John Wasik offers a clear interpretation of the current crisis:American greed, especially in terms of wanting bigger houses that they they cannot afford, commuting distance from a large metropolis.This is unsustainable.Yet there is another narrative to tell.It would begin by noting that in 2007 and 2008 combined there were a total of around 3 mln home foreclosures.The average mortgage in the US is for $210k.In average foreclosure, banks recoup 75% of the mortgage.This is worse than average, so say banks recoup 50% and lose 50%.A loss of 50% on 3 mln mortgages is $315 bln.A serious loss, but not the trillions of dollarsof the losses Wasik documents.
The losses derive from another source: leverage.When Bear Stearns funds were hit at the start of the crisis, they experienced about a 5% draw down in asset value.What made it an existential issue was the 34:1 leverage they employed.
By focusing exclusively on the US, Wasik may be missing the forest for the sake of the trees.Other countries had more leveraged households and larger increase in house prices. Most other major industrialized countries in Europe as well has Japan have experienced deeper contractions than the US.
Europe and Japan had different regulatory regimes than the US.Nor did they accept the American dream that is at the center of Wasik's narrative.Yet their financial woes and economic crisis is just as severe as the US and many European banks reportedly were more leveraged than large US bnaks.
Wasik grapples with America's pursuit of property. His arguments would be more persuasive if he would have come to grips with American historians, like Frederick Jackson Turner and the American frontier thesis.
Productive property was embraced as the source of independence and freedom.A land of small property owners--yeomen--was the Jeffersonian dream.The concentration of wealth and property in the US (and other advanced capitalist countries)makes the American dream unachievable for increasing numbers.One would never know that the disparity of wealth in America has rarely been greater from Wasik, or that there was a profound decoupling of wages from productivity and inflation.
Americans may have lived beyond their means, but key moral issue may lie in how those means were determined.Increasing it has taken two incomes in a household to maintain one's socio-economic status. Wasik ulimatately seems to blame what appear to be largely victims of a political economy that shifted the national income toward profits and dividends and away from wages and salaries.
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