Feb 25, 2009

Some basic understanding=the ability to respond when people start in with their blaming-the-poor

For all us economics laypeople, this video's one of the most helpful primers I've seen:


3 comments:

  1. AnonymousFebruary 26, 2009 at 8:49 AM

    A pretty decent visualization of how the process works.

    I have a bit of trouble with the depiction of the homeowners as innocent victims. Many of them were playing the same game as the investment bankers just on a smaller scale.

    They used sub prime loans and ARMs to buy larger houses than they could afford while paying no down payment and little or no interest.

    They felt justified by the ever increasing home values, and the expectation that they could refinance before the ARM adjusts in 2 or 5 years. Often they could take equity out during the refinance due to the higher value of their house.

    They were taking risks and many made out just fine. On the other hand, others were able to live in houses while paying no rent and tiny mortgage payments. Nobody wants to lose their house, but in many cases foreclosure means moving to a place they can in reality afford.

    As for the banks, definitely enough blame to go around as depicted. Although you might want to check into the Community Reinvestment Act. Basically, thru CRA the government compelled banks to make sub-prime loans to low income borrowers.

    There an interesting video on Youtube regarding CRA, Subprime mortgages, Fannie and Freddie and how the government was involved. I'm sure you'll find it biased as well regarding who it blames, but I think the cause and effect shown is accurate.

    http://www.youtube.com/watch?v=NU6fuFrdCJY

    Ignore the link in the video, I haven't watched the updated version.

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  2. Steve ThorngateFebruary 26, 2009 at 4:01 PM

    Yes, I'm familiar w/ the CRA and w/ the argument you make here. For the sake of argument I'll even concede your point that no party in this crisis is entirely free of blame--because I'm less interested in whether there's an innocent victim here than I am in the SCALE of responsibility. In a situation in which some people controlled the flow of massive amounts of money and others made decisions involving comparatively tiny amounts, the former clearly have much, much more power to influence the situation--which they did, in the ways described in this video.

    I know we're dealing in partisan talking points here, but I'd maintain that the primary (not only) piece of legislation to consider is the Commodities Future Modernization Act of 2000, which among other things deregulated trading in credit default swaps. After that, the market for this variety of high-risk speculation increased almost 70-fold before it eventually crashed.

    I don't want to get into a debate about the relative merits of a liberal focus on structural problems vs. a conservative focus on personal responsibility. But I think that if you start by acknowledging that both played a role here, as I think we both are willing to do--rather than arguing one abstract philosophy or the other as a matter of pure principle--then it's hard to escape the staggering difference in scale.

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  3. AnonymousFebruary 26, 2009 at 5:06 PM

    No doubt the banks were offering a potentially risky product.

    The knee jerk reaction I had was to compare it to cigarette companies, but since most people who used this product were not actually harmed (many were helped), I'd compare it to a company that sells parachutes.

    The lenders are definitely responsible on a much larger scale and I have been against bailouts (banks and autos) in favor of letting them fail, restructure or be bought and return with more responsible management.

    I also agree theres been plenty of ill advised government social engineering (not just CRA) to blame as well.

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