Banks & consumers: the asymmetry of responsibility

The other day i was reading an article about UK banks, the general thrust of which was that despite the fact that they’ve been bailed out with millions of pounds of taxpayers’ money the banks are back to awarding themselves huge bonuses. Let us leave this to one side ‘piffling’ matter however. What i am really interested in is one of the comments i saw below the article which argued that “we are all responsible for the financial crisis” or words to that effect. I have seen this argument formulated over and over again during the past year or so. The bankers are not to blame, the financial system is not to blame, the government is not to blame, we – as in you – are to blame. How is it then that you – as in we – are not assigned the credit when things are going well? For truly there seems to be a strange asymmetry of responsibility.

When expanded the universal blame argument seems to go like this: yes, the government makes the laws which set limits on what the financial sector can do and the financial sector (banks, etc) makes the products available (loans, mortgages, etc) which set limits on what choices the consumer has, but it is the consumer who makes the decision whether or not to buy the product on offer. Indeed it can be argued that the consumer also sets limits – in this case on what products are offered them by stimulating demand selectively. If the consumer (multiplied by millions) hadn’t behaved so recklessly none of us – banks and government included – would be in such a precarious financial situation now.

Consider however that though there may be millions of consumers they are not bees in a hive; they consume as individuals or at the very least as small groups of people. Of all the components of the chain described above the individual consumer has the least power. And as we’re always being told, with power comes responsibility. The consumer also has the least complete and least accurate information on which to base their economic decisions. Governments have civil servants – of whom hopefully a few have degrees in economics – to help them make theirs . They can also, as was mentioned above, make laws, i.e. change the playing field itself. Banks are in a similar position. There are relatively few of them and each has a lot of information about the finances of its customers and, by extension, about the state of the economy as a whole. Certainly more than does the individual consumer anyway, unless he’s an inside trader. Or possibly George Soros.

I’m not saying that individuals have no responsibility for their own financial decisions. Of course they do. But i think it’s specious to suggest this is where the blame for the current crisis lies. People were indeed taking out mortgages they couldn’t really afford*, but they were taking them out in desperation, because the banks had lent so recklessly to so many people that larger and larger sums were being demanded by those selling**. The individual consumer had to make a decision as to whether to jump in and buy – and struggle – or hold off and possibly end up priced out of the market altogether. And probably still struggle. Because renting is also expensive in the UK.

Some of those who bought were taking bigger risks*** than others, in some cases stupid risks, and for other people it went beyond risk-taking: rising prices always attract the dishonest. By and large though, the individuals taking out mortgages were not the ones making the huge killings on them. They struggled (and are still struggling) to make the monthly payments from their salaries. It was the banks who racked up huge increases in their “assets”. I say this despite the fact that i’m one of those people who couldn’t afford to take out a mortgage at all and resents having to support – indirectly – those who could.

Never mind, i won’t let myself grow bitter. No, i will just sit tight and wait for the thank-you note that will be mine when the economy finally rights itself. I assume i shall be responsible?

* I define ‘couldn’t really afford’ to mean: they might be able to just about afford the payments when all was going well (low interest rates, both halves of a couple in full-time work, etc) but wouldn’t be able to afford them if there was even a relatively small decline in their incomes.
** Oddly, there has been very little blaming of those selling homes, i.e. those causing others to incur mortgages, despite the fact that it was these people – especially if they themselves were mortgage-free –  who, along with the banks, typically profited from the property bubble.
*** Note that when the economy is buoyant risk takers are often lauded.


2 thoughts on “Banks & consumers: the asymmetry of responsibility

  1. You’re absolutely right of course.

    There are individuals and groups whose decisions did affect events: the policy makers and the guys running the bailed out banks mainly. But consumers acting as individuals did not. And by and large consumers were reacting to the decisions of the policy makers and the guys running the bailed out banks.

    A lot of the seeds were sown when the financial services system was deregulated in the1990s and the banks could sell insurance the building societies could offer credit cards. I could rant, but I wont.

    I don’t normally big up posts of my own when I comment, but I posted on consumer behaviour and the credit crisis myself a week or so ago. Rather melodramatically, I called it “Did Web 2.0 bankrupt Iceland?”.



    • Thanks, Ben. I read your post about consumer behaviour. Very thought provoking. It’s interesting to me how both consumers and banks quickly became locked into cycles of reaction, each reinforcing the other.

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