Gunnery Sergeant Hartman: [after discovering Private Pyle’s unlocked footlocker] Jesus H Christ. Private Pyle, why is your footlocker unlocked?
Private Gomer Pyle: Sir, I don’t know, sir.
Gunnery Sergeant Hartman: Private Pyle, if there is one thing in this world that I hate, it is an unlocked footlocker! You know that don’t you?
Private Gomer Pyle: Sir, yes, sir.
Gunnery Sergeant Hartman:If it wasn’t for ****heads like you, there wouldn’t be any thievery in this world, would there?
This exchange between actors R. Lee Ermey and Vincent D’Onofrio in the movie Full Metal Jacket illustrates the proper role of government in the regulation of financial institutions.
It doesn’t matter how many honest men have access to your barracks, only how many thieves. If you leave your footlocker unlocked, a thief will likely find it and steal from you, and, as much as you would like to blame the thief for being a thief, it is your fault for giving them the opportunity to steal. It’s not like no one has ever stolen from a footlocker before and you shouldn’t have foreseen the probability of theft.
It also matters less how many good soldiers are in your unit than how many bad soldiers are in your unit. A single stupid, foolish or careless soldier can a lot of smart, thinking, deliberate soldiers killed.
In civilian life most thieves and idiots have little impact on the rest of us.
A Burglar can only break into one home at a time. Occasionally a neighborhood may be temporarily plagued by multiple burglaries, but even so, a relatively small percent of the population are hit for a relatively small amount of their personal wealth. It’s not like everyone in the neighborhood had their entire personal wealth wiped out. Just as with footlockers, it’s usually homeowner negligence that leads to a burglary – burglars usually enter through unlocked doors or windows.
While the small number of dolts we encounter in our daily lives may inconvenience or even temporarily infuriate us, they don’t usually get us killed. If every jerk that cut you off on the freeway caused a deadly accident, we would be extinct by now. It’s certainly infuriating to deal with computer tech support people who don’t know what the hell they’re doing and can barely speak English, but it is highly unlikely you will suffer bodily harm (aside from a possible stroke) as a result of your phonecall.
Things get different at the so-called “top of the heap” though. Look at how much damage 535 congresspeople can do the other 300 million of us, and, believe it or not, some of them are actually not drooling idiots hell bent on taking every dime you earn.
So it is in the financial world. A very, very small number of people making the wrong decisions can really screw us all. By the early 2000s it was clear that deregulation designed to increase home ownership (translation: government regulation forcing banks to lend money to people who could not repay it) and make money easier to get (translation: government regulation allowing banks to lend money to companies who could not possibly repay it) had the potential for a calamitous downside. This was the unlocked footlocker. Congressional Democrats (and to be fair, a few Republicans), who blocked Bush Administration efforts to raise mortgage standards slightly and to protect our financial institutions from the inevitable stupidity or thievery among their ranks for the last five years are the fools who didn’t lock the footlocker.
A few months back I wrote a column on the Mortgage Meltdown. It and a follow up column sent to subscribers to my real estate newsletter were not well received by most real estate or mortgage brokers or by my friends in financial services industries. I predicted that as a result of easy money to people who could not repay it:
“¢ Credit would tighten
“¢ Home sales would slow further
“¢ Home prices would continue to drop around the country and would start to drop in Portland
“¢ The economy would slow as a result
Friends will also remember what I said in private. If there was going to be real economic trouble, the kind that would hit everyone in the country hard, it would come in September or October. Being correct is small comfort.
I’ll close this column with the same quote with which I closed that other column. “Get ready for a bumpy ride.”