The Human Differential

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Is it not amazing that Europe’s debt crisis should coincide with the US financial crisis, commonly called the Global Financial Meltdown of 2008?

And really, the crisis in 2008 continues today.

There are, of course, many financially related reasons for both crises….

But perhaps a more basic cause was at play as well...

Something that we don’t like to acknowledge sometimes…

Because it involves assessing behavior of individuals, and nations, and the consequences of certain behavior…

Not judging, just honestly assessing behavior…

And the special form of stupidity that clouded what would normally be common sense in lending.

Behavior and National Characteristics

So let’s look at different types of individuals and behavior…

For instance, as human beings, we classify individual personalities according their dominant characteristics.

We’ve all heard about “A” type personalities, who are driven to succeed…

And non-“A” personalities who are sometimes less driven to succeed—yes I’m simplifying here a bit, but you get the idea.

In the distant past, social scientists used to categorize countries in a similar fashion…according to “national characteristics.”

How does the old joke go?

Heaven on earth is where the Brits are the police, the French the cooks, and the Germans the engineers?

And hell on earth would be where the Brits are the cooks, the French are the engineers, and the Germans the police…

But in the “modern” social science paradigms, national characteristic assessments fell out of favor…

Somewhere in the ‘60’s and ‘70’s.

They were deemed to be simplistic, based biased stereo-typing, and flirting with racist undertones…

Is this true?

Stereotypes?  Yes. No question about it.

Racial overtones?  Not so evident.

But in any case, economic and geo-political relations were often divided into two perspectives:

The Northern hemisphere was dominant in economic and geo-political issues…

And the Southern hemisphere was where petty dictatorships, national economic failures, and human rights abuses on mass scale occurred.

But, national traits were discarded because they were found to be non-quantifiable…that is, non-scientific.

And social science has always desperately tried to live up to the second part of its name.

But the reality is, there is also some hard truth in those behavioral assessments.

Now, some economists say that colder regions demand more social organization, which leads to greater productivity, savings, and industrial advancement…

But if cold weather were the determining factor…

Then the Eskimos would be the world’s leading industrial power.

No Moral Hazard in Multiculturalism

The truth is, in both Europe and the US…

The age old concept of moral hazard was tossed out the window in the interest of “fairness”…

And a fear of the “moral failing” of calling a risk what it is, a risk.

Which, it turns out, isn’t fair at all.

Making distinction is something that we don’t always want to do, much less acknowledge…

Unless under very specific circumstances.

Multiculturalism is one of those specific circumstances…

I call it a circumstance—but it is more of a state of mind married to a political imperative…

Of imposing equality where it clearly does not exist.

This is not a moral issue per se…

Multiculturalism is about valuing different cultures, with diversity being a good thing.

Great; it’s a small world after all…

But the multiculturalism agenda led banks—and nations—to not seeing things as they truly are…

Think about the euro crisis in this context.

German and French financial institutions loaned Greece way too many billions of euros…

So many that they could never pay them back.

But why would these countries—especially the frugal Germans (see, there it is, right there, stereotyping national characteristics), lend so much money to profligate Greece…

A country with a long history of default and bankruptcy…

And which apparently does not possess the industrious cultural attributes of Germany?

That does not take away from Greek individual who have enjoyed profound financial success in industry…

But as a country, Greece is basically…Greece.

But the Germans knew this, so how on earth did they justify lending such huge amounts of money?

Did Germany suddenly get into the angel investing business?

Well, you could ask the same question regarding the toxic mortgage debt that has left the US economy and the housing market in a shambles, to understate it.

Fannie Mae and Freddie Mac—and the vast majority of financial institutions—truly got into the angel investing business for folks who weren’t homeowners…

For the very simple and good reason that they could not meet the established lending standards.

As established lending standards are in place to not only protect the lenders, but also, the housing market and borrowers as well…

And it should not be a surprise that Greece will default on its debt…

Nor should it be that those with the highest foreclosure rate were the borrowers who normally would not have qualified for the loan in the first place…

As individuals, human beings possess a myriad of different personality traits and behavioral patterns…

And as individuals, behavior can be changed, adjusted, to meet changing needs or situations…if an individual decides to do so.

But by any standards, the Germans and French had no business lending to Greece on the scale they did…

Likewise with US banks in the mortgage collapse.

Was the expectation that with more money, Greece would invest more in its industrial base?

Or develop a high tech sector, and not blow it all on lower retirement ages and higher pensions?

As noted above, Greece’s default history should have been enough of a red flag…

And in the case of the mortgage meltdown…

Zero down, no credit check loans for $300,000, $400,000 or even $500,000 should have never been offered…

It attracted exactly the wrong borrower--folks who demonstrated that they couldn’t save money.

But the idea that once in a home, those borrowers would become like other homeowners…

Working hard and saving money, paying their bills on time, and demonstrating their responsibility, was a political idea—or rather—a politically correct idea…

Of not only the moral obligation to lend…

But also the idea of equality for equality’s sake; an outcome-driven policy rather than a financially responsible one.

The triumph of political correctness--multiculturalism’s evil twin—is evident in Germany’s lending to Greece just as it is in US banks lending to unqualified borrowers in the housing market…

And destroyed both.

And those are…The Gorrie Details.

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