Charles Gray | A message to the 100 percent

One of the most dangerous cognitive fallacies that researchers have identified in humans is something called the recency effect.

It states that humans remember what happened most recently instead of what happened further in the past.

But this fallacy has dangerous consequences, especially in politics. Most of the time, problems that our nation faces have root causes that are much deeper than the reactions that our government fashions to try to solve them. But because of the recency effect, it’s easy for politicians and those with deep-seated political beliefs to take advantage of whatever happened last to build their own narratives.

Opening up The Daily Pennsylvanian last Wednesday demonstrated the nature of this problem. In it, 87 members of the faculty signed on to a statement expressing solidarity with the Occupy Wall Street movement that has expanded to numerous sites.

The statement says that the solution to America’s problems is greater federal control to get the economy back on track.

The problem with this statement is that it takes what happened in a few months in 2008 and uses it to explain the entire financial crisis. The root causes of the crisis were much deeper, and they took over 15 years to develop.

Starting around 1993, the federal government began an aggressive policy of trying to increase home ownership. It did this through two pre-existing government-sponsored enterprises called Fannie Mae and Freddie Mac.

Fannie and Freddie had an implicit government guarantee, so they had a lower cost of capital than their competitors. That is a tremendous advantage in what is supposed to be a competitive market.

To preserve that implicit guarantee when some in the government wanted to privatize the businesses, Fannie began a policy of giving out mortgages called sub-prime loans to those who previously weren’t eligible. This policy of giving loans to those who could not qualify for them before protected the two GSEs politically. But, at the same time, it also increased the chances of them needing a government bailout in the future.

The mastermind of these changes in America’s financial system was Fannie Mae’s new chief executive officer, James Johnson. He was not a businessman but rather a former manager of Walter Mondale’s 1984 presidential campaign, who used his political connections to not only get the job but also to get his supporters in Congress to vote in new benefits for Fannie.

From there, the rest is history. Fannie and Freddie’s competitors in the private market were forced to emulate many of the reckless practices of the GSEs in order to compete. Almost anyone could show up and receive a loan by the mid 2000s. It was a race to the bottom.

Unfortunately, this practice ended up destroying the finances of the families who worked so hard to buy their first homes. They’ve been left with homes that are worth much less than they paid. As happens again and again in our nation’s history, a well-meaning government program ends up hurting in the long-term the very people it is supposed to help.

But you’ll never hear about this problem at Occupy Wall Street or from the folks at MSNBC, who have been promoting the movement because they are focused on their message of blaming the private sector. Citing the root cause of our financial crisis — the government — would undermine their goal to increase the size of the government. Unfortunately, because of the recency effect, it is very easy for this message to be effective.

And that is why last Wednesday’s signed statement was deeply troubling. It represents a dangerous new message from the left in America to take advantage of our recent economic struggles by dividing our country to build support for an even greater centralized government.

But as the story of Fannie and Freddie shows, it is the government that created the problems they have pointed out. The federal government is not the solution to most of our problems; rather, it usually created them.

As soon as we begin to ignore the facts of what has caused the problems in our society, we move down the long road of economic decline.

Instead, maybe we can think about jettisoning Occupy Wall Street’s outworn slogans and moving toward a message built around the values of individual responsibility and virtue that made our country great. That’s a message that would help 100 percent of us.

Charles Gray is a College and Wharton senior from Casper, Wyo. His email address is chagr@wharton.upenn.edu. The Gray Area appears every Tuesday.

Please note All comments are eligible for publication in The Daily Pennsylvanian.