Not long ago, a woman in California called me for advice. She is divorced, with two children, and has a series of interlocking financial problems.Is Stein asking us to "feel sorry" for this woman? No:
She lives in a lovely home in a stylish inland enclave. It has an interest-only mortgage of about $2.2 million that requires a payment of $12,000 a month, very roughly. It was last appraised at $2.7 million, but who knows if it’s now worth anything remotely close to that price.
The woman, whom I’ve known since she was a teenager, has no job or other remunerative employment. She has a former husband, an entrepreneur whose business has suffered recently. He pays her $20,000 a month, of which roughly half is alimony and half child support. The alimony is scheduled to stop this summer.
What could I say? I did the best I could, but I had to tell her that she was on very thin ice.This is the closest that Stein, a gracious human being, will come to saying, "Sweetheart, you're screwed, blued and tattooed." What Stein is saying -- the moral of the story, as it were -- is that even people we think of as "rich" can get themselves in over their heads. Here is a woman living in a mansion (even in California, $2 million buys a lot of house) and receiving nearly a quarter-million a year in alimony, and yet she is on the verge of bankruptcy.
Stein writes with a sort of Gestalt technique, allowing the reader to draw his own conclusions. He is too much the gentleman to say directly that this woman, his longtime friend, is an irresponsible twit. Rather, he turns without comment and begins relating his own father's words of wisdom about the importance of such sturdy virtues as diligence, thrift and self-reliance -- virtues his soon-to-be-impoverished divorcee friend quite obviously lacks.
The big risk in the Gestalt technique of essay-writing is that some people might miss your point, which Yves Smith does spectacularly:
Stein is trying to give us a morality tale of sorts, but his object lesson is so far removed from the most common manifestations of the debt disease that it sheds no light on the issue.Smith is angry at Stein for using this rich woman as an example of a problem of which she is, in fact, a very good example: Anyone who lives above their means is at risk of disaster, however great their means may be.
Given that Stein's larger (implied) point is that America's tremendous wealth hasn't prevented America from suffering an economic disaster caused by excessive debt, the woman he chooses as his example is an apt choice. And given that Barack Obama and the Democrats now plan to "fix" our problem with another $800 billion or so in deficit spending, it seems that Yves Smith is not the only one who has missed the moral of Stein's story.
(Cross-posted at AmSpecBlog.)