Only in our fair land can a family be given a brand new house...have it done as part of a Reality TV show...have the mortgage of said house paid off as part of the "Extreme Makeover"...be handed $100,000 cash...and still be looking at real estate foreclosure 3 1/2 years later:
Extreme Makeover:Foreclosure Edition
An Extreme Home Makeover may be going bust. The first metro family who got a new home is facing foreclosure...A foreclosure notice appeared last Friday, a $450,000 second mortgage they took out less than 15 months ago was in default.
G-d Bless America...my hooome...sweeeeet...hooooooome!!!
B-b-but it's Bush's fault! (Sorry, had to.)
ReplyDeleteSounds like the used the house as collateral for a loan to start a new business.. which didn't work out. How that's an indictment of our country in general, I don't know. Unless you're arguing that lenders should be more regulated, in which case maybe you could blame Bush.
ReplyDeleteOh come on. This is not on the lending industry, but on the people themselves. The bank would see only that their mortgage is paid off, that they have some liquid cash, etc. This wasn't a business loan, where the bank would look at the plans, but a normal second mortgage.
ReplyDeleteWhat it comes down to is that people make bad decisions, and guess what - too bad!
They managed to blow $550,000 in less than a year and a half? Kind of makes you wonder why they needed the help of the Extreme Home Makeover show in the first place, and whether they were the right beneficiary of all of those organizations' and people's generosity.
ReplyDeleteezzie:
ReplyDeleteSure, it's their fault here, but a lot of people who are being foreclosed now never had a realistic chance at being able to pay for their loans. That is also their fault but it could have been prevented by either a) lenders acting responsibly or b) lenders being regulated into acting responsibly.
I don't think it's insane to protect people from their own stupidity when plenty of people are in fact stupid. If you're designing a power saw, you don't just leave it unguarded and blame the users for losing their thumbs and fingers... you add a guard because sometimes people slip.
It's like all the people who win the lottery and then ruin their lives because they don't know how to handle their money.
ReplyDeleteJA said: if you're designing a power saw, you don't just leave it unguarded and blame the users for losing their thumbs and fingers... you add a guard because sometimes people slip.
ReplyDeleteI'm sure Ser can tell you about that...
---
But seriously, I think it just proves that no matter what you give people, if you don't educate them, it's all useless.
I've had some business ideas, but I've decided that my start-up budget is limited to what we (as a family) can reasonably afford to lose or what I can get someone to invest in. I know several people who started up businesses with under ten thousand dollars. Two of them now have several employees. Another two are doing well enough to support a family on the business owner's work. Another is still in early start-up stages. Since her business is sales, she's had to invest in some stock, but even that, she's kept to a low level.
Some started literally with a computer (which was already their home computer), a self-designed website, and a box of business cards.
If you're going to start a business, you either need to make a sound business plan and get investors or build from the bottom up. Mortgaging your house is not a reasonable way to start a business. Too many businesses fail within the first year.
There's a reason why so many people are employed by others when being a successful business owner pays so much better...
this is why we all need to make aliyah
ReplyDeletela la la la la
(still jetlagged but not brainwashed wooooohooooo)
How that's an indictment of our country in general, I don't know. Unless you're arguing that lenders should be more regulated, in which case maybe you could blame Bush.
ReplyDelete------------
Seriously, try NOT thinking everything through to the enth degree...I promise you the fun factor in life will increase withing 12 hours.
If you're designing a power saw, you don't just leave it unguarded and blame the users for losing their thumbs and fingers... you add a guard because sometimes people slip.
ReplyDelete------------
Wrong side of the analogy, sorry.
The question is if there was NO guard and something happened would you be the kind of person who would sue that there SHOULD have been one.
That is also their fault but it could have been prevented by either a) lenders acting responsibly or b) lenders being regulated into acting responsibly.
ReplyDelete...or C)READING SOMETHING BEFORE YOU SIGN IT!
...or C)READING SOMETHING BEFORE YOU SIGN IT!
ReplyDeleteI already said it's their fault, but that doesn't exonerate the lender or the lack of regulations.
Lender - Questionable.
ReplyDeleteLack of regulations - Absolutely it does! What kind of regulations should be put in place? "No lending to stupid people, because someone might take advantage of them"?!
ezzie:
ReplyDeleteNo lending to people who can't plausibly pay it back. That wouldn't have helped the family in this post, but it would have avoided a lot of the more typical foreclosures.
Define "plausibly".
ReplyDeleteWell, obviously, somebody would have to work out the numbers. The mortgage could be up to X% of the household income, modified by some other factors. Any exceptions would need to go through some sort of review/auditing process.
ReplyDelete...which is basically what happens now. The problem is when people lie on the application, leave out other debts, or simply mismanage their money.
ReplyDeleteOr when they take advantage of low ARMs and ignore that it can easily shoot up on them, and don't save for that eventuality.
The problem is when people lie on the application, leave out other debts, or simply mismanage their money.
ReplyDeleteTHAT's what caused the current situation??
ARMs shooting up on people who couldn't afford it? Yes.
ReplyDeleteAnd why were the ARMs given to people who couldn't afford it?
ReplyDeleteWhat does that mean? A combination of people who thought they could afford it; people who ignored warnings that they might not be able to in a couple of years; people who could afford it if they managed their money properly in the interim; people who lied about their incomes; people who ignored other debts; etc.
ReplyDeleteI fail to see how it's the fault of the lender when a person borrows money he won't be able to afford to pay back starting in a couple of years.
Do you suggest we ban people from buying TVs, video games, and the like until their other expenses are in order? Should we regulate all spending by consumers? I fail to see a difference between what you're implying and that.
Please answer my power saw scenario.
ReplyDeleteThank You
--this all boils down to whether or not you ascribe to practice of protecting people from themselves
I already said it's their fault, but that doesn't exonerate the lender or the lack of regulations.
ReplyDelete--------
I'm curious, at what point does someone become responsible for their own actions in your opinion?
Let's say we put in all your proposed regulations and people STILL figure out a way to be stupid about it, what then?
How do YOU decide when it's enough?
I fail to see how it's the fault of the lender when a person borrows money he won't be able to afford to pay back starting in a couple of years.
ReplyDeleteI'm under the impression that a lot of those loans were clearly irresponsible. If you have evidence to the contrary, I'd be happy to see it.
g:
Re: the power-saw, who said anything about suing anybody? I'm talking about whether things should be regulated to prevent user error.
I'm curious, at what point does someone become responsible for their own actions in your opinion?
People are always responsible for their own actions. That doesn't mean it's okay to exploit/enable them to screw up when it's easily avoidable.
How do YOU decide when it's enough?
Ultimately by voting, I guess. Isn't that how we usually work things out in America?
the power-saw, who said anything about suing anybody? I'm talking about whether things should be regulated to prevent user error.
ReplyDelete--same principle
That doesn't mean it's okay to exploit/enable them to screw up when it's easily avoidable.
--nobody said it was correct, the question is whether it should be a matter for govt.
How do YOU decide when it's enough?
--I was unclear, sorry. I mean how do you know when you have enough laws/rules/regulations? At what point are people on their own?
I'm under the impression that a lot of those loans were clearly irresponsible. If you have evidence to the contrary, I'd be happy to see it.
ReplyDeleteNo offense, but the onus of that one is on you. Where do you get that impression? Define "irresponsible"?
The reason Bush didn't want to sign the bill he just caved on is it lets off both parties - the irresponsible borrowers and stupid lenders. I fail to see how that should require greater regulation - it simply shows that everyone is greedy and that they don't mind taking big chances, with the knowledge that many people in this country will then feel bad for them and say they should be bailed out.
Note that John McCain is one of a handful of Senators and Congressmen in this country who have stated (despite it being unpopular) that such people should NOT be bailed out.
--same principle
ReplyDeleteOkay, so yes, I'm in favor of basic health and safety regulations, e.g. by OSHA.
--nobody said it was correct, the question is whether it should be a matter for govt.
Why not? Nobody else is doing it. Unless it infringes on a basic human right, I think reasonable regulations are a good thing.
--I was unclear, sorry. I mean how do you know when you have enough laws/rules/regulations? At what point are people on their own?
Ideally, we'd use some sort of reasonable cost/benefit analysis. For example, I'd want to regulate lending so that people weren't given loans they obviously could never pay back, but I wouldn't want to get a federal judge involved with every single loan application. I think mandatory airbags are worth their cost, but mandating that all drivers and passengers wear helmets would go too far.
Reasonable people will disagree about where to draw the lines, and that's why we have voting and representatives in government.
The reason Bush didn't want to sign the bill he just caved on is it lets off both parties - the irresponsible borrowers and stupid lenders. I fail to see how that should require greater regulation - it simply shows that everyone is greedy and that they don't mind taking big chances, with the knowledge that many people in this country will then feel bad for them and say they should be bailed out.
ReplyDeleteIf we know ahead of time that people are greedy and don't mind taking big chances, shouldn't we build those assumptions into the system to minimize damage? Much to the chagrin of the WSJ and its fans, human beings are not homo economus or homo rationalus.
Bail-outs are a different subject than regulations. I don't know enough about them to get into it now.
You'd essentially kill the lending industry by overregulating it. Interest rates and the like are based on financial calculations that factor in risk, the prime lending rate in the country, etc.
ReplyDeleteBanks don't lend to people that probably won't be able to pay back because it's not in their interest to do so, unless they charge a very high rate of interest. What happened here was that people who normally couldn't get such loans took advantage of lower rates, ignored that the rates would probably go back up within a few years, thought that the value increase in their homes would cover any differential, and never bothered to save any money in case any of that was wrong.
Depending on where the regulations would draw the line, they either would not affect the same thing from happening or they'd restrict most borrowers who ARE responsible from taking out loans that could help them get out of debt and get ahead - owning instead of renting, lower rates, paying off credit card debt with their home equity, etc.
The financial system works wonderfully, punishing the irresponsible and greedy. It's only when people mess around with it (regulations, bailouts, etc.) that it becomes a mess.
If we know ahead of time that people are greedy and don't mind taking big chances, shouldn't we build those assumptions into the system to minimize damage?
ReplyDeleteNO! That only protects them!
Much to the chagrin of the WSJ and its fans, human beings are not homo economus or homo rationalus.
Most are. Those that aren't need to learn to be. We shouldn't cater our world to jerks and morons, that's ridiculous.
Bail-outs are a different subject than regulations. I don't know enough about them to get into it now.
That's a huge factor in this whole equation. None of this would be an issue except for the people who are getting screwed (deservingly so) if not for the fact that the government continually bails them out - at the expense of those who are responsible.
You'd essentially kill the lending industry by overregulating it.
ReplyDeleteOh, I have no interest in OVERregulating it!
What happened here was that people who normally couldn't get such loans took advantage of lower rates, ignored that the rates would probably go back up within a few years, thought that the value increase in their homes would cover any differential, and never bothered to save any money in case any of that was wrong.
In other words, most of them couldn't afford the loans. Shouldn't the lenders have also realized the rates would go up?
The financial system works wonderfully, punishing the irresponsible and greedy. It's only when people mess around with it (regulations, bailouts, etc.) that it becomes a mess.
NO! That only protects them!
and that's a bad thing?
Much to the chagrin of the WSJ and its fans, human beings are not homo economus or homo rationalus.
Most are. Those that aren't need to learn to be. We shouldn't cater our world to jerks and morons, that's ridiculous.
I think we're getting somewhere here. Your -- and Republicans' in general, I think -- assumptions are just different from... um, reality, to put it bluntly. No, most people are not carefully rational actors with good understandings of compound interest.
You're an accountant. Assuming that the rest of the human race is just like you is a terrible assumption. Most people are bad at math, can't follow a legal document, and are very susceptible to sales people and advertisements. That's why businesses spend so much money on those things.
I'm a professional software engineer. If I projected my skills to humanity in general, I would argue that websites should not ensure that passwords were remotely strong, because those who get their passwords compromised because they were easy to guess or dictionary-attack deserved it. And why should the computer warn you if you're going to do something stupid, like delete your root directory?
That's a huge factor in this whole equation. None of this would be an issue except for the people who are getting screwed (deservingly so) if not for the fact that the government continually bails them out - at the expense of those who are responsible.
Without the bailouts, the economy would still be tanking and all those people would still be foreclosed. I'm not saying bailouts are necessarily the right thing, but it's not like they caused the original problem.
AAAHHHH!!! Okay, I need to breathe before I respond. :)
ReplyDeleteSee David Brooks:
ReplyDeleteThe loosening of financial inhibition has meant more options for the well-educated but more temptation and chaos for the most vulnerable. Social norms, the invisible threads that guide behavior, have deteriorated. Over the past years, Americans have been more socially conscious about protecting the environment and inhaling tobacco. They have become less socially conscious about money and debt.
The agents of destruction are many. State governments have played a role. They aggressively hawk their lottery products, which some people call a tax on stupidity. Twenty percent of Americans are frequent players, spending about $60 billion a year. The spending is starkly regressive. A household with income under $13,000 spends, on average, $645 a year on lottery tickets, about 9 percent of all income. Aside from the financial toll, the moral toll is comprehensive. Here is the government, the guardian of order, telling people that they don’t have to work to build for the future. They can strike it rich for nothing.
Payday lenders have also played a role. They seductively offer fast cash — at absurd interest rates — to 15 million people every month.
Credit card companies have played a role. Instead of targeting the financially astute, who pay off their debts, they’ve found that they can make money off the young and vulnerable. Fifty-six percent of students in their final year of college carry four or more credit cards.
Congress and the White House have played a role. The nation’s leaders have always had an incentive to shove costs for current promises onto the backs of future generations. It’s only now become respectable to do so.
Lots and lots of people will act illogically and irresponsibly. We can laugh at them and say it's their fault and they get what they deserve, OR WE CAN STOP EXPLOITING THEM.
I ask again, at what point are people responsible for themselves?
ReplyDeleteI ask again, at what point are people responsible for themselves?
ReplyDeleteI don't know, are we living in an Ayn Rand novel?
For a less flippant answer, people are always responsible for themselves. That doesn't mean we can't take care of each other within a society, though.
ReplyDeleteThat doesn't mean we can't take care of each other within a society, though.
ReplyDeleteTrue enough, the question is whether I can be obligated by the State to do so.
--Ever see the final episode of Seinfeld?
True enough, the question is whether I can be obligated by the State to do so.
ReplyDeleteNot really. To be precise, the question is can you be obligated by the state to NOT exploit people who act irresponsibly. This is not a new idea, btw. The ancient prohibitions on usury are along the same lines.
So then your answer is "Yes, the state can obligate me to not take advantage of people*."?
ReplyDelete*so long as no established laws are broken in the process
Oh, I have no interest in OVERregulating it!
ReplyDeleteHa!
What happened here was that people who normally couldn't get such loans took advantage of lower rates, ignored that the rates would probably go back up within a few years, thought that the value increase in their homes would cover any differential, and never bothered to save any money in case any of that was wrong.
In other words, most of them couldn't afford the loans. Shouldn't the lenders have also realized the rates would go up?
No, they could afford the original loans, just not the rate jump. That could be for a whole slew of reasons - ignorance, lack of care, irresponsible spending, etc. It's not on the lenders, but on the borrowers, to be prepared for rate changes. They knew they were getting adjustable rate mortgages, that's how they got the low starting rate.
You keep forgetting that not *all* of the borrowers are in foreclosure - with the huge jump in foreclosures, 1.46% of homes are now in foreclosure. Your suggestions would hurt all the rest of the homeowners who ARE paying their bills, because now they wouldn't be able to get loans. (Even of subprime borrowers, I believe it's only 14% who are defaulting - which means 86% are not.)
Moreover, a good healthy chunk of that comes from three states: Florida, Arizona, and Nevada (4+% foreclosure rates, when no other state is above 2.1%). Those just happen to be the states that had the biggest real estate boom in the preceding number of years - where many people were buying up properties thinking that they will continue to shoot up in value, making it easy for them to either get a new loan or sell the house at a profit. When the prices stopped climbing and the rates started climbing, they were screwed. Guess what - that's the risk you take when you try to take advantage of the system.
Shouldn't the lenders have also realized the rates would go up?
Why is that on the lenders and not the borrowers!?
The financial system works wonderfully, punishing the irresponsible and greedy. It's only when people mess around with it (regulations, bailouts, etc.) that it becomes a mess.
NO! That only protects them!
and that's a bad thing?
Protecting the greedy and irresponsible?! Yes, that's a bad thing. I have an idea - I'm going to make a really risky investment. If it pays off, I'll be a millionaire. If it doesn't, I want you to help me get out of it. Fair?
I think we're getting somewhere here. Your -- and Republicans' in general, I think -- assumptions are just different from... um, reality, to put it bluntly. No, most people are not carefully rational actors with good understandings of compound interest.
Agreed!! Which is why President Bush gave a whole speech about teaching economics a few years back, if you recall.
So what's the solution? Educate? Or continue to punish the people who care enough to learn about it to make up for the people who really don't?
I'm a professional software engineer. If I projected my skills to humanity in general, I would argue that websites should not ensure that passwords were remotely strong, because those who get their passwords compromised because they were easy to guess or dictionary-attack deserved it. And why should the computer warn you if you're going to do something stupid, like delete your root directory?
Because if you didn't, a smarter software engineer would design a computer that did, and advertise it as such, and make more money than you. More importantly, you're actually proving the point: If someone would buy a computer without such warnings or investigation or understanding, and then would proceed to screw up, they'd be a fool. Would you then feel that everyone else should pay for their new computer?
Without the bailouts, the economy would still be tanking and all those people would still be foreclosed. I'm not saying bailouts are necessarily the right thing, but it's not like they caused the original problem.
Huh!? That's not even true. It contributes to the problem because banks and lenders can take on greater risk without actually risking anything. That skews the entire system. The people would be foreclosed because they couldn't pay their bills. You can feel bad for them all you want, but that's the risk you take when you get a mortgage, particularly an ARM.
Re: Brooks. He's not saying anything new, and I don't know what he does besides write for the Times. Is he an economist? Or someone who writes about society, etc.? Does he know his stuff?
ReplyDeleteThat said, he's siding more with a theoretical conservative than liberal:
The loosening of financial inhibition has meant more options for the well-educated but more temptation and chaos for the most vulnerable. Social norms, the invisible threads that guide behavior, have deteriorated. Over the past years, Americans have been more socially conscious about protecting the environment and inhaling tobacco. They have become less socially conscious about money and debt.
Agreed! And at a higher societal cost. If people were better about the economics first, there'd be plenty leftover to work on the rest, too.
They aggressively hawk their lottery products, which some people call a tax on stupidity.
...or greed. Most people, even AFTER you explain to them how much their bad decisions cost them, will still make them because they want to. They'll still spend $8/pack on cigarettes. $10/week on lottery. Not put into a 401(k) to buy more shoes or an iPod. Why should those people get it both ways? Why should everyone who IS responsible pick up the tab?
You want to shut down the lottery? I'm not a fan of the lottery, either. But someone who is less moral will fill the void. Short of controlling the free choice people have in spending their money as they wish, there's nothing you can do. The best approach then is to reward GOOD choices, not punish the people who do to make up for the ones who don't.
Fifty-six percent of students in their final year of college carry four or more credit cards.
This one bugs me. Are 56% of college students that stupid? Or are they simply uncaring - they want the stuff they want to buy NOW, and don't particularly care about the consequences. I'm betting the latter with a bit of the former... and no, I don't think that the rest of the country should pay for them.
Congress and the White House have played a role. The nation’s leaders have always had an incentive to shove costs for current promises onto the backs of future generations. It’s only now become respectable to do so.
!! COUGH COUGH SOCIAL SECURITY HIGHER TAXES MOST WELFARE SPENDING UNIVERSAL HEALTHCARE DEMOCRATS COUGH.
Excuse me, got something caught there. I mean, really.
Lots and lots of people will act illogically and irresponsibly. We can laugh at them and say it's their fault and they get what they deserve, OR WE CAN STOP EXPLOITING THEM.
!? Again - there will always be people who will take advantage of people who don't bother to learn from mistakes, who don't bother to learn about money at all, who wish to live for the present. There's not much you can do about it short of controlling the money of stupid people, which is, IMO and I think yours, wrong. You want to stop exploiting? Encourage good choices. Let's NOT punish the people who are responsible and know what they're doing, but help them so they in turn can help the others.
I don't know, are we living in an Ayn Rand novel?
Halevai! :) (Never read Ayn Rand, just read a summary of Atlas Shrugged.)
Not really. To be precise, the question is can you be obligated by the state to NOT exploit people who act irresponsibly. This is not a new idea, btw. The ancient prohibitions on usury are along the same lines.
Okay. But again, I fail to see how the current crisis was due to exploitation. Most of the "regulations" that Democrats ask for have little to do with exploitation, unless you consider the normal course of business exploitation.
g:
ReplyDeleteSo then your answer is "Yes, the state can obligate me to not take advantage of people*."?
*so long as no established laws are broken in the process
Yes, more or less.
Ezzie:
Re: Brooks... That said, he's siding more with a theoretical conservative than liberal
He IS a conservative.
...or greed. Most people, even AFTER you explain to them how much their bad decisions cost them, will still make them because they want to. They'll still spend $8/pack on cigarettes. $10/week on lottery. Not put into a 401(k) to buy more shoes or an iPod. Why should those people get it both ways? Why should everyone who IS responsible pick up the tab?
Again, I'm not talking about bail-outs. I'm talking about regulation to prevent the exploitation in the first place. I don't see that the government has the right to ban the sale of cigarettes (or other drugs) but they do have the right to put reasonable regulations (no kids, manufacturers must be clear about what's in them, etc.)
People tend to be greedy and short-sighted. No argument here.
You want to shut down the lottery? I'm not a fan of the lottery, either. But someone who is less moral will fill the void. Short of controlling the free choice people have in spending their money as they wish, there's nothing you can do.
No, that's where you're wrong. There's a middle ground between forbidding something and allowing everything. It's called regulation. For example, casinos are regulated so that the odds aren't grossly distorted as they are in the lottery. Do people still blow too much money there? Yes. But they pay closer to 95 cents on the dollar than 53.
There's a difference between providing a service or product that people want even if it's bad for them and completely taking advantage of them.
The best approach then is to reward GOOD choices, not punish the people who do to make up for the ones who don't.
Again, this is one of the fundamental flaws of the conservative model of the mind. Carrots and sticks only go so far. You're not going to train an irrational/irresponsible adult to behave rationally by letting people take advantage of them. The whole conservative obsession with incentives is just absurd.
This one bugs me. Are 56% of college students that stupid? Or are they simply uncaring - they want the stuff they want to buy NOW, and don't particularly care about the consequences. I'm betting the latter with a bit of the former... and no, I don't think that the rest of the country should pay for them.
I agree with you about the students. Again, who's saying the country should pay for them? But maybe the CC companies should be regulated a bit so that, for example, they can't extend lines of credit more than $20,000 to people with no income? Or even easier, how about putting a ceiling on the interest rates, which start to approach loan-shark levels. (Exceptions to be made for student loans and other good reasons.)
!! COUGH COUGH SOCIAL SECURITY HIGHER TAXES MOST WELFARE SPENDING UNIVERSAL HEALTHCARE DEMOCRATS COUGH.
Um, no. The point is shoving the cost of TODAY'S spending onto future generations. That's solely a Republican thing. Dick Cheney: "Reagan showed that deficits don't matter."
!? Again - there will always be people who will take advantage of people who don't bother to learn from mistakes, who don't bother to learn about money at all, who wish to live for the present. There's not much you can do about it short of controlling the money of stupid people, which is, IMO and I think yours, wrong.
That's not true. We don't allow fraud in order to teach people to be smarter about sniffing out con men. we can have some regulations without "controlling the money of stupid people."
You want to stop exploiting? Encourage good choices. Let's NOT punish the people who are responsible and know what they're doing, but help them so they in turn can help the others.
Again with the carrot-and-stick model. Show me evidence it works.
Halevai! :) (Never read Ayn Rand, just read a summary of Atlas Shrugged.)
She's possibly the best example of a conservative with a terribly inaccurate theory of the mind.
Okay. But again, I fail to see how the current crisis was due to exploitation. Most of the "regulations" that Democrats ask for have little to do with exploitation, unless you consider the normal course of business exploitation.
Lenders were being way too greedy and handing out loans like lollipops to people who couldn't afford them. Yes, the lendees are to blame. But so are the lenders.
Why do Republicans go on and on about "personal responsibility" but completely ignore "corporate responsibility" and "governmental responsibility?"
He IS a conservative.
ReplyDeleteNo wonder he made so much sense! :) Hell of a lot better than Krugman (shudder).
Again, I'm not talking about bail-outs.
Good. Can we agree bailouts are bad?
I'm talking about regulation to prevent the exploitation in the first place.
Those already exist. See below.
I don't see that the government has the right to ban the sale of cigarettes (or other drugs) but they do have the right to put reasonable regulations (no kids, manufacturers must be clear about what's in them, etc.)
Agreed.
People tend to be greedy and short-sighted. No argument here.
Whew! I think that many people on the left actually will not acknowledge this.
No, that's where you're wrong. There's a middle ground between forbidding something and allowing everything. It's called regulation. For example, casinos are regulated so that the odds aren't grossly distorted as they are in the lottery. Do people still blow too much money there? Yes. But they pay closer to 95 cents on the dollar than 53.
Actually, the lottery pays 16 cents on the dollar. Again - you can't really regulate that, unless you start restricting the profit margin anyone can earn on a product. That they do it to casinos is already a big deal, but the casinos make enough and possibly benefit from the fact that they can say "look, the government regulates us, it must be fair" so it works out okay for them.
There's a difference between providing a service or product that people want even if it's bad for them and completely taking advantage of them.
Agreed. But as with most things in economics, it's very hard to draw a line, and quite a slippery slope. The only thing to really do is encourage consumers to make smart decisions.
Again, this is one of the fundamental flaws of the conservative model of the mind. Carrots and sticks only go so far. You're not going to train an irrational/irresponsible adult to behave rationally by letting people take advantage of them. The whole conservative obsession with incentives is just absurd.
What do you mean!? You're arguing that the people are too stupid and irresponsible to not be taken advantage of (which btw is an inherent argument of conservatives vs. liberals - conservatives feel they can learn, liberals think they can't). Incentives have quite often proven to work, and when the primary argument is "they're blinded by what they want now", throwing something else they might want in front will very much make a difference. It works according to both sides' views. Show me where incentives have NOT worked. And show me where extra regulation has without seriously restricting free choice.
I agree with you about the students. Again, who's saying the country should pay for them? But maybe the CC companies should be regulated a bit so that, for example, they can't extend lines of credit more than $20,000 to people with no income? Or even easier, how about putting a ceiling on the interest rates, which start to approach loan-shark levels. (Exceptions to be made for student loans and other good reasons.)
?! Credit card companies don't give out $20,000 credit cards to college kids. They make reasonable assessments of what people can afford in the long run. They don't gain by giving out money that can't be paid back.
Most states DO cap credit card and lending rates, so I don't know what you're talking about. I actually got screwed because the NY rate for lending is way lower than everywhere else (thank you, Democrats), so instead of being able to switch from high credit debt to lower debt, I couldn't get a loan at all, effectively screwing me, since nobody would give me a loan at the very low NY rate. Stupid "regulations" on lending don't help people, they just mess over the people who are trying to work out of debt.
Um, no. The point is shoving the cost of TODAY'S spending onto future generations. That's solely a Republican thing.
LOLOL. I mean, really.
Dick Cheney: "Reagan showed that deficits don't matter."
That's actually true. They constantly fluctuate. A short-term deficit is often necessary for the longer term - think tax cuts, which is what I believe Cheney was talking about. Ever learn Corporate Finance? (I'm actually studying it now once again. Always a good refresher.)
That's not true. We don't allow fraud in order to teach people to be smarter about sniffing out con men. we can have some regulations without "controlling the money of stupid people."
Tell me where you draw the line with specifics. Most if not all things you'll say will either already exist or very much restrict free choice.
Again with the carrot-and-stick model. Show me evidence it works.
Capital gains rates. All of a sudden, more people are planning long-term. That's just the easiest big one.
She's possibly the best example of a conservative with a terribly inaccurate theory of the mind.
I'll have to read it then! :)
Lenders were being way too greedy and handing out loans like lollipops to people who couldn't afford them. Yes, the lendees are to blame. But so are the lenders.
Why would they hand out loans to people who can't afford them? More importantly, let's think about that: Both sides were greedy. Both sides thought they'd gain by making a deal. How exactly would you stop two sides who want to make a transaction from doing so!?!? I mean, seriously! For someone who is strong on individual rights, that's simply crazy!
Why do Republicans go on and on about "personal responsibility" but completely ignore "corporate responsibility" and "governmental responsibility?"
Why do Democrats always forget about personal responsibility? The government can only do so much, and I don't see the corporate world suffering too much. They must be using their brains. Oh, right, they're supposed to be punished for that.
It's not that they were trying to give out loans people could literally not pay back -- they were trying to extract the maximum amount of money they could. They took a gamble and lost, just as the lendees did.
ReplyDeleteRegarding incentives. Let's take obesity. Shaming of obese people is a clear disincentive to be obese, yet shaming has been experimentally shown to be counterproductive. Obesity itself is a disincentive to overeating, yet people continue to over eat.
Then you have situations like the housing crisis where the stick is so harsh people may not recover enough to learn from it. Or take crime. Jail is a strong disincentive, and yet we have the largest prison population per capita of the whole world.
Regarding deficits, obviously it may occasionally be useful to have a short-term one (although such situations would be rare.) The Republicans, however, now have blowing up the deficit as a de facto party plank. Too politically cowardly to cut spending and too stubborn to raise taxes, they PUSH THE DEBT ONTO FUTURE GENERATIONS, which was my (and Brooks's, I think) original point.
Without this sleight-of-hand in effect exploiting stupid voters, today's Republicans would have no chance of winning elections. They convince some of you that they're really going to cut spending this time, really, we promise, but for most Republican voters, it's enough to talk about cutting taxes without ever mentioning the other side of the balance sheet.
It's the exact same mechanism as offering huge lines of credit with equally huge interest rates. Exploit people's tendencies to be greedy and short-sighted.
g:
ReplyDeleteSo then your answer is "Yes, the state can obligate me to not take advantage of people*."?
*so long as no established laws are broken in the process
JA:
Yes, more or less.
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So then I ask again, have you ever seen the final episode of Seinfeld?
g:
ReplyDeleteI saw most of it. If I recall correctly, I got an important phone call in the middle. However, I remember it being about them being punished for not helping someone else. I am not suggesting that we force people to help each other -- just that we prevent them from exploiting each other.
What's the dofference?
ReplyDeleteIf you can legislate one, why not the other? Is it not the same principal?
If you can legislate one, why not the other? Is it not the same principal?
ReplyDeleteOf course not. Keeping people from taking advantage of each other is in the tradition of outlawing theft and murder. Forcing them to help each other would be more in the tradition of forcing people to intervene in murder attempts.
Side note: Moshe came over yesterday, and randomly talked about Brooks' piece, which he liked very much. Moshe is a conservative regarding economics as well.
ReplyDeleteIt's not that they were trying to give out loans people could literally not pay back -- they were trying to extract the maximum amount of money they could. They took a gamble and lost, just as the lendees did.
ReplyDeleteAgreed. So why should everyone else pick up the tab?
Regarding incentives. Let's take obesity. Shaming of obese people is a clear disincentive to be obese, yet shaming has been experimentally shown to be counterproductive. Obesity itself is a disincentive to overeating, yet people continue to over eat.
Of course - you have to be smart about what kind of incentives you use. But in general, incentives DO work.
Then you have situations like the housing crisis where the stick is so harsh people may not recover enough to learn from it.
...so instead, let's punish everyone else? That doesn't make sense. Of all the groups to not worry about that for, the banks are at the top of the list. If they're still in business, fine. If they're not, then they were extremely irresponsible and deserve what's coming to them for trying to take advantage (see Bear Stearns).
Or take crime. Jail is a strong disincentive, and yet we have the largest prison population per capita of the whole world.
BAD example. We have better enforcement, we shy away from capital punishment, and better technology to track down criminals.
Regarding deficits, obviously it may occasionally be useful to have a short-term one (although such situations would be rare.)
No, short-term/low interest deficits (particularly in this country) should NOT be rare. The overwhelming gains this country normally gets well outpace the borrowing rate the country pays.
The Republicans, however, now have blowing up the deficit as a de facto party plank. Too politically cowardly to cut spending and too stubborn to raise taxes, they PUSH THE DEBT ONTO FUTURE GENERATIONS, which was my (and Brooks's, I think) original point.
I'll agree on the spending. The taxes show a lack of understanding about how this country's economy works. And that is NOT what Brooks was saying. :)
Without this sleight-of-hand in effect exploiting stupid voters, today's Republicans would have no chance of winning elections. They convince some of you that they're really going to cut spending this time, really, we promise, but for most Republican voters, it's enough to talk about cutting taxes without ever mentioning the other side of the balance sheet.
Not true. It's why people like McCain even while they're worried about his economics in general. I've gone to meetings for think tanks that are for economics - there are two sides to this coin and they worry about both.
It's the exact same mechanism as offering huge lines of credit with equally huge interest rates. Exploit people's tendencies to be greedy and short-sighted.
...which is why there needs to be a way to get people to not be. :)
Agreed. So why should everyone else pick up the tab?
ReplyDeleteI'm not saying anyone should! Why do you keep insisting that I'm talking about bailouts?
No, short-term/low interest deficits (particularly in this country) should NOT be rare. The overwhelming gains this country normally gets well outpace the borrowing rate the country pays.
Okay, I agree with that. But those aren't the deficits the Republicans believe in.
It's the exact same mechanism as offering huge lines of credit with equally huge interest rates. Exploit people's tendencies to be greedy and short-sighted.
...which is why there needs to be a way to get people to not be. :)
Changing human nature is a fool's errand. Thinking you can convince or incentivize people out of being greedy and short-sighted will fail for the exact same reasons communism failed.
I'm not saying anyone should! Why do you keep insisting that I'm talking about bailouts?
ReplyDeleteFine. Then tell me what regulations you'd like that don't currently exist that won't severely stunt the normal flow of business (unless you can argue that such stunting is worthwhile), that won't hurt the majority who are able to pay their bills, etc.
Okay, I agree with that. But those aren't the deficits the Republicans believe in.
Really? What deficits do they believe in, then? Deficits which outpace growth and lead to nothing? I mean, seriously.
Changing human nature is a fool's errand. Thinking you can convince or incentivize people out of being greedy and short-sighted will fail for the exact same reasons communism failed.
I can have a field day on you with this. You sure you mean that? :)
In all seriousness, the greedy you can do little about. It's mostly the short-sightedness. You'd be amazed how quickly people who think they have great ideas say "Oh" when someone actually explains the math to them. It's amazing what a simple understanding of economics can do.
It comes back to where I started: The best solution is better education.
Fine. Then tell me what regulations you'd like...
ReplyDeleteI already did. Certain standards on how much one can borrow and at what rate based on income, etc., with the potential for applying for exceptions with a good reason.
Really? What deficits do they believe in, then? Deficits which outpace growth and lead to nothing? I mean, seriously.
As far as I can tell, deficits so severe that they bankrupt the government, in some sort of hare-brained scheme to force future generations to slash spending. They get the credit for "cutting taxes" and future administrations have to worry about cutting benefits or bringing the taxes back up to a responsible level.
It comes back to where I started: The best solution is better education.
I'm all for better education, especially regarding finances and math. I don't see why that and regulations have to be mutually exclusive, though.
I already did. Certain standards on how much one can borrow and at what rate based on income, etc., with the potential for applying for exceptions with a good reason.
ReplyDeleteThat all exists. More importantly, as noted above, 85+% of even the ARM borrowers are still paying their bills. Do you really think that if there a way to better predict who couldn't pay their bills, the banks themselves wouldn't be using them? (...without having a gross impact on society, such as 'people living in specific neighborhoods' [ = blacks], etc.) It's not a lack of regulations.
As far as I can tell, deficits so severe that they bankrupt the government, in some sort of hare-brained scheme to force future generations to slash spending. They get the credit for "cutting taxes" and future administrations have to worry about cutting benefits or bringing the taxes back up to a responsible level.
Cutting taxes (reasonably, as this administration has done) does NOT lead to a greater deficit, because the increase in the general economy more than makes up for it. Look at tax revenues for the last many years. The "hare-brained schemes" are generally the "tax-and-spend" programs instituted by Democrats, where they claim that the taxes will make up for the spending. Not only is it not true on the face of it, but the decrease in the economy costs far, far more.
I'm all for better education, especially regarding finances and math. I don't see why that and regulations have to be mutually exclusive, though.
If you're going to focus energies somewhere, focus on the education. The regulations idea is a bad one and only further decreases the likelihood of people bothering to get educated - they assume that the government already makes sure they're okay.
Oh, and here's some good readin':
ReplyDeleteThose darned rich people.
That all exists. More importantly, as noted above, 85+% of even the ARM borrowers are still paying their bills. Do you really think that if there a way to better predict who couldn't pay their bills, the banks themselves wouldn't be using them? (...without having a gross impact on society, such as 'people living in specific neighborhoods' [ = blacks], etc.) It's not a lack of regulations.
ReplyDeleteContrary to Republican economics, companies are also not made up of homo economus. Greed and short-term thinking are as rampant in the corporate world as they are in the general population. Remember Enron?
Cutting taxes (reasonably, as this administration has done) does NOT lead to a greater deficit, because the increase in the general economy more than makes up for it. Look at tax revenues for the last many years.
Obviously, there is some point at which it's counterproductive to raise taxes. I'm not convinced that we are at or near that point.
The "hare-brained schemes" are generally the "tax-and-spend" programs instituted by Democrats, where they claim that the taxes will make up for the spending. Not only is it not true on the face of it, but the decrease in the economy costs far, far more.
Democrats come a lot closer to paying for their spending than the Republicans do.
If you're going to focus energies somewhere, focus on the education. The regulations idea is a bad one and only further decreases the likelihood of people bothering to get educated - they assume that the government already makes sure they're okay.
You seem to be arguing both that regulations are good and exist and that they're bad. Which is it? And your hypothesis that people choose not to get educated because they assume government will do their homework for them is both untrue and beside the point. Untrue, because I can't imagine anybody purposely not educating themself for that reason, and beside the point because consumers cannot be educated on all issues all the time. For example, should I have to run my own large-scale, double-blind experiments for ever medicine I take? Or should I trust the government to do it for me?
Contrary to Republican economics, companies are also not made up of homo economus. Greed and short-term thinking are as rampant in the corporate world as they are in the general population. Remember Enron?
ReplyDelete...and what happened to them? They're gone, with their people dead or in jail. That's how it should be. Note that they were also doing things that were illegal, which means that it had nothing to do with regulations.
Obviously, there is some point at which it's counterproductive to raise taxes. I'm not convinced that we are at or near that point.
See the link above.
Democrats come a lot closer to paying for their spending than the Republicans do.
?! Not a chance.
You seem to be arguing both that regulations are good and exist and that they're bad. Which is it?
I'm saying that the ones that exist are rather reasonable (though there are probably some bad ones) and that the ones you are proposing either already exist or would be very bad.
And your hypothesis that people choose not to get educated because they assume government will do their homework for them is both untrue and beside the point. Untrue, because I can't imagine anybody purposely not educating themself for that reason, and beside the point because consumers cannot be educated on all issues all the time. For example, should I have to run my own large-scale, double-blind experiments for ever medicine I take? Or should I trust the government to do it for me?
Just because you can't imagine someone not educating themselves doesn't make it untrue. More importantly, you answered it perfectly: Of course people can't be educated on everything. Therefore, the more they feel the government has already checked out for them, the more they feel they don't need to learn it. I don't feel a need to learn much about medicines because I trust that the FDA has already checked it out. With economics, it's important to know regardless of the regulations that are or aren't in place (because most spending will never be regulated, and people simply don't understand the time value of money, interest, and the like), and regulations only further allow people to decide they don't need to know it.
The WSJ thinks taxes should be less progressive. Shocking. I do not understand why you make a distinction between the FDA and the government doing similar things for financial stuff.
ReplyDeleteIt's not like the WSJ isn't backing up their statements with numbers.
ReplyDeleteWhat are you talking about? I only take drugs when I'm sick, and it makes sense to trust the government there. I wouldn't want everyone to be as reliant on the government when it comes to economics, because the government simply can't regulate everything, and even if by some miracle they could it would STILL make sense to understand when a person should be spending and when they should be saving (let alone how interest kills them, that $1000 now is worth more than $1100 in 10 years, etc.).
It's not like the WSJ isn't backing up their statements with numbers.
ReplyDeleteCausation, correlation. And it's a year's worth of numbers. And I'm sure they're cherry-picked numbers.
I fail to see how the government regulating loans a little more tightly would get people to learn less about borrowing.
Causation, correlation. And it's a year's worth of numbers. And I'm sure they're cherry-picked numbers.
ReplyDeleteGo look at them and decide for yourself. They're not. They're actually comparing the numbers to other years to make the point.
I fail to see how the government regulating loans a little more tightly would get people to learn less about borrowing.
Next day's NYTimes: In a slap at the Bush (or McCain) administration, Congress today pushed through a new set of regulations to avoid the same pitfalls that led to the recent housing crisis. Lenders will now be more strictly examined and loans will be given out less freely, ensuring that people who cannot afford to pay back such loans will not receive them in the first place.
Average reader: Oh, good, so if the bank says they can get me a loan, then that means that I can make the payments. (I can't crunch the numbers myself, and I don't really understand economics.) Now that the government is regulating it, I know it's safer.
So we shouldn't have speed limits, because people might think, oh the government says it's okay to go this speed, I don't need to learn how to drive a safe speed.
ReplyDeleteNot comparable at all. You can do better.
ReplyDelete