Guilt by Classification

We've all heard of guilt by association. I've recently come to realize that its first cousin is guilt by classification. The phenomenon isn't new to me, but the label is. It came to me last Sunday (December 14) while reading an article by Gretchen Morgenson in the New York Times. I admire her work very much. Her articles have taught me much, especially in the early months of the subprime crisis, and most especially by personalizing its villains and its victims.

I take issue, however, with Sunday's article, "Blank Check for Banks, Pink Slips for Detroit."

A quote from the article:

". . . in the bank rescue, taxpayers are subsidizing not only failure but also outright recklessness and greed. In spite of the fact that financial institutions drove the nation into the economic ditch, and even though ‘very few of us had anything to do with the dilemma that they have created for themselves' [quoting Senator Mitch McConnell regarding the automobile companies] the financial industry received billions, with few strings attached."

"Financial institutions drove the nation into the economic ditch" lumps together the few that had a part in making subprime loans and packaging them into mortgage backed securities (MBS) with the many that had no part in that but ended up with highly-rated, but newly-illiquid MBS's on their balance sheet. I understand there are approximately 6,500 banks, plus many thrifts and others, that fall into the category of "financial institutions." Surely, every institution in that huge category doesn't deserve unworthy villain status.

There are only three members of the domestic automobile industry seeking assistance. Their history and problems are well-known. Generalizations about them surely have a much greater chance of being accurate than generalizations about thousands of financial institutions. Are we to shoot them all and let God sort them out?

Comments (1)

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  1. eric says:

    It’s the Fed that is responsible for the economic problems we face. The gall to blame the mortgage companies for getting into 30-1 leverage in order to loan money to sub-prime buyers.

    The Fed shouldn’t have gotten rid of sound money. Our Fiat currency is printed to the Fed’s content and will rob me and my children alive through Real inflation.

    The government is supposed to stop these things from occurring. I find the Fed guilty of sleeping on duty. Boot them out, and replace them with intelligent economists like Peter Schiff and Ron Paul.