Time for the R Words

The UK's Daily Mail has called Cleveland the "sub-prime capital of America." There were some 17,000 foreclosures here last year. Yet new investors, some from great distances away, have recently entered the market. The house below on Cleveland's west side is an example. An investor bought it in 2007. Can you guess the purchase price?

Take a breath. It was $1,500. (No, that's not a typo.) Properties like this can be fixed up cost-effectively and sold or rented profitably.

It's encouraging that people are finding reasons to invest. (One might view this a case of vultures swooping in.) Perhaps it signals a beginning of the end to the financial crisis.

What happened? How did the wheels come off and why did it catch us (most of us) by surprise?

In the last post we cited a need for greater stewardship. Webster's Pocket Dictionary defines a steward as "a person entrusted with the management of the affairs of others." It implies a high degree of responsibility. And there it is--one of the "R" words that are at the heart of the problem.

Daniel Henninger of The Wall Street Journal wrote about them today in an article called "Mad Max and the Meltdown." Here's what he said:

"What really went missing through the subprime mortgage years were the three Rs: responsibility, restraint and remorse. They are the ballast that stabilizes two better-known Rs from the world of free markets: risk and reward."

"Responsibility and restraint are moral sentiments," Mr. Henninger wrote. "Remorse is a product of conscience. None of these grow on trees, each must be learned, taught, passed down."

He asserts that our society's move toward greater secularization and "dereligioning" encouraged the behaviors that resulted in the subprime crisis. Bankers, borrowers, investment managers and government officials are people after all. We're all capable of good and bad acts. But now we must ask--who is teaching the concepts of responsibility, restraint and remorse?

When was the last time you heard anyone talk about the virtue of restraint?

I like Mr. Henninger's summation: "The point for a healthy society of commerce and politics is not that religion saves, but that it keeps most of the players inside the chalk lines. We are erasing the chalk lines."

We better find some chalk.