The real reasons for the market's meltdown: greed, envy, and ignorance

While I did work on Wall Street for several summers (in the days of liquid lunches, when you could still smuggle a stripper into a training session), and had a father and friends in the business, I am no financial genius. But I can tell you the three leading causes of the current financial crisis or meltdown: greed, envy, and ignorance.

Let us start with greed, and Mr. Gordon Gecko of the 1987 movie "Wall Street":



Brings a tear to the eye, doesn't it?

That was 21 years ago, but it seems like just yesterday (or a few months ago).

Btw, when I talk about greed, meaning "a selfish and excessive desire for more of something (as in money) than is needed," I'm not just referring to the Gordon Geckos of the world. We are all, at least most of us, greedy about something, like wanting a nice or nicer house, a nice or nicer car -- or clothes, lawn, whatever.

And many (if not most) of us, if offered a seemingly quicker, easier path to getting whatever it was we wanted, would run not walk down that path, ignoring or trying to ignore any moral and/or financial hazards along the way, particularly the inconvenient truth of not actually being able to afford or pay for whatever it was.

I've already mentioned (in a different post) my friend who despite having a decent-paying job ran up large credit card bills then declared bankruptcy -- and blamed her woes not on spending more than she made but on the evil credit card companies. She is/was far from being alone.

And now we are dealing with the repercussions of a similar problem, people who bought more house (or any house) than they could afford -- and it is or will be us the taxpayers, not just these homeowners, who will be paying the price or are. (Btw, I don't blame all of these individuals. Where were the naysayers, the people to tell them "No, I'm sorry, but you can't afford that," or, "You need to put at least 10 percent down and make three times your monthly mortgage payment if you want that house [or condo or co-op]"?)

The other day, I was having a conversation with the man who built our deck. Turns out he was in the mortgage business a while ago. And we got to discussing the sub-prime lending/mortgage fiasco.

I don't know about all of you, but every time the spouse and I have gone looking for a mortgage or to refinance one, we've had to produce a mountain of paperwork, been grilled by strangers wanting to know everything about us, and had to put down at least 10 percent. (Oh, and my dad had to co-sign/guarantee our first mortgage, even though the spouse and I, who were newlyweds at the time, both had jobs and savings and were able to put down 20 percent, this on a house that was by no means big or fancy.)

So anyway, the deckman, who works very hard and has built up a nice business building decks and selling spas and hot tubs, tells me that he used to meet with folks all the time who wanted a mortgage but had no or little means of paying it off -- and he would flag their application. Only to have his boss tell him to just put it through. The deckman found this very discouraging and moved on. And we know what happened to those people who got those interest only and/or subprime adjustable rate loans they couldn't really afford, don't we?

Which leads me to ask the question: When did renting become a dirty word? While owning is nice, there is no sin in renting (at least as I recall from the Bible). Yet someone clearly sold the American public a bill of goods (or bill of something) that made them/us think that we were somewhat "lesser" if we didn't own a house.

Which brings me to envy, that "painful or resentful awareness of an advantage enjoyed by another joined with a desire to possess the same advantage," and another deadly sin (one which I have been guilty of more times than I'd care to admit). Envy gets more people into more trouble than just about anything else (except for maybe greed and ignorance).

We see our neighbor has a shiny new BMW, and we want one, and make ourselves miserable for the wanting. We see a girlfriend got a big honking diamond ring from her boyfriend or spouse and we want one (or feel inadequate because we don't have one or ours is smaller) and make ourselves miserable. We hear the new guy just got a raise and promotion and we wonder how come we didn't get a raise and promotion. The list goes on and on.

How much happier the world would be if, to paraphrase Sheryl Crow, instead of having what we wanted, we just wanted what we've got?

I often wonder, maybe I would be more blissful if I stopped reading all the time (especially this week). Yet ignorance, or lack of knowledge, can be very dangerous, as I think we have learned -- or are learning (and I'm not even discussing the Iraq war or the difference between a Sunni and a Shi'a!).

Raise your hands out there if you understand exactly how mortgages and complex financial instruments like CDOs (Collateralized Debt Obligations) and CMOs (Collateralized Mortgage Obligations) work?

I grew up on Wall Street (metaphorically), and like to stay on top of things and keep tabs on my financial portfolio, but a lot of the stuff I've been hearing about the past 5 - 10 years has stumped me, and caused me to dig and ask questions.

How many ordinary Americans out there do you think know what CDOs or ARPs (for Auction-Rate Preferred securities or bonds) are -- or knew before this year -- or know how their 401ks are invested?

While I would love to type with confidence "Never invest in anything you don't understand," I doubt that most of us have the time or energy to truly master the intricacies of investing, though if the last 20 years have taught us anything, we should certainly devote more time to understanding what our tolerance for risk is and how much risk (read LOSS) is acceptable.

Maybe now that the chickens have come home to roost, or to the slaughter, and all traces of lipstick have been wiped off the pigs, we should take a little time to educate ourselves, or re-educate ourselves, about financial matters, and to admit that greed and envy and ignorance extract a high price. I also believe it is high time the government reinstituted measures like the Glass-Steagall Act of 1933, to better protect investors (especially the smaller ones), so we don't find ourselves in a similar mess another five or 10 years from now.