The Subprime Mortgage Crisis, by Stephen Hicks

Sep 30, 2008 10:10


Initial situation (until 1980s):Lenders have profit motive ( Read more... )

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Comments 29

madbard September 30 2008, 16:10:11 UTC
Do we have permission to reproduce this?

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1144 September 30 2008, 16:31:59 UTC
Let me double-check.

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1144 September 30 2008, 19:51:35 UTC
Permission granted to one and all, as well as to improve it, with credit of course given to Stephen for the original. He'd like to hear about possible additions or modifications.

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choc September 30 2008, 18:35:38 UTC
So it was caused by poor people crying racism?

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1144 September 30 2008, 19:48:46 UTC
Poor people don't come up with socialist solutions, the people who want their votes do. Rallying people against their victimization is the oldest political trick in the book, and hardly restricted to race. The analysis would hold water just fine if you took the race card out, but you're welcome to look into the reasoning for those laws and tell me if there is any inaccuracy.

It was caused by a few people grasping for power over the lives of others, and the inevitable consequences, since human nature is a given. See chart.

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choc September 30 2008, 20:58:19 UTC
I like the chart, and I'm not arguing with the stance, and I still don't know why people hate Ayn Rand so much.

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1144 September 30 2008, 22:39:29 UTC
Cool. Thanks.

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some more discussion here 1144 October 1 2008, 05:20:41 UTC

68024 October 2 2008, 04:29:25 UTC
The thing that gets me about this model is that it is based on 'having credit', good or bad.

Credit scores are determined largely by whether you pay off your debts on time. Which basically means, in order to have a good or bad credit score, you need to have some debt, otherwise you will have no credit score.

The reason why I'm bringing this up is because I experienced this myself moving to the US 6 years ago from Europe. Coming from a country in which debit cards are much more the standard rather than credit cards, I never got a credit card. Neither have I needed to take out any loans since my philosophy is not to spend any money I don't have.

Result 6 years later- I have to pay more for my car lease, because I have not enough credit history. Meanwhile I have a ton of money in the bank and no need to have taken any loans. But I need to be punished for that somehow?

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madbard October 2 2008, 04:57:42 UTC
Though that plight certainly gets our sympathy, especially if you're in the habit of being financially responsible, you're coming from the position that credit is something you're owed. The question is really why a creditor should trust you, since they're putting their assets on the line. Relying on past repayment history may not be a perfect solution (it can't detect responsible people with no borrowing history, and it can't detect people who are going to be delinquent for the first time), but on average it allows creditors to make money, which is their purpose in being creditors.

Armed with this knowledge, you can deliberately build a credit history by (for example) using a credit card and paying off each month so that you never pay any interest. If you intended to move to the US and have a car lease, you arguably should have done exactly this. In short, you're not being punished - you simply didn't do your homework.

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68024 October 2 2008, 11:02:03 UTC
While I understand what you're saying, you're missing my point. Because what I don't agree with is the philosophy that you 'have to get a credit card' here. I am fundamentally against that idea.

There is no doubt in my mind that that is one of the drivers of pushing people into debt, because while you and I may be able to handle it responsibly, I can guarantee you that there are scores of people out here that have no clue about how to handle credit cards responsibly or for whom it's just a way to buy all sorts of crap they don't need which in reality they can't afford.

Yet the system seems to be rigged in such a way that that's how you 'have to operate' here, otherwise you'll be punished for it. There is no reward for behaving in a financially responsible way.

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1144 October 2 2008, 13:55:58 UTC
Do you think that creditors have an altruistic duty to give large loans to people who are incapable of being responsible with a credit card? Or to anyone asking for money about whom they know nothing?

Credit is not a right, but a privilege that has to be earned - and even then, it's no one's duty to give you their money. Credit is an extremely useful tool that is founded on a mutual demonstration of respect for the other party's self-interest, including their need for information to determine what is in their interest.

If you accept all of that, then maybe what is left is a kind of language barrier: American lenders want to have this trust-building conversation in creditese, and you insist on speaking debitese.

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madbard October 2 2008, 17:02:03 UTC
Hey, how'd you get that to format properly in your journal?

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1144 October 2 2008, 18:28:57 UTC
The html tag "pre" keeps your text looking just the way you type it (other than changing the font).

It seems to have a slight problem interpreting spaces in the comment view, or in the journal/friends view if you try to adjust it.

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