Should Capitalism Come With An Instruction Manual?

Screen Shot 2013-03-12 at 14.18.08Over a lengthy (and almost indescribably relaxed) breakfast this weekend, our CSO’s attention was diverted from his habitual rummaging through the FT Weekend magazine by a piece in the main section of the Financial TimesVoice of indignation is household name (Tobias Buck, 9th/10th March 2013) charted the rise of one Ada Colau Ballano (‘Ada Colau’), a 1992 graduate of Barcelona University’s Faculty of Philosophy who recently hit the headlines for her actions as a social activist during a briefing session on Spain’s mortgage crisis in the Cortes Generales: turning to the member of the Spanish banking association with whom she was co-briefing the parliamentarians, she labelled him a criminal worthy of treatment as such – and she has never looked back, with regular appearances in the Spanish media as a spokeswoman for the Plataforma de Afectados por la Hipoteca (‘Platform of Mortgage Victims’).

Colau’s group has collected 1.4m signatures in favour of proposed legislative changes to, amongst other things, make evictions of non-paying mortgagors much harder, and preventing banks demanding payment in full of mortgages on repossessed properties. In an era when suicides of soon-to-be evicted homeowners are an all-too-real occurrence, this would appear to be the type of step which should be contemplated; any system which evinces a lack of flexibility in the face of genuine human suffering is treading on thin ice.

Yet while compassion must ultimately reign supreme, we at Mediolana wonder whether these kinds of solutions are the correct long-term approach, because on some level they themselves enshrine a fundamental injustice: that of the debtor failing to make good on their promise to pay back money that is not theirs. Both the educational system and wider society must in the future take much more profound steps to ensure that mortgage-dominated financial crises of the type that threaten to decimate Spain are rendered much more unlikely to happen:

1. Capitalism: No One-Way Street. During the boom years to 2007 – and not just in the eurozone periphery – the idea that capitalism was perpetual no-risk feast, with everyone guaranteed a slice of Shangri-La, was perpetuated by policymakers, financial institutions and media organs – and gleefully swallowed up by the general public at large. That successful capitalism required hard work, delayed gratification, transparent (and accurate!) accounting and cutting one’s cloth accordingly (including not purchasing a house if the means to do so were not realistically sustainable) – all these and many more principles were pooh-poohed with a combination of bogus mathematical models and naive arrogance that merely fuelled the inevitable bust.

2. Capitalism: The Sum of Its Parts. Economic systems are not just abstract entities: they are constituted of people and organisations. And as much as those across the political spectrum may prefer to ignore this, the moral quality of these entities matters enormously. As the example of Silvio Berlusconi has copiously illustrated, if your country’s leader’s personal morals can be encapsulated in the phrase ‘bunga bunga’, they will probably have no compunction swindling you of your pension. On a more prosaic level, the honest negotiation and enforcement of contracts, business dealings and the like cannot proceed in a sustainable manner where the sole motivation for economic actors is that of personal enrichment.

3. Capitalism: Not the Same as Anarchy. The approach of Ms. Colau and her pressure group – while doubtless well-intentioned – in many ways betrays the impoverished understanding of capitalism that has characterised Spain in recent decades. At things stand, the Platform of Mortgage Victims are beggars pleading for clemency at the door of the Spanish government – whereas if they took a more consistent ‘zero bailouts’ moral and legal position, they would have a possibly irresistible case. In the absence of state aid for banks and population alike, the financial institutions would cease to exist – and with no counterparty to enforce the mortgage contract, eviction of indebted mortgagors would become a pretty slim possibility.

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2 Comments

Filed under Economics, Finance, Politics, Urban Life

2 responses to “Should Capitalism Come With An Instruction Manual?

  1. I believe your article raises lots of good points but doesn’t present the entire picture about lending to people who cannot pay the mortgage back. As we’ve seen from the subprime mortgage scandal in the US people who were a very high credit risk were given mortgages. If banks are essentially targeting such people because the financial system will still allow them to make money (from appropriate insurance etc), then it seems unethical on their part. If a bank knows when it’s lending you the money that you’ll probably default then whose responsibility is it?

    • Excellent point. However, I am not sure how much money banks made from high-risk customers. Initially they give a quick boost to bank earnings and massage the balance sheet, but non-performing loans are the bane of any lender. The main benefactor from the sub-prime scandal were the bonus-addicted individuals within institutions rather than the institutions themselves (which, lest we forget, are still reliant on state bailouts half a decade on).

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