Mid-Michigan readers can hear Rick Cole every Tuesday at approximately 6:30 a.m. on Lansing radio station WILS 1320’s “am Lansing” program hosted by Walt Sorg.

by Richard Cole
November 16, 2008

As America continues to dip into what appears to be a long and painful recession, we look for causes. We indict symptoms. Mortgages — dirt-cheap, subprime mortgages — were given to too many people who didn’t have capacity to pay. It’s in vogue to blame our plight on the mortgage market.

Mortgage markets were built trading paper between banks rather than renting money for the real value of single-family homes. Mortgage values were established in seller’s markets and sold by “agents” motivated by commissions with no regard for the taxpayer who ended up holding the hot potato. Redistribute the wealth.

Paper cleverly priced in unregulated markets was supported by marketing campaigns designed to trigger the appetites of consumers already hungry to share in the “ownership society.” Once the mortgages were bought, debtors were convinced to stretch their debt into as much cash as they could get to use for riskier leveraged investments — or worse, for stuff.

Turning mortgages for short-term profit became a growth industry — read: malignancy — that created temporary jobs and pushed advertising dollars to compliant and complacent media outlets.

“Homeowners” further stretched their mortgages to unrealistic equity values, using the proceeds to buy SUVs and big-screen TVs that they couldn’t live without. Their supersized homes, after all, had big garages and large walls to fill. As Parkinson observed a half-century ago, the amount of stuff required to fill a space expands to fit the space provided.

America, and as it turns out, much of the “modern world,” was living under an illusion that this Ponzi scheme could go on. And now even after these chickens have come home to roost, we’re running the risk of making the condition worse by failing to recognize that it is not the “mortgage crisis” causing a rapid disintegration of America’s economic infrastructure. The mortgage crisis is just one in a growing number of symptoms of a global economy increasingly incapable of recognizing the relevance of the “Seven Deadly Sins.” This is the best place to look to find the real causes of our economic dilemma.

In case you have forgotten, here is the list: lust, gluttony, sloth, envy, pride, greed and wrath.

I watched a glossy eyed Alan Greenspan stare sadly in footage of a recent congressional hearing shown on Bill Moyers’ weekly PBS show and tell the committee how shocked he was that his ideology had failed America. Moyers had observed that since fiscal year 2004, the same time the “Mighty Five” — Lehman Brothers, Goldman Sachs, Morgan Stanley, Bear Stearns and Merrill Lynch — had lost $83 billion in market value, officers and employees in these enterprises had paid themselves $239 billion in bonuses. “The financial engineers, who dug this hole,” paid themselves three million for every million in other people’s money they lost.

Greenspan, an original member of Ayn Rand’s “collective,” looked pathetic. Could the genius whom we grew to love with our growing 401Ks really have been so naïve? “I made the mistake of presuming that the self-interest of organizations was such that they were best at protecting their own shareholders,” he said.

Mortgages are, marginally at least, collateralized. If you think the mortgage meltdown was tough to watch and tougher to feel, wait until the credit card industry goes south. There’s no collateral there — nothing but used cars and TVs for the taxpayer to buy from the banks.

The Federal Reserve continues to report alarming amounts of credit card debt accompanied by equally alarming delinquencies. Yet, as one more symptom of a much deeper cause, American universities, albeit struggling under the weight of increased costs and declining taxpayer support, continue to peddle “affinity credit cards” on vulnerable students who are increasingly forced to make career choices while treading water in a sea of college debt.

Former Labor Secretary Robert Reich reminds us that card companies offer what look like great deals and then suddenly change the deals — interest rates rise, swallowing more and more and more gullible consumers. Federally subsidized bankers argue that coming down too hard on the credit card industry will throw fuel on an increasingly hot mortgage inferno.

Will a collapsing credit card market be the next symptom passed off as a cause that takes us from a recession into a dark depression? Is it simply too late to recognize the possibility that even our most trusted institutions could benefit from a value check?

That value check should begin with the possibility that we are whistling past the graveyard. We’re blaming mortgages and credit cards, and who knows what else next. These are just symptoms. The real cause of our state of economic affairs is simply the price we are paying for disregarding the Seven Deadly Sins.

Richard Cole is professor and chairperson of the Department of Advertising, Public Relations and Retailing at Michigan State University.