in the next minute, we are saying that people who bought mortgages that they didn’t understand are victims, innocents in life who didn’t know what they were doing. I’m sure that large numbers of people were lied to, and we need to hold those mortgage sellers to account (and I mean individually, not just through their firms, although they need to take responsibility too), but for very large numbers of people who signed up for mortgage deals that went bad, they simply made a financial commitment they couldn’t honour. In no way does that diminish the trauma that those who made such decisions have been through in terms of eviction, and the problems that their families have suffered as a result. But it doesn’t mean we should automatically assume that they are victims.

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