You know you're at the hangover stage in any financial bender when the witch-hunters in Congress begin hauling in the victims for grilling. This is the situation on Capitol Hill this week as Congress vents its spleen on the captains of ExxonMobil (NYSE: XOM ) , Chevron (NYSE: CVX ) , BP (NYSE: BP ) , and others for the high crimes of financial success.
The hypocritical hyperbole was amazing, even by Washington standards, and it came from both sides of the aisle. You had New Mexico Republican Sen. Pete Domenici all but accusing the oil companies of rigging prices. California Democrat Sen. Barbara "Don't account for options" Boxer took the opportunity to cry foul over high salaries and, you guessed it, stock options paid to these executives.
In my opinion, the game ball goes to the senator from Tennessee. Majority Leader Bill Frist had the audacity to question "whether profit margins are appropriate" at the oil companies. That's an interesting bit of outrage from a senator in his delicate position.
This is the guy who's spent years making national health policy while his family runs the country's biggest hospital chain, HCA (NYSE: HCA ) , a company that, by the way, has booked more than a billion dollars in profits in the first nine months of the year, at margins that put BP's to shame. This is the same guy who's under federal and SEC investigation for insider trading of that stock, having sold it out of a "blind trust" that turns out not to have been blind at all, shortly before an earnings shortfall left outsiders nursing their wounds.
From the car to the garage
It's pretty easy to point out the hypocrisy in Washington. You just need to wait for a senator to start speaking. But the underlying roots of this situation became clearer to me yesterday, after I read a fantastical discussion of the melodrama written by my old friend and fellow Fool Rob Aronen. In it, he asked our Senatorial witch-hunters a rhetorical question. Homebuilders like DR Horton (NYSE: DHI ) and Toll Brothers (NYSE: TOL ) have been making healthy, if not record profits lately. (Banks and other lenders, I might add, have been doing pretty well, too.) His question: Why aren't they being dragged into the Star Chamber for their deeds?
Anyone who's seen the incredible inflation in home prices might well wonder why it hasn't produced a backlash similar to the anti-oil sentiment we're seeing. While there are several reasons consumers might be quicker to vilify Big Oil (including the historical reality that these were the first big industrial-aged trusts), I think the major reason people have yet to complain about housing inflation is that it hasn't caused any real pain. At least not yet.
True, people are paying exorbitant sums for new homes and condos, as well as existing dwellings. But they don't feel like they're spending that money because, in a sense, they're not. They're spending the banks' moola, and those lenders have bent over backwards to insulate buyers from the enormousness of these purchases: ARMs, non-conforming ARMs, no-doc interest-only ARMs. In the biz, they call these "products" that enable "affordability." As I've argued elsewhere, what they really do is shift costs and burdens down the road, in a way that some buyers, unfortunately, do not understand.
But now that interest rates are creeping upward and the ARMs are going to start adjusting, I think you will start to see some outrage. If -- and, I fear, when -- people suddenly find themselves unable to afford that new home because they didn't get the math of their mortgage, they're going to want answers. And I predict that if this problem gets big enough, that's when you will see builders, lenders, real estate agents, and their accomplices in the appraisal offices walked in front of Congress, too late for anything to be fixed, but just in time for well-choreographed, media-borne outrage.
An old story, a simple solution
I'm going to skip the obvious arguments against the gas "windfall" tax: that the corporate "profits" being demonized don't account for investment, that snatching the profits of public companies is simply stealing from your neighbor to appease your own appetites, and that it would be counterproductive and actually raise oil prices, by hampering investment in production and artificially inflating demand.
Instead, I want to point out something else that ought to occur to the angries on either side of this debate. If we want the real reason that Congress is always quick with the outrage but late to the game, we need look no further than the mirror. Our representatives are no worse than we are.
Any time stuff is cheap, we all consume too much, even at our peril, and especially when we can't see, or choose to ignore, that peril at the time of purchase. Ever watch what happens when there's an open bar at a wedding reception? We're all Uncle Bob with the fifth, eighth, and 11th highball, charming and debonair. The likelihood that we might end up soiled, headachy, and sleeping in the bushes doesn't deter us. It might not even occur to us until it happens.
Despite the lessons of the '70s and '80s, when gas got cheap in the '90s, we spent money on giant cars. When bank money got cheap in the noughts, we demanded the 4,000-square-foot "executive estate" 50 miles from work.
It's only when the bills start coming in above our expectations that we begin to demand legislative answers. But as always, real solutions are right in front of our eyes for those who are Foolish enough to embrace them. Plan for the unexpected. Assume that your household expenses will rise. Live below your means. Change your behavior to avoid overexposing yourself to violent swings in gas, heating fuel, and interest expense. If you live in the free market through good and bad, then you're not likely to be a victim of its occasional swings.
Want to learn how to get your financial house in order? The Fool's got the tools you need, starting with the basics, like how to get out of debt.
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Seth Jayson always lives below his means. At the time of publication, he had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.
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