12.05.2008

We agree, but only barely.

I am thoroughly enjoying this, so without further ado (And with limited quoting):

Let’s be clear that there are very few people left in this country that are proponents of a complete unregulated capitalist system.


I have heard this from you on several occasions, and I am relieved! In the Anarcho world, however, we tend to debate extremes, economically speaking, the extreme I abhor more than anything is Anarcho-capitalism. And there are more than a few who support it, unfortunately.

If they made large loans to small income families, they would eventually end up eating that loss and the company would fail. THAT serves as the warning to others. It isn’t until government steps in and says that these corrections occurring in a free market are “not acceptable” and start to meddle to control it, that the problems really begin.


That depends on what corrections you are speaking of. I agree with you that handouts to failing companies allows companies to continue poor business practices, and may even contribute to the "too big to fail" phenomenon, however the distinction between a regulation and program needs to be made. The handout, bailout, corporate welfare is not a regulation, it is a program that is offered, but not an obligation. There is no reason to believe that should Fannie and friends fail, another private industry willing to take it's place would not pop up. In fact, they already exist in the credit industry - also known as debt collection agencies that bundle debts turned risk and purchase them from lenders who gave high interest credit cards to 18 year olds, and people with notoriously bad credit. When the collection agency can't recover the debt, they sell it to another one ad naseum, essentially circulating the debt around until someone pays for it.

It should also be pointed out that "low income" doesn't equal "high risk". A family with a $30k income and stellar credit, and no debt asking for a $90k loan and has a 20% down payment is a much lower risk than a person with a $100k income, two Bankruptcies, and is currently defaulting on already existing debts.

A perfect example of this is the difference between the Big Three


We agree on this. (and most of what you mentioned previously)

Greed is no different than any other motivating emotion. It serves as a creating and driving force. It is only when greed is accompanied with rewarding bad or even illegal decisions and actions that it becomes a problem.


Be careful not to confuse greed with ambition. Ambition drives, greed is the obsession for something you've neither earned, nor deserve.

You seem to forget that these people, making bad decisions as to their own finances, taking loans they can’t afford.


In some cases, I'm sure this is true. In most cases, people only want what they can afford, and, rightfully want the best bang for their buck. However, social conditioning, as well as culturally acceptable needs play into the consumer's part in this mess more so than greed. Most low- middle income families I know would love nothing more than to get a decent house, for a reasonable price. The question, then, is who regulates the prices so that this is not feasible? (You answer that next)

You blame the corporate greed, but I put it to you that the real greed rests with the lenders who are taking these loans. If a company is greedy, and makes bad decisions because of it, they should not be rewarded with a bailout either. But without the greedy customer, this problem wouldn’t exist.


This is where we disagree - yes, I agree with the first part, but the last sentence makes little sense to me. Customers do not benefit from high interest loans, and expensive homes. "Greed" would imply that some exorbitant value has been dangled in front of them, a temptation to be snatched up. In the case of the borrower, the homes they desire come at a very high cost - where as the lenders and Realtors are the ones happily skipping to the bank with a big fat check. Agreeing to a high percentage loan for a home may be stupid, but not greedy.

Finally, you discuss how the market was doing well regulated, and how despite unregulated markets it crashed in the late 20’s. Aren’t you forgetting how it did before it crashed? If you care to examine how the US economy grew before the 20’s crash, you will see that it wasn’t exactly stagnant and dismal before that, in fact, 1870 to 1916 US production increased tenfold. That’s a slight 1000% dent in your “unregulated markets are bad” theory. The position of the US as the world leading industrial nation was created in this unregulated market.


I should have made that point more clear, but I ran out of words on my limit. (heh).

The market prior to government intervention did do well, in a bad way. The people who did well did very very well, and the people who did not slid into poverty. Upwards of 60% of the population was in poverty, to be specific. Furthermore, the economic boom pre-Depression actually helped fuel the Depression by inciting speculative lending, and purchasing on the margin.

Even without welfare programs like Fannie and Freddie, certain companies, also known as monopolies, became....."too big to fail"! Telecommunications, radio, and the auto industry, later to be followed by the banking industry and stock market. Without FDIC type insurance, when the banks closed their doors, everyone lost everything they had.

This is not a good economic policy, and this is where regulation really comes in handy.

We agree on a great deal of things - such as making better business choices. We disagree, I think, on regulations such as the CRA, and the definition of what Fannie and Freddie do. Again, they are not regulations, but voluntary programs. Meddlesome as they may seem, the inner workings of it helped to grease the wheels of this economy for a very long time, and, only with small booms and busts to speak of. And the companies who used them also thrived on it, voluntarily.

I'll wait for the second installment to see what else you have to say. I'm impressed so far - no aspirin needed....yet.

13 comments:

screaming-at-the-tv said...

What an excellent idea Anok & Adsense. Truly enjoyable.

I would add that an educational factor plays into this debate, and it plays at the point of:

"If a company is greedy, and makes bad decisions because of it, they should not be rewarded with a bailout either. But without the greedy customer, this problem wouldn’t exist."

I don't fully agree. I'm not sure it's a greedy customer but rather a naive, un or under educated one. If the "experts" are telling you that "Oh, yes, you can afford it... we'll get you into that house..." I would bet many people go, "Wow - they must know something that I don't.", are confused by all of the financial terms, conditions and legal speak... or they are flat out "trusting."

You know that trust that your parents or grandparents had with the doctor. Education/Expertise, real or perceived, is a powerful and influential tool.

Anok said...

Oh man, how did I miss making that point?!

Yes, predatory lending, and predatory sales - there is a reason that scams and con men make a lot of money - and corporations too.

We are told that we need things, that we can't fix things on our own, and so need to buy it new, or hire expensive experts for services...why not use lending practices that include a lot of legalese and confusing terms that would benefit the lender, while bilking the consumer?

They do it all the time!

CSIUNATC said...

Well there is a point here. And this is where we come back to what i said about there being no difference between a company and a person that makes a bad decisions... personal responsibility.

When i hear someone say. "I didn't fully understand, but i signed anyway"... It brings up images of people who think looking down the barrell of a gun is a good way to see if its loaded.

My point is this, when for instance it comes to a mortgage. If your finances are so thin that you aren't able to afford a lawyer to read the contract. Then you shouldn't be buying that house to begin with. Anyone choosing to sign a document that ties them for 30 years and maybe several hundred thousand dollars without either fully understanding, or having someone that does verify the document are indeed shooting themselves.

Legaleze is a language onto itself. So is financial terminology. And i really don't think that it is up to the bank to give the homeowner a bachelors in finance just to make sure that they understand the basics.

It becomes almost ludicrous when you see this problem reoccuring because people don't understand what they are signing. What if the contract was in Chinese, would you still sign it without a translator?

Let's examine this from any other perspective.

"I Didn't understand how to use the circular saw, and I didn't bother having someone teach me. But how can it be my fault that I cut my finger off???"

Yes, there is an argument for clarity in documents, I can't but agree there. The "Truth in Lending act" of 1995 addressed some of that but far from all of it.

That, however, just like a circular saw doesn't stop people from being stupid and letting their dreams come before good sense. And when someone says, "I can't afford a lawyer AND the house. So i'll just trust the person who is trying to make a buck of me to begin with"...

We are back at "Stupid hurts"

Anok said...

I agree....sort of. Personally speaking, I don't think that purchasing a house should be nearly as complicated as it is. I think those complications are a waste of paper, time, and are a tool to help make more money (Think, closing costs and points), and to keep the customer in awe of the financial institution (like a doctor using big medical terms and technical equipment to make the patient feel little and insignificant).

There should be no hidden costs, and, all costs should be in LARGE print. The only reason to hide it or put it into small print is in hopes that a customer won't notice it. It's entrapment - regardless of how savvy or intelligent the person may be.

However, in many of the current cases - both the lenders and the purchasers were making speculative purchases. "Well, I'll be in a better financial situation next year, 5 years, 10 years from now". In this regard, not too many people could have seen what was coming down the road, and it simply winds up being a risk, period.

Then again, underwriters have the specific job of estimating that risk (not the banker or borrower) and so if they didn't do their jobs right, then the mistake is theirs.

CSIUNATC said...

Explain what you mean when you say that the Underwriter is the one at risk?

I think that the best way of doing things here would be to give each customer a "payment book" up front. Clarifying the cost that the institution is incurring on the customer. I agree, every cent should be there in plain view. This is after all what the contract is about.

That being said, i don't think its the bank's job to predict accurately what politicians will do with the property tax in the future, and that is the problem of the homeowner.

I can't tell you how many times i've heard people complain that they didn't anticipate the property tax, or even Utility fees, "You have to PAY for garbage pickup???" (now i need the aspirin)

The whole "fine-print" BS is indeed intended to trick people. There is no doubt about it. But here is the kicker.

Find me a bar-admitted attourney who won't read the fine print in a clients contract. If you do i'll show you a lawyer that is about to be disbared.

The fine print is a bad practise, i agree. But it IS THERE, anyone save the legally blind can plainly see it. And if you don't undertand, or can't be bothered reading every word you are about to sign under... You are ultimately the architecht of your own financial demise.

Anok said...

I meant that if the underwriters didn't properly asses the risk proposed by the applicant/lender then the end result is the fault of the underwriter. Lenders rely on their (underwriters) ability to properly do their job to ensure that they are not making a risky loan, and usually have little means in the way of assessing the risk themselves.

Yup, we agree for the most part particularly about the other annual fees of homeownership like water, sewage and taxes. That's an educational issue though. We had a class in high school that outlined all of these issues, and spent weeks pretending to be married, with children, mortgages, and monthly, annual expenses that had to be planned.

That was the best class ever, and should be taught at every high school in senior year. :D

Anonymous said...

anok:
please delete the comment above. i posted it in the wrong place.
loj

Anok said...

Got it!

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