Last week I wrote about the Pathological Altruism that has
inflicted the City of Richmond in its efforts to use eminent domain to “save” homeowners
with underwater mortgages. This week I look
at the concept on a bigger stage, the country as a whole.
As a refresher Pathological Altruism has been defined by
Professor Barbara Oakley in her book “Concepts and implications of altruism
bias and pathological altruism,” as:
“…Altruism that attempts to promote the welfare of others,
but instead results in unanticipated harm.
A crucial qualification is that while the altruistic actor fails to
anticipate the harm, an external observer would conclude that it was reasonably
foreseeable.”
The modern welfare state, from European socialistic
countries to the U.S. version, reflects the growth of pathological altruism. In this country everything from Social
Security, which discourages people from establishing their own retirement plans
and is itself going bankrupt, to a cache of government provided medical
programs, including Medicare, Medicaid, SCHIP and now ObamaCare, are a
dysfunctional set of third party payment schemes that allows the individual customers
of care to avoid the decisions of who and how care is provided and payment is
made within the system.
The modern “welfare system”, including TANF, or Temporary
Assistance for Needy Families (formerly Aid to Families with Dependent Children)
, SNAP (food stamps), WIC, Headstart, and 122 other Federal programs for low income
people (not to mention State programs that compliment these programs) encourages
single parent motherhood, near permanent unemployment, and the abandonment of
parental responsibilities and other dysfunctional behavior. For example, when LBJ signed “The Great Society”
legislation in the 1960’s 24% of black children were born into single mother
households; today the number is 74%.
Or look today at the student loan crises. Included in the passage of ObamaCare was a
provision that allowed the federal government to take over the student loan
industry; this year student loans are now greater than $1 Trillion and surpass credit
card debt as the largest debt owed in the country. Yet, only 25-30% of students with loans
graduate, with many if those completing degrees in low paying majors such as
ethnic studies, woman’s studies, sociology, etc. Economists are now seeing many young people
with $25,000-$35,000 in student debt, living with their parents, unable to
purchase a house and/or other large material possessions (cars!)or participate
in the society as adults.
The Housing Collapse of 2008
The housing collapse is in many ways, its own special
version of Pathological Altruism and was a foreshadowing of the Obama
Administration slate of domestic policies.
Many credit the beginning of the housing collapse with the
Jimmy Carter’s signing of the Housing and Community Reinvestment Act in 1977. This act was passed to “encourage” banks and
savings and loan associations to meet the credit needs of low and moderate
borrowers and to eliminate the “discriminatory lending practices” in low income
neighborhoods known as “redlining”.
The Act, however, did not come into prominence until Bill
Clinton’s election. During Mr. Clinton’s
first Presidential campaign he encouraged, in his book “Putting People First”, using private pension funds to invest in
affordable housing programs; after his election he tapped Robert Reich to lead
the effort to “generate long term social, ancillary, and economic benefits from
these private pension plans” by investing in “Economically Target Investments”. Few pension plans agreed to participate but
the Clinton Administration, though HUD Secretary Henry Cisneros was able to
recruit Freddie Mae, Fannie Mac and commercial banks into the affordable
housing market by exploiting one of the provisions of the Community Investment
Act.
HUD and bank regulators then began the process of pressuring
banks to make “subprime loans”. Banks
were required in 1993 to make 30% of their loans to low income borrowers. This was subsequently raised to 40% in 1996,
42/% in 1997, and 50% in 2000 by HUD Secretary Mario Cuomo. The Bush administration, under its “compassion
conservative” efforts, eventually raised the rate to 56%. During this period and until the collapse of
the market in 2008, banks could not open branches or conduct much of their
regular business without having a “passing grade”, meeting their sub-prime loan
quotas, in the low income lending market.
Fannie and Freddie did their part in the degradation of the
housing market by continuously lowering underwriting standards for the loans
they purchased from banks and Alan Greenspan and the Federal Reserve did their part
by keeping money “cheap”. Total CRA
lending rose from $8 billion in 1991 to $4.5 trillion in 2007. In 1990 80% of loans were solid prime loans
with large down payments; that number fell to 15% in 2007. In 1990 a minuscule number of sub-prime loans
were “securitized” ; by 2007, virtually all of them were.
The American Enterprise Institute calculates that approximately
28 million high risk loans were processed during this period, while thousands
of regulators and the banking industry ignored the “safety and soundness” rules
that were in-place in federal and state banking laws. How did this happen?
Pathological Altruism.
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