Photo by Nina Strehl on Unsplash
Searching for a single smoking gun to explain the financial crisis is a fool’s errand. So many hands, so many set-ups, so many agendas–combined with massive movements of capital from all parts of the world–puts this crisis in the epic category in terms of size, impact, and contributing factors.
While not exhaustive by any means, Days of Slaughter has sought to unpack the different levels of fracture–philosophical and ideological, policy and political.
Some practical suggestions have been provided to move toward a sustainable housing policy befitting a grown-up nation. Americans should not live in cardboard boxes or sleep on park benches. And those Americans who choose to live in mansions should not expect support from the federal government.
But what of ethics? National, corporate and personal?
Fall from Grace
In the prologue, I quoted from the government’s 2011 Report of the Financial Crisis Inquiry Commission. While the report continues to be the subject to bitter partisan wrangling over whether it was Wall Street or housing policy that caused the crisis, it has been easy to overlook an indictment that very few would disagree with–that there was a “systematic breakdown in accountability and ethics.”
Ethics is a touchy subject to broach because it might veer toward preachiness, morality and old fashioned notions of character, virtue, and, worst of all, religion. But speak of ethics we must. It is the foundation–the ground floor–of all of our national institutions, our national reputation and integrity, and each individual’s fondest hopes and dreams.
Even if policymakers were able to properly reform the GSEs and set up the perfect housing finance system, unethical behavior–writ large–can ruin everything. It almost did.
Greater attention to ethics on the part of the GSEs and others, as well as moral courage, possibly could have lessened the blow of the collapse of the US housing market, if not prevented it altogether.
If only the mortgage industry, with its many decades of experience, had presented a united front against Wall Street’s cavalier approach to risk and disregard for borrowers who were lured into bad loans they could neither afford nor keep, things might have been very different.
Justice should be done, but let’s not fool ourselves that new laws or lawsuits or even putting people in jail will be enough to keep this from happening again. We also need to revisit old ideas about virtue and moral imagination.
Most important, everyone would benefit from stronger internal government to manage the manifold devices and desires of the human heart.
We would do well to recall what Lord Moulton wrote in a 1924 essay in the Atlantic Monthly and Martin Luther King quoted in 1968: because laws are inadequate (and even unjust) we must supplement them with “obedience to the unenforceable.”
That kind of law is unwritten. It does not come from elected officials, but from believing in something bigger than ourselves, something more moral than our hearts, an unseen judge of action and inaction who someday will call things into account. Only something like the old fashioned fear of God has the power to induce people to do the right thing even when there is a lot of money on the table…and nobody is looking.
At least not right then.
Excerpted from Chapter 16, Wherefore ethics? Days of Slaughter, Inside the Fall of Freddie Mac and Why It Could Happen Again. (JHUP, 2017)