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Bloggingheads 10-07-2008 08:58 PM

The Mind and the Market
 

BeachFrontView 10-07-2008 11:32 PM

Re: The Mind and the Market
 
Great diavlog. The more economists that can come on bloggingheads and explain whats going on the global economy the better. One thing I feel convinced of that is somewhat unsettling is that the people in charge don't even really know what is going on.

gwlaw99 10-08-2008 12:29 AM

Re: The Mind and the Market
 
It's interesting that people focus solely on the way the loans were securitized and not why the loans were made in the first place. If the loans were never made to people who could not afford them, this would not have happened.

Why were the loans made? Because in the 90s the Clinton Administration raised the amount of sub-prime loans that Fanny and Freddy could buy to 50% of their capitalization--a trillion dollars. Banks knowing that Fanny and Freddie would buy these risky loans were free to make sub-prime loans with little risk. This was exactly the problem McCain tried to solve in 2005 which was defeated by a party line vote of democrats.

So why did Clinton decide to make this change? It was mostly intense lobbying from community organization groups like ACORN (a group Obama worked closely with for many years and whose president he was very close to) who sued banks and called a racist anyone who wouldn't make sub-prime loans.


I will grant that ACORN and Obama had good motives in trying to make housing affordable to low income familes, but as we can obviously see now, that extremely poor judgement led to financial disaster.

Simon Willard 10-08-2008 12:40 AM

Re: The Mind and the Market
 
These gentlemen opine that the risk was not properly evaluated. Fair enough: that's become obvious to everyone. Eric asks for more "humility" among economists. That is rather silly; it doesn't solve anything.

What's needed is a way to "make a market" in "the-chance-of-an-economic-meltdown". There are plenty of people who have been warning that real estate is overpriced, that savings rates are too low, that consumers are overextended on debt. How can these people trade on their insight?

Every day millions of shares of stock are bought. And an identical number are sold. If you don't like a stock, it's possible to short it. Some of those trades are wise, and some are foolish. Wise trades are rewarded. The collective action keeps prices fairly stable and meaningful.

The financial instruments were constructed in such a way that everyone was betting on rising real estate. There doesn't seem to be a way to bet on the other side.

Ocean 10-08-2008 12:46 AM

Re: The Mind and the Market
 
This issue has been discussed at length in recent threads.

In brief: there's a lot of fantasy mixed in with anecdotal stories about lending to "unqualified minorities" and also about customer in higher income brackets speculating with the expected "eternal" increase in real estate value and borrowing above their heads. Again, a lot of anecdotes and all kinds of agendas.

But the bottom line and real issue to be addressed is that the banking industry and mortgage brokers engaged in all kinds of deceptive practices to obtain customers. The deceptive practices were in part due to extremely lax regulation and to plain fraudulent practices and unethical tactics. The burden of responsibility lies in the lending institutions and governmental lack of regulations. It's similar to the case of the "extremely" small print. The real deal is hidden from the average person's view.

Everything else that followed in terms of transfer/ selling the loans, only made the problem more complicated. And more difficult to track by adding layers over layers of speculation.

Ray 10-08-2008 10:26 AM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93512)
I will grant that ACORN and Obama had good motives in trying to make housing affordable to low income familes, but as we can obviously see now, that extremely poor judgement led to financial disaster.

Ha ha ha! Choice rhetoric there, falsely intimating that you sympathize with these do-gooder intentions as a means of implying that Obama--seriously?!? Obama?!?--shares blame for the financial meltdown.

Fortunately, I am here to head your bullshit off at the pass. The influence of Fannie and Freddie simply isn't big enough to account for the scale of our current troubles. The same goes for the Community Reinvestment Act (c'm'on: you want to say it). Another way to think about it is that there aren't enough brown-skinned (but good-hearted and well-intentioned, I know you'd agree!) people holding bad mortgages to have caused the crisis. Bummer, dude!

Ah well. There's no help for your kind, but here's a link to an argument and several more links that thoroughly debunk the "blame government coddling of minorities" routine.

everlong205@rcn.com 10-08-2008 10:43 AM

Re: The Mind and the Market
 
Quote:

Fortunately, I am here to head your bullshit off at the pass. The influence of Fannie and Freddie simply isn't big enough to account for the scale of our current troubles. The same goes for the Community Reinvestment Act (c'm'on: you want to say it). Another way to think about it is that there aren't enough brown-skinned (but good-hearted and well-intentioned, I know you'd agree!) people holding bad mortgages to have caused the crisis. Bummer, dude!
A common fallacy from those on the left. Simply because Fannie Mae is not the sole problem in this crisis, and simply because the CRA expansion under Clinton is not the sole cause, doesn't mean that they aren't contributory.

Also, there's isn't really a need to insert the charge of racism into the mix. Brown skinned people are not the only ones who bought houses that they couldn't afford.One of the issues is that the housing market was a bubble with overvalued prices. Therefore, those taking out loans who couldn't pay for them may not have all been poor, as the loans in question were inflated as compared to the houses actual work.

That doesn't mean though that the CRA's call to loosen lending standards from banks to appeal to such potential homebuyers wasn't still,in retrospect, not necessarily a good idea.

The issue is, banks, and other lending organizations, ultimately made loans out to people (of all skin colors) to people who ultimately couldn't afford them. If govt calls for banks to loosen those standards (for however noble the reason) then its valid to point out their role in the current crisis. Fannie Mae has a large share of the responsibilty.As do community organizations like Acorn who's only sense of regulation appeared to be based on their determination of social justice and fairness as opposed to say, economic soundness. And the govt is responsible for calling for banks to ease lending restrictions, and banks are responsible for their role as well.

Also, why do those opposing the suggestion that Fannie Mae has some responsibility always seem to link to that same website?

bjkeefe 10-08-2008 11:25 AM

Re: The Mind and the Market
 
Very interesting discussion. I was especially intrigued by Eric's argument for progressive taxation as a psychological and macroeconomic regulatory mechanism.

bjkeefe 10-08-2008 11:30 AM

Re: The Mind and the Market
 
Quote:

Originally Posted by Ray (Post 93547)
Ha ha ha! ... a means of implying that Obama--seriously?!? Obama?!?--shares blame for the financial meltdown.

Indeed. I wish the Right would get their talking points straight. One moment, it's "Obama is inexperienced, naive, completely without any executive track record -- pffft, community organizer" and the next it's "Obama is the mastermind who engineered the global economic collapse."

gwlaw99 10-08-2008 01:19 PM

Re: The Mind and the Market
 
Power is not the same thing as experience. Under your logic, George Bush, as president of the United States, is the most experienced man in the world. Obama made stupid mistakes funding ACORN when he was at the Chicago's Woods Fund. If anything the way Obama wielded power, by giving money to a group that had a major part in ruing the economy, shows he lacks the experience to make sound economic judgments.

While McCain, recognizing that changes made due to ACORN's lobbying could lead to disaster, tried to reform Fanny and Freddie in 2005. His bill was defeated by a party line vote of Democrats (including Obama) who would rather pander to their constituents by making loans available to people who shouldn't get them, than make sound economic judgments.

AemJeff 10-08-2008 01:27 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93563)
Power is not the same thing as experience. Under your logic, George Bush, as president of the United States, is the most experienced man in the world. Obama made stupid mistakes funding ACORN when he was at the Chicago's Woods Fund. If anything the way Obama wielded power, by giving money to a group that had a major part in ruing the economy, shows he lacks the experience to make sound economic judgments.

While McCain, recognizing that changes made due to ACORN's lobbying could lead to disaster, tried to reform Fanny and Freddie in 2005. His bill was defeated by a party line vote of Democrats (including Obama) who would rather pander to their constituents by making loans available to people who shouldn't get them, than make sound economic judgments.

Are you really saying that ACORN is responsible for the current mess? I'd love to see someone try to demonstrate the validity of that assertion.

gwlaw99 10-08-2008 01:30 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by AemJeff (Post 93564)
Are you really saying that ACORN is responsible for the current mess? I'd love to see someone try to demonstrate the validity of that assertion.

Not the entire mess, but a large portion of it.

http://article.nationalreview.com/?q...MxMmNhZWQ1MTA=

By the way, ACORN does other great things like promote voter fraud.

http://news.google.com/?ncl=1255205671&hl=en&topic=n

bjkeefe 10-08-2008 01:31 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93563)
Under your logic ...

Please. It was not "my logic." I was simply characterizing the noise I hear from the Obama-hating crowd.

Quote:

... [Obama[ shows he lacks the experience to make sound economic judgments.
Yeah. He's making a real mess of his quarter-billion dollar campaign, isn't he?

gwlaw99 10-08-2008 01:34 PM

Re: The Mind and the Market
 
How does spending money on political ads, stump speeches, etc.. have anything to do with sound judgment on the economy. You are grasping at straws now.

TwinSwords 10-08-2008 01:35 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93565)
Not the entire mess, but a large portion of it.

http://article.nationalreview.com/?q...MxMmNhZWQ1MTA=

Funny how most people never heard of ACORN two weeks ago but now are absolutely certain that it's the "large portion" of the reason for the collapse of the economy, because that's what they were told to believe at The Corner.

gwlaw99 10-08-2008 01:38 PM

Re: The Mind and the Market
 
Why don't you read the article and try to refute the arguments in it instead of blustering.

bjkeefe 10-08-2008 01:39 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93567)
How does spending money on political ads, stump speeches, etc.. have anything to do with sound judgment on the economy. You are grasping at straws now.

You are trying to use distribution and management of funds by Obama at ACORN as "proof" that he has bad economic judgment. Why won't you accept the same tasks as displayed in running a campaign as countering your assertion? There are a million choices to be made in how and where to spend and budget the money.

And really. Grasping at straws? You and your fellow travelers who can't stop squawking ACORN! ACORN! ACORN! have no leg to stand on.

gwlaw99 10-08-2008 01:42 PM

Re: The Mind and the Market
 
I never said it was proof of BAD economic judgement. You said it was proof of GOOD economic judgement as a rebuttal to my ACORN argument. I argued that it is not proof of anything.

"You and your fellow travelers who can't stop squawking ACORN! ACORN! ACORN! have no leg to stand on."

Again, read the article I linked to and refute the arguments. Otherwise it is just bluster.

AemJeff 10-08-2008 01:42 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93565)
Not the entire mess, but a large portion of it.

http://article.nationalreview.com/?q...MxMmNhZWQ1MTA=

By the way, ACORN does other great things like promote voter fraud.

http://news.google.com/?ncl=1255205671&hl=en&topic=n

Kurtz's case is political, most of his economic assertions are partisan.

Example:
Quote:

ACORN’s efforts to undermine credit standards in the late 1980s taught it a valuable lesson.
Undermine? I doubt they'd characterize it that way. How could he possibly understand what "lessons" they were learing, or even be so positive about what they consider to be strategically important? Random Cornerites, generally, are a bad source if you're looking to support a factual case.

gwlaw99 10-08-2008 01:44 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by AemJeff (Post 93573)
Kurtz's case is political, most of his economic assertions are partisan.

Example:


Undermine? I doubt they'd characterize it that way. How could he possibly understand what "lessons" they were learing, or even be so positive about what they consider to be strategically important? Random Cornerites, generally, are a bad source if you're looking to support a factual case.

Again, you make absolutely no reutations to the points in the article. You just make ad hominem attacks on NRO. Is that really the best you can do?

bjkeefe 10-08-2008 01:45 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93572)
I never said it was proof of BAD economic judgement.

Give me a break.

Quote:

Originally Posted by gwlaw99 (Post 93563)
If anything the way Obama wielded power, by giving money to a group that had a major part in ruing the economy, shows he lacks the experience to make sound economic judgments.


bjkeefe 10-08-2008 01:47 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93574)
You just make ad hominem attacks on NRO. Is that really the best you can do?

Is that really the best you can do? To say "ad hominem" when you offer up a source that others don't consider reputable?

These two words are becoming the most hackneyed phrase online.

AemJeff 10-08-2008 01:48 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93574)
Again, you make absolutely no reutations to the points in the article. You just make ad hominem attacks on NRO. Is that really the best you can do?

Really? No refutation? I said that the partisan, political argument raised in the article you cited doesn't rise to the level of believability. That's not ad hominem.

gwlaw99 10-08-2008 01:51 PM

Re: The Mind and the Market
 
Sorry, but whether you agree with their politics or not National Review is respected publication. If you cited the Nation or Mother Jones, I would not dismiss your argument simply because it was written in a far left publication.

If you don't want to say anything substantive that's your prerogative. Given your normal thoughtful contributions to this board, I'm disappointed.

TwinSwords 10-08-2008 01:56 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93579)
Sorry, but whether you agree with their politics or not National Review is respected publication. If you cited the Nation or Mother Jones, I would not dismiss your argument simply because it was written in a far left publication.

If you don't want to say anything substantive that's your prerogative. Given your normal thoughtful contributions to this board, I'm disappointed.

Are you advancing an argument in your own words? No. Are you "saying anyting substantive"? No. You're merely linking to an argument made by someone at NRO, and then demanding that other people refute it.

Dumb.

Here's the bottom line for me: The economics of this crises are exceedling complex and there's no one in this forum (AFAIK) who is qualified to discuss it.

gwlaw99 10-08-2008 01:57 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by AemJeff (Post 93577)
Really? No refutation? I said that the partisan, political argument raised in the article you cited doesn't rise to the level of believability. That's not ad hominem.

Refute the fact that Acorn sued banks to make them lower their credit standards.

Refute the facts that:

"Democratic Senator Allan Dixon convened a Senate subcommittee hearing at which an ACORN representative gave key testimony"

"Dixon responded by pressing Fannie and Freddie to do more to relax those standards — and by promising to introduce legislation that would ensure it."

"By July of 1991, ACORN’s legislative campaign began to bear fruit. As the Chicago Tribune put it, “Housing activists have been pushing hard to improve housing for the poor by extracting greater financial support from the country’s two highly profitable secondary mortgage-market companies. Thanks to the help of sympathetic lawmakers, it appeared...that they may succeed.” The Tribune went on to explain that House Democrat Henry Gonzales had announced that Fannie and Freddie had agreed to commit $3.5 billion to low-income housing in 1992 and 1993, in addition to a just-announced $10 billion “affordable housing loan program” by Fannie Mae."

"Clinton Housing Secretary Henry Cisnersos pledged to meet monthly with ACORN representatives."

"In early 1994, the Clinton administration floated plans for committing $1 trillion in loans to low- and moderate-income home-buyers, which would amount to about half of Fannie Mae’s business by the end of the decade. "

"in June of 1995, President Clinton, Vice President Gore, and Secretary Cisneros announced the administration’s comprehensive new strategy for raising home-ownership in America to an all-time high. Representatives from ACORN were guests of honor at the ceremony. In his remarks, Clinton emphasized that: “Out homeownership strategy will not cost the taxpayers one extra cent. It will not require legislation.” Clinton meant that informal partnerships between Fannie and Freddie and groups like ACORN would make mortgages available to customers “who have historically been excluded from homeownership.” (i.e. sub-prime loans)

AemJeff 10-08-2008 01:57 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93579)
Sorry, but whether you agree with their politics or not National Review is respected publication. If you cited the Nation or Mother Jones, I would not dismiss your argument simply because it was written in a far left publication.

If you don't want to say anything substantive that's your prerogative. Given your normal thoughtful contributions to this board, I'm disappointed.

I didn't say that my agreement (or lack thereof) with his politics had anything to do with my argument. What I said was that he was raising a political, not a factual case. He uses characterizations of his target's actions and beliefs that fly nicely as rhetoric, but are, at best, unsupported by his factual claims.

bjkeefe 10-08-2008 01:58 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93579)
Sorry, but whether you agree with their politics or not National Review is respected publication.

No it isn't.

How's that for matching unsupported assertions?

Quote:

If you don't want to say anything substantive that's your prerogative. Given your normal thoughtful contributions to this board, I'm disappointed.
Oh, stop feeling so sorry for yourself. Talk about something besides ACORN wingnuttery and you'll get some respect in return. You all have been shoveling that shit for half a year now. Give it a rest. There isn't anything there. This is as bad as the last time you showed up to insist that Obama wants to teach kindergartners to have sex.

gwlaw99 10-08-2008 02:00 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by TwinSwords (Post 93580)
Are you advancing an argument in your own words? No. Are you "saying anyting substantive"? No. You're merely linking to an argument made by someone at NRO, and then demanding that other people refute it.

Dumb.

Here's the bottom line for me: The economics of this crises are exceedling complex and there's no one in this forum (AFAIK) who is qualified to discuss it.

Read the thread before posting.

By amjeff

"Are you really saying that ACORN is responsible for the current mess? I'd love to see someone try to demonstrate the validity of that assertion."

amjeff asked me to post evidence by someone. I did. I didn't ask anyone to refute it factually until people tried to refute on their own with ad hominem attacks. I guess I should not have expected any actual argument despite being asked to find someone making the case against ACORN myself.

Me&theboys 10-08-2008 02:13 PM

Have a heapin' helpin' of some psychology
 
"You're all invited back again to this locality
To have a heapin' helpin' of some [psychology]"

Is anyone here old enough to know the Beverly Hillbillies theme song?

I agree with Eric that adding psychological principles to economic theories will make those theories far more useful and more predictive of what is going to happen and save us all from the kinds of financial and other crises we have been experiencing recently. The problem with this idea is that adding psychological principles to economic and other theories is going to render those theories far less palatable to many people, because these principles tend not to be very flattering ones. Historically, economic theories have been based on the assumption that people behave rationally – a flattering concept. Psychologically based economic theories will incorporate the growing base of evidence that people often do not behave rationally (just one item in a large repertoire of not so impressive behaviors). Most people, when confronted with these and other facts about human psychology, get very irritated and feel insulted (or assume they apply to everyone but themselves). People are not receptive to the truth about human nature, especially when that truth is not very flattering. Imagine introducing policies/legislation that are based on unflattering psychological theories about people. Or imagine opposing legislation/policies on the basis of unflattering psychological theories about people. Not an approach many politicians will embrace, particularly since psychological theories about people are equal opportunity theories and apply to people of all political stripes. The same theories that would rein in conservatives would also rein in liberals. I personally think that would be a good thing - less ideology all around. And I’m all for a heapin' helpin' of psychology in government policy making and in all other aspects of life. But I'm pessimistic about this ever happening, because I find that most people don’t want to know the truth about themselves, and they don’t elect politicians who want them to understand the truth about themselves.

AemJeff 10-08-2008 02:16 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93581)
Refute the fact that Acorn sued banks to make them lower their credit standards.

Refute the facts that:

"Democratic Senator Allan Dixon convened a Senate subcommittee hearing at which an ACORN representative gave key testimony"

"Dixon responded by pressing Fannie and Freddie to do more to relax those standards — and by promising to introduce legislation that would ensure it."

"By July of 1991, ACORN’s legislative campaign began to bear fruit. As the Chicago Tribune put it, “Housing activists have been pushing hard to improve housing for the poor by extracting greater financial support from the country’s two highly profitable secondary mortgage-market companies. Thanks to the help of sympathetic lawmakers, it appeared...that they may succeed.” The Tribune went on to explain that House Democrat Henry Gonzales had announced that Fannie and Freddie had agreed to commit $3.5 billion to low-income housing in 1992 and 1993, in addition to a just-announced $10 billion “affordable housing loan program” by Fannie Mae."

"Clinton Housing Secretary Henry Cisnersos pledged to meet monthly with ACORN representatives."

"In early 1994, the Clinton administration floated plans for committing $1 trillion in loans to low- and moderate-income home-buyers, which would amount to about half of Fannie Mae’s business by the end of the decade. "

"in June of 1995, President Clinton, Vice President Gore, and Secretary Cisneros announced the administration’s comprehensive new strategy for raising home-ownership in America to an all-time high. Representatives from ACORN were guests of honor at the ceremony. In his remarks, Clinton emphasized that: “Out homeownership strategy will not cost the taxpayers one extra cent. It will not require legislation.” Clinton meant that informal partnerships between Fannie and Freddie and groups like ACORN would make mortgages available to customers “who have historically been excluded from homeownership.” (i.e. sub-prime loans)

ACORN's raison d'ętre was to make housing credit available to a wider group of applicants. The list you provided here isn't in dispute.

It's the establishing of a significant causal relationship between those relaxed standards, to the extent that ACORN was successful, and the current situation that needs to be proven.

Even granting that (I don't), I'd be slow to try and characterize ACORN as evil, or impugn the motives or the judgment of those who have supported it over the years.

gwlaw99 10-08-2008 02:27 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by AemJeff (Post 93588)
ACORN's raison d'ętre was to make housing credit available to a wider group of applicants. The list you provided here isn't in dispute.

It's the establishing of a significant causal relationship between those relaxed standards, to the extent that ACORN was successful, and the current situation that needs to be proven.

Even granting that (I don't), I'd be slow to try and characterize ACORN as evil, or impugn the motives or the judgment of those who have supported it over the years.

You are right. I don't have data charts to prove that, but is seems a pretty obvious conclusion that if you make something much easier to obtain it will increase the number of people obtaining it. I think it is also pretty well accepted that the number of sub-prime loans has skyrocketed since the changes to Fanny And Freddie in the mid 90's

"I'd be slow to try and characterize ACORN as evil, or impugn the motives or the judgment of those who have supported it over the years."

I'd agree that their motives in making mortgages more affordable was not evil and their intentions were probably good. However, it was clearly a horrible economic mistake to do so.

Ocean 10-08-2008 02:33 PM

Re: Have a heapin' helpin' of some psychology
 
Quote:

Originally Posted by Me&theboys (Post 93587)
But I'm pessimistic about this ever happening, because I find that most people don’t want to know the truth about themselves, and they don’t elect politicians who want them to understand the truth about themselves.

You present an interesting view of the topic. But, perhaps it's time to start operating in reality. I think that it can be extremely helpful in protecting the most vulnerable. Assuming that everyone is wise and rational in their decision making may lead to disasters, like our financial crisis. Adding the "less flattering side" of our humanity would allow to anticipate and prevent collective mistakes of this magnitude, at the least.

AemJeff 10-08-2008 02:35 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93590)
However, it was clearly a horrible economic mistake to do so.

It's not so clear to me, of course - but at least now we agree on what we disagree about!

gwlaw99 10-08-2008 02:45 PM

Re: The Mind and the Market
 
I don't want to put words in your mouth, but does that mean you think the ease in which people can get subprime loans was sound economic policy? Do you think the amount of subprime loans made available by relaxing credit standards had anything to do with the economic meltdown?

AemJeff 10-08-2008 03:02 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93593)
I don't want to put words in your mouth, but does that mean you think the ease in which people can get subprime loans was sound economic policy? Do you think the amount of subprime loans made available by relaxing credit standards had anything to do with the economic meltdown?

I'm agnostic. I think what we're really talking about is matters of degree, with no clear boundary between right and wrong.

My personal view is that the commoditisation (neologism alert!) of bundled mortgages as insured assets lead to a lack of moral hazard at the retail level. I blame that for allowing standards to be bent or broken, more than I blame what seems to have been an orderly modification of those standards for creating the current mess.

But if I'm honest, I have to admit that that's basically an a priori judgment, based on my (liberal) political outlook. I don't know how we go about making a reliable empirical case - I'm sure there are important variables that we can't even name, let alone quantize.

gwlaw99 10-08-2008 03:55 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by AemJeff (Post 93596)
I'm agnostic. I think what we're really talking about is matters of degree, with no clear boundary between right and wrong.

My personal view is that the commoditisation (neologism alert!) of bundled mortgages as insured assets lead to a lack of moral hazard at the retail level. I blame that for allowing standards to be bent or broken, more than I blame what seems to have been an orderly modification of those standards for creating the current mess.

But if I'm honest, I have to admit that that's basically an a priori judgment, based on my (liberal) political outlook. I don't know how we go about making a reliable empirical case - I'm sure there are important variables that we can't even name, let alone quantize.

I completely agree with you that the making loans into securities is a major cause of the problem. If you read my first post on the thread, I was wondering why the diavlog participants did not also talk about the relaxing of lending standards. After all you can't "securitize" bad loans if you can't make those loans in the first place. You can still "securitize" good loans, but they won't be made valueless by bad loans they are backed by (which should never have been made in the first place) defaulting.

Jon 10-08-2008 08:03 PM

Re: The Mind and the Market
 
Great. I wonder what the BHs would think of Daniel Gross' book:

Pop! Why Bubbles are Great for the Economy by Daniel Gross, 2007

AemJeff 10-08-2008 08:10 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by gwlaw99 (Post 93601)
I completely agree with you that the making loans into securities is a major cause of the problem. If you read my first post on the thread, I was wondering why the diavlog participants did not also talk about the relaxing of lending standards. After all you can't "securitize" bad loans if you can't make those loans in the first place. You can still "securitize" good loans, but they won't be made valueless by bad loans they are backed by (which should never have been made in the first place) defaulting.

The controversy seems to be whether to assign more blame on the demand side or the supply side. Ultimately I think you have to blame the side with more power, and in my view that's not the people buying the mortgages.

Ocean 10-08-2008 09:27 PM

Re: The Mind and the Market
 
Quote:

Originally Posted by AemJeff (Post 93622)
The controversy seems to be whether to assign more blame on the demand side or the supply side. Ultimately I think you have to blame the side with more power, and in my view that's not the people buying the mortgages.

It's very hard for people to understand that. Particularly when the alternative hypothesis serves other kinds of agendas.


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