Tuesday, May 20, 2014

Revisitng a bubble



When the other day I read about the Obama administration’s plan to inflate another real estate bubble by reinstituting the same policies that led to the mortgage/banking disaster of several years ago—no down payment, no proof of income, no statement of assets and liabilities—I was reminded of an essay I wrote on this blog on December 15, 2008.
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"A Banker with a heart"
Ayn Rand began writing her magnum opus, the novel Atlas Shrugged, in 1943, [seventy] years ago. It was published in 1957, a half-century ago.

Atlas Shrugged was prescient in its description of an America gone to ruin because of rampant altruism, collectivism and statism, and apart from its many other virtues Rand’s novel reads as though it was written today.

Part of the story involves a factory, Twentieth Century Motor Company, which in its heyday produced quality motors. The founder died. His Marxist children took over, implementing as the organizing principle of their operation the credo “from each according to his ability, to each according to his need”—and went bankrupt. Others took over the factory with a loan from Community National Bank, headed by one Eugene Lawson, a “banker with a heart,” who explained why he made the loan:

        
They [the borrowers] were perfectly good men. They were a perfectly sound risk—      though, of course, I am speaking in human terms, not in the terms of cold cash, which you are accustomed to expect from bankers. I granted them the loan for the purchase of that factory, because they needed the money. If people needed money, that was enough for me. Need was my standard, Miss Taggart. Need, not greed. My father and grandfather built up the Community National Bank just to amass a fortune for themselves. I placed their fortune in the service of a higher ideal. I did not sit on piles of money and demand collateral from poor people who needed loans. The heart was my collateral. Of course, I do not expect anyone in this materialistic country to understand me. The rewards I got were not of a kind that people of your class, Miss Taggart, would appreciate. The people who used to sit in front of my desk at the bank, did not sit as you do, Miss Taggart. They were humble, uncertain, worn with care, afraid to speak. My rewards were the tears of gratitude in their eyes, the trembling voices, the blessings, the woman who kissed my hand when I granted her a loan she had begged for in vain everywhere else.
 
The bank crashed.

Sound familiar?