Propaganda masquerading as advice

28/05/2013 § 5 Comments

Over the weekend, I had a chance to read some advice from Yahoo! Finance on teaching kids about money. As parents ourselves, we try to discuss money and finance and debt with our children, explain what works and how, etc. As an economist, I’m interested in financial literacy. I started reading this piece with interest and hope. I soon realised it was just financial propaganda.

The first clue was that the author tied financial literacy to the Grand Funk in which we find ourselves. I maintain that financial literacy wouldn’t have helped one iota. To review the events of the last several years:

  • lenders and borrowers entered into loan contracts. Borrowers were encouraged to lie on applications, and lenders — y’know, the professionals with all the financial knowledge — accepted those applications and encouraged people to borrow more
  • these questionable mortgages were turned into opaque financial products without proper documentation, so that no one knew who owned what
  • the main financial companies bought and sold these derivatives, and derivatives of the derivatives, until no one knew what the risks were and who was responsible
  • when the whole thing collapsed, the US government bailed out the big banks, the UK government bailed out the big banks, and the German banks used their power to refuse to take losses
  • once the losses were dumped on the public, the above governments got religion about debt levels and started a fiscal austerity programme that left millions unemployed.

So, the borrowers were involved, way back there at the beginning, as one party to a contract that the other party should have known not to write. The rest was about business decisions in the finance companies and governmental decisions — decisions that could have gone another way.

The other line that got me — the punchline without the proper set-up — was this:

While banks and lending institutions may have accepted considerable criticism for their role in triggering the recession….

Stop it, you’re killing me! [Wipes eyes.] Accepted criticism? They may have been criticised, but I’m pretty sure they haven’t accepted any of it. They have fought it every step of the way, braying about how they are the core of advanced economies and how dare anyone besmirch their reputations.

I would note, too, the way the sentence is written. This isn’t a declarative sentence, ‘Banks have accepted criticism.’ That would be a statement, which then invites the reader to assess it for accuracy. Instead, the clause is written as an introduction to another thought. The idea is to say, hey, here’s the context that we all can accept, and my main point comes next. Well, buddy, I don’t accept it.

Teaching my kids about finance is good for them (and good for me). It would be great if more people were better informed, so they don’t get themselves into awful situations like this family. But better financial skills in the broader population wouldn’t have avoided this mess. The mess has been made by well-informed, well-educated people who know what they are doing.

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§ 5 Responses to Propaganda masquerading as advice

  • Chris Parker says:

    Nice work Bill

  • newbon says:

    Great read…Concise and to the point. Thanks for posting. As an ex-banker I agree with what you say. I would be interested to know your thoughts on where the majority of the blame might lie though? Banks for making borrowing too accessible or the public for taking it so easily?

  • Marcie says:

    The only things you left our were the US mortgage bankers who changed signed papers to reflect greater income on the parts of borrowers and the lies told by the bought-and-paid for rating agencies that backed those derivatives.

    While using your home equity as a credit card, like the family in your example did, is poor personal finance, It was the get-rich-quick derivative traders – read large bancorps, rating agencies, and banks indefensible lending practices (125% of value anyone?) that brought this mess about.

    Great piece.

  • Grant Taylor says:

    Crooks of any kind exploit the trust and good faith which all commerce needs in order to thrive. I have the impression that most of Bernie Madoff’s victims were actually fairly well-informed about finance.

    A currently fashionable version of the ‘blame the victim’ game in many dimensions of society is x-literacy (substitute for ‘x’ whatever field of competence you like). It’s a bit more subtle than, “what was she thinking, going out at night dressed like that” but really, it is just adding a layer of plausible deniability to the I-don’t-actually-care-about-you attitude that lies behind outright victim-blaming such as “you are stupid”, “you really wanted it but changed your mind later”, or “you are a loser”.

    Sure, knowledge and capability (which might plausibly be enhanced by some kind of information/education) are factors in decision-making and action but they only play a small role – environmental factors of many kinds and motivation are both involved as well. Your post has highlighted how environmental factors (financial products and sales strategies) exploited and shaped motivation in this case, so that level of financial literacy became fairly irrelevant in shaping the outcomes.

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