I see that Brian Gaynor disagrees with an article written by a work colleague of mine. Usually I wouldn’t care in the slightest, as when it comes to issues of social justice it is important to get all these important points of view around soical value out in the open. However, given that Gaynor simultaneously missed the point of the article, and then went on to absolve investors of any responsibility for their patent stupidity in his piece – I felt that I should jot down my thoughts.
There is two things I agreed with Gaynor on, one that Benje Patterson actually mentioned in his article in the first place, and another thing that is patently obvious. These are (1) Finance companies provided poor information, were poorly run, and incentive structures were awful (2) the term greed is subjective.
Now, Patterson laid these things down – however, while Gaynor seemed to imply that Patterson was laying all the blame for finance company collapse on investors, he was actually making a much less controversial claim. He was saying that investors have to take some responsibility for their own money.
Gaynor might not think that people who invested ALL their money in one finance company paying 0.5%pa more than a bank, and then hoping for the government to bail them out if things went wrong were greedy. However, I’m different – I think this sort of behaviour defines greed.
But it was more than that, if you were trying to maximise your expected return, the decisions people were making were patently stupid. Many of these people who have been better off to leave their kids sorting out their finances, as they would at least have had to add things up more recently while in class. Now, Patterson believes, and I agree, that individuals are smart enough to know not to put all their eggs in one basket – and they are smart enough to see that what they were doing is a gamble. However, a lack of financial education mean’t that individuals didn’t realise all the awesome alternatives that were available.
Patterson’s primary point was simply that, if we had improved financial literacy in recent decades, we wouldn’t have a bunch of people who put all their money in a finance company (which was equivalent to a roulette table). It was their funds, and they have to take some responsibility for the fact they put the money there.
Now, were these companies immoral, lacking transparency, dishonest etc – hell yes. Do we feel sympathy for people who were manipulated into losing all their money – hell yes. Do we think basic financial literacy would have helped the situation – hell yes.
And that is why I find Gaynor’s article so insulting – he is choosing to ignore the fact that people chose to put money in these companies and lost it all, and so he is ignoring one of the clearest, cleanest, and fairest solutions we could put in place in order to prevent this happening again. In his determination to insult finance companies, he is willing to leave future investors vulnerable to future snake oil merchants – and that isn’t cool.