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Financial Darwinism

Last weekend while having dinner with friends, the conversation, as it often does, turned to the economy. We discussed the story of a woman we had just heard profiled on the radio. She was a mid-level manager at a company making $80,000 a year, but somehow without needing a downpayment she had managed to buy a $650,000 house, which she promptly lost during the recession / depression / correction / whatever-this-current-economy-is. The interview primarily detailed her plight as part of the new homeless. They did not discuss why someone that made $80,000 a year owned a house that cost $650,000, instead of a house that she could actually afford.

In the midst of all the angst and legitimate concern over loss of jobs and economic turmoil, there is also an underlying implication of what my wife terms “financial Darwinism”. The herd is being trimmed. People that did stupid things with their money are paying the price for their stupidity.

Part of the lesson of this economy is that most people are really rather incompetent when it comes to managing money. Like brainless wood ticks that find fresh blood, they will gorge themselves on easy credit and go on wild spending sprees that a little household budgeting would reveal to be insane. It is a bit hard to feel too sad for the 65K-a-year insurance salesman that lost his beach house and classic Corvette when the bank suddenly realized his payments amounted to 125% of his salary!

And this financial Darwinism not only extends to individuals, but we are also trimming the herd of silly and short-sighted institutions that literally “bet the bank” on unserviceable loans. The good news is that ultimately the strong survive, and hopefully future generations will be a bit more financially savvy.

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