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I'll never forget this comment on HackerNews that blamed the public for the financial crisis: https://news.ycombinator.com/item?id=5168312 https://news.ycombina

I'll never forget this comment on HackerNews that blamed the public for the financial crisis: https://news.ycombinator.com/item?id=5168312 https://news.ycombinator.com/item?id=5168312 That was the moment that I realized that some of these people live in a reality distortion zone where it really wasn't their fault.

jsprogrammer 11y ago
But, they had a bunch of really smart people with PhDs.
cryoshon 11y ago
The useful idiots/bootlickers are there whenever there's any kind of scandal or assignment of blame. Remember: if a person's model of the world favors authority over realism, authority is perpetually blameless in their eyes.
mtgx 11y ago
It also wasn't that long ago when many people were still saying "the banks did nothing wrong, so why would they be punished?" Well, they clearly did do something wrong. Unfortunately, no one pays with jail time for defrauding their way into the financial crisis, and when they do get punished it's usually for a small fraction of the sums they gained, much less than the public is let to believe they are paying thanks to various loopholes. All of this also after being saved by taxpayer money (they only paid some of it back, but there were other programs, some secret, in which they got even more money).
forgetsusername 11y ago
>That was the moment that I realized that some of these people live in a reality distortion zone where it really wasn't their fault. The idea that there was any single factor that caused the financial crisis is equally delusional. Rewind back a decade and observe the flurry of "Flip this house!" shows in mainstream pop-culture. There were tons of "the public" who were in on the game, or who indirectly benefited from it.
- neffy 11y ago
  Go deep enough into Banking mechanisms and regulation, you will find that loan securitization was/and is (nothing has really changed) a huge exploit on the regulatory controls that had been developed around banking up to that point. We, the public, respond to the signals provided by the monetary system. When that system malfunctions - and it is just as capable of being exploited as any other distributed system - the public behaviour is really the effect rather than the cause.
  - branchless 11y ago
    I disagree. If you make credit loose some idiot will borrow and then everyone else is forced to bid against them. Similar for lending to all students for degrees. You know you don't need a degree to do a regular office job but because everyone else has one you know the recruiter will immediately bin your CV. Control is counter-intuitive. Most people would restrict credit. The establishment understand you hand it out like confetti. After all it's free.
    - forgetsusername 11y ago
      >Most people would restrict credit. Like many things, most people would love to restrict it...for others. Of course, they alone would love to have the ability to borrow and lend as they see fit. Being able to extend or accept credit is a freedom, and it's misuse is part of that package. What's with the down-voting brigade?
      - branchless 11y ago
        No I want it to apply to me too.
- Zigurd 11y ago
  The derivatives bomb was vastly larger and more destructive than bad house loans. The banks had made insane bets on all kinds of propositions that all went down the toilet when it turned out that black swans show up rather more frequently than expected. Blaming retail mortgage customers is ridiculous.
fweespee_ch 11y ago
> That was the moment that I realized that some of these people live in a reality distortion zone where it really wasn't their fault. To be fair, the public isn't 100% blameless as a large number of people made poor choices to create the situation. Supply without demand is largely useless, after all. Similarly, the public hasn't shutdown the routes after the fact but rather accepted a smokescreen of a solution. The blame primarily rests on the shoulders of the banks and credit rating agencies because they provided the supply. They also were the best informed side of the transaction and engaged in a certain degree of deception that they should be punished severely for. The best lies, or distortions of reality, do have a kernel or two of truth.
- cpprototypes 11y ago
  99% of the blame should go to the banks and credit agency. The book The Big Short explains this well. Yes, the public participated in bad loans. But there was a natural limit to this, there's only so many people and homes. If it stopped there, the crisis would have been much more limited. But what did banks do once they hit the limit? Invent CDO and then synthetic CDO to create "artificial" supply for the bad loans. These derivatives are what really made the crisis very bad.
  - fweespee_ch 11y ago
    Fwiw, I agree the banks and credit agency share the vast majority of the blame. I'd agree that share is likely around 90%. I'm sorry that wasn't clearer. I was just discussing the art of self deception depends heavily on a kernel or two of truth to hang itself.
- haberman 11y ago
  Mortgages (or any loan really) implies risk. This is part of why the loan is profitable: repayment isn't guaranteed. It is the bank's job to protect itself from risk. That is why it takes collateral and assesses that collateral. It's why the bank requires a down payment, especially if the borrower is on the edge of what they can afford. If the buyer defaults, the bank takes the collateral back and it's their job to make sure they are in an ok place afterwards. So yeah, when the entire industry comes to the government and says "unless you bail us out right now our entire industry will collapse, but you're definitely going to save us because we're too big to fail," then yes, it means it's their fault. The public may have been complicit, but it's not the public's job to keep the financial industry healthy when the profits from that industry are kept privately.
MichaelBurge 11y ago
It seems like a reasonable comment. I don't work in finance, but he seems to describe a feedback loop that's at least plausible. He links to a paper with a lot of numbers and charts in them, written by some Economics professors. It seems like a positive comment to have around. The only thing weird about credit agencies is that they're sometimes written into state and local laws as being the sole judge of whether some money can be invested in a certain way. The law shouldn't depend on private companies. The other thing is that because pensions are managed in aggregate, the individuals investing in them don't have much choice in what to invest in. It's the same problem with Social Security. It's a weaker but still valid concern with 401(k) retirement accounts, since your employer determines what you can invest in. It's just a bad idea to let other people manage your money for you, especially at scale. Nothing about the credit rating agencies needs to change(by force), but I'd say it's important that people not be forced into trusting them. Once that's in place, it's on you if you blindly trust a credit rating agency. They're just a private company, so it (should be) legally the same as paying my bartender for stock tips. I don't know - do credit agencies ever issue contracts guaranteeing their ratings? If you get one of those, the bartender analogy doesn't hold.
- haberman 11y ago
  I think the comment is informative, but I think the attribution of blame is indefensible.
  - MichaelBurge 11y ago
    As a Scala quant, it sounded like the guy was thinking about the problem analytically rather than emotionally. Then, the phrase "the public caused X" would be more like how a software developer would interpret "this buffer overflow caused the attacker to gain a foothold in this 10-stage attack on some server". The determination of an appropriate scapegoat is more of a politician or PR guys' job, not a quant. Here's another one: You're a software developer. Software developers caused Heartbleed. Why do most software developers "live in a reality distortion field where it wasn't their fault"? Probably because they don't work on SSL libraries. Should I blame you for not taking responsibility next time Cloudflare goes down, even though you might have an outside opinion on what caused it? The user in question works at an online advertising company, not at a credit rating agency. Why do they think it 'was not their fault'? Probably because it wasn't his fault.
derf_ 11y ago
I mean, just yesterday some of the top-rated comments on the settlement story were claiming that in-house counsel and firewalls meant that nothing actually illegal happened [1]. This despite multiple whistleblowers [2,3] and billion-dollar settlements from JP Morgan, Citigroup, Bank of America, Goldman Sachs, and Morgan Stanley. The robo-signing scandal that occurred in the aftermath was by itself industrialized fraud on an epic scale [4]. [1] https://news.ycombinator.com/user?id=rayiner https://news.ycombinator.com/user?id=rayiner [2] https://en.wikipedia.org/wiki/Alayne_Fleischmann https://en.wikipedia.org/wiki/Alayne_Fleischmann [3] https://en.wikipedia.org/wiki/Richard_M._Bowen_III https://en.wikipedia.org/wiki/Richard_M._Bowen_III [4] https://www.nolo.com/legal-encyclopedia/false-affidavits-foreclosures-what-robo-34185.html https://www.nolo.com/legal-encyclopedia/false-affidavits-for...
gaur 11y ago
I still remember that one CNBC reporter who said that the housing crisis was the fault of "loser homeowners", rather than banks issuing loans en masse to people they knew had no means to pay the money back.
- tanderson92 11y ago
  That was Rick Santelli and the 'rant of the year'. He is credited as one of the instigators of the Tea Party movement. Incidentally, Jon Stewart of the Daily Show had some choice words for Mr. Santelli.
- prostoalex 11y ago
  Most of the banks' underwriting policies involve loans at 80% maximum LTV (hence 20% down payment expected from the buyer). Most of the subprime sector evolved from trying to game the 20% requirement, either legislatively (through HUD and other "assistance" programs), financially (interest-only loans) or just plain old dishonesty (no-doc loans) originated by companies like Countrywide.
spinlock 11y ago
You don't think any individuals committed fraud when they applies for NINJA loans?

jsprogrammer 11y ago

But, they had a bunch of really smart people with PhDs.

cryoshon 11y ago

The useful idiots/bootlickers are there whenever there's any kind of scandal or assignment of blame. Remember: if a person's model of the world favors authority over realism, authority is perpetually blameless in their eyes.

mtgx 11y ago

It also wasn't that long ago when many people were still saying "the banks did nothing wrong, so why would they be punished?" Well, they clearly did do something wrong. Unfortunately, no one pays with jail time for defrauding their way into the financial crisis, and when they do get punished it's usually for a small fraction of the sums they gained, much less than the public is let to believe they are paying thanks to various loopholes. All of this also after being saved by taxpayer money (they only paid some of it back, but there were other programs, some secret, in which they got even more money).

forgetsusername 11y ago

>That was the moment that I realized that some of these people live in a reality distortion zone where it really wasn't their fault. The idea that there was any single factor that caused the financial crisis is equally delusional. Rewind back a decade and observe the flurry of "Flip this house!" shows in mainstream pop-culture. There were tons of "the public" who were in on the game, or who indirectly benefited from it.

neffy 11y ago
Go deep enough into Banking mechanisms and regulation, you will find that loan securitization was/and is (nothing has really changed) a huge exploit on the regulatory controls that had been developed around banking up to that point. We, the public, respond to the signals provided by the monetary system. When that system malfunctions - and it is just as capable of being exploited as any other distributed system - the public behaviour is really the effect rather than the cause.
- branchless 11y ago
  I disagree. If you make credit loose some idiot will borrow and then everyone else is forced to bid against them. Similar for lending to all students for degrees. You know you don't need a degree to do a regular office job but because everyone else has one you know the recruiter will immediately bin your CV. Control is counter-intuitive. Most people would restrict credit. The establishment understand you hand it out like confetti. After all it's free.
  - forgetsusername 11y ago
    >Most people would restrict credit. Like many things, most people would love to restrict it...for others. Of course, they alone would love to have the ability to borrow and lend as they see fit. Being able to extend or accept credit is a freedom, and it's misuse is part of that package. What's with the down-voting brigade?
    - branchless 11y ago
      No I want it to apply to me too.
Zigurd 11y ago
The derivatives bomb was vastly larger and more destructive than bad house loans. The banks had made insane bets on all kinds of propositions that all went down the toilet when it turned out that black swans show up rather more frequently than expected. Blaming retail mortgage customers is ridiculous.

fweespee_ch 11y ago

> That was the moment that I realized that some of these people live in a reality distortion zone where it really wasn't their fault. To be fair, the public isn't 100% blameless as a large number of people made poor choices to create the situation. Supply without demand is largely useless, after all. Similarly, the public hasn't shutdown the routes after the fact but rather accepted a smokescreen of a solution. The blame primarily rests on the shoulders of the banks and credit rating agencies because they provided the supply. They also were the best informed side of the transaction and engaged in a certain degree of deception that they should be punished severely for. The best lies, or distortions of reality, do have a kernel or two of truth.

cpprototypes 11y ago
99% of the blame should go to the banks and credit agency. The book The Big Short explains this well. Yes, the public participated in bad loans. But there was a natural limit to this, there's only so many people and homes. If it stopped there, the crisis would have been much more limited. But what did banks do once they hit the limit? Invent CDO and then synthetic CDO to create "artificial" supply for the bad loans. These derivatives are what really made the crisis very bad.
- fweespee_ch 11y ago
  Fwiw, I agree the banks and credit agency share the vast majority of the blame. I'd agree that share is likely around 90%. I'm sorry that wasn't clearer. I was just discussing the art of self deception depends heavily on a kernel or two of truth to hang itself.
haberman 11y ago
Mortgages (or any loan really) implies risk. This is part of why the loan is profitable: repayment isn't guaranteed. It is the bank's job to protect itself from risk. That is why it takes collateral and assesses that collateral. It's why the bank requires a down payment, especially if the borrower is on the edge of what they can afford. If the buyer defaults, the bank takes the collateral back and it's their job to make sure they are in an ok place afterwards. So yeah, when the entire industry comes to the government and says "unless you bail us out right now our entire industry will collapse, but you're definitely going to save us because we're too big to fail," then yes, it means it's their fault. The public may have been complicit, but it's not the public's job to keep the financial industry healthy when the profits from that industry are kept privately.

MichaelBurge 11y ago

It seems like a reasonable comment. I don't work in finance, but he seems to describe a feedback loop that's at least plausible. He links to a paper with a lot of numbers and charts in them, written by some Economics professors. It seems like a positive comment to have around. The only thing weird about credit agencies is that they're sometimes written into state and local laws as being the sole judge of whether some money can be invested in a certain way. The law shouldn't depend on private companies. The other thing is that because pensions are managed in aggregate, the individuals investing in them don't have much choice in what to invest in. It's the same problem with Social Security. It's a weaker but still valid concern with 401(k) retirement accounts, since your employer determines what you can invest in. It's just a bad idea to let other people manage your money for you, especially at scale. Nothing about the credit rating agencies needs to change(by force), but I'd say it's important that people not be forced into trusting them. Once that's in place, it's on you if you blindly trust a credit rating agency. They're just a private company, so it (should be) legally the same as paying my bartender for stock tips. I don't know - do credit agencies ever issue contracts guaranteeing their ratings? If you get one of those, the bartender analogy doesn't hold.

haberman 11y ago
I think the comment is informative, but I think the attribution of blame is indefensible.
- MichaelBurge 11y ago
  As a Scala quant, it sounded like the guy was thinking about the problem analytically rather than emotionally. Then, the phrase "the public caused X" would be more like how a software developer would interpret "this buffer overflow caused the attacker to gain a foothold in this 10-stage attack on some server". The determination of an appropriate scapegoat is more of a politician or PR guys' job, not a quant. Here's another one: You're a software developer. Software developers caused Heartbleed. Why do most software developers "live in a reality distortion field where it wasn't their fault"? Probably because they don't work on SSL libraries. Should I blame you for not taking responsibility next time Cloudflare goes down, even though you might have an outside opinion on what caused it? The user in question works at an online advertising company, not at a credit rating agency. Why do they think it 'was not their fault'? Probably because it wasn't his fault.

derf_ 11y ago

I mean, just yesterday some of the top-rated comments on the settlement story were claiming that in-house counsel and firewalls meant that nothing actually illegal happened [1]. This despite multiple whistleblowers [2,3] and billion-dollar settlements from JP Morgan, Citigroup, Bank of America, Goldman Sachs, and Morgan Stanley. The robo-signing scandal that occurred in the aftermath was by itself industrialized fraud on an epic scale [4]. [1] https://news.ycombinator.com/user?id=rayiner https://news.ycombinator.com/user?id=rayiner [2] https://en.wikipedia.org/wiki/Alayne_Fleischmann https://en.wikipedia.org/wiki/Alayne_Fleischmann [3] https://en.wikipedia.org/wiki/Richard_M._Bowen_III https://en.wikipedia.org/wiki/Richard_M._Bowen_III [4] https://www.nolo.com/legal-encyclopedia/false-affidavits-foreclosures-what-robo-34185.html https://www.nolo.com/legal-encyclopedia/false-affidavits-for...

gaur 11y ago

I still remember that one CNBC reporter who said that the housing crisis was the fault of "loser homeowners", rather than banks issuing loans en masse to people they knew had no means to pay the money back.

tanderson92 11y ago
That was Rick Santelli and the 'rant of the year'. He is credited as one of the instigators of the Tea Party movement. Incidentally, Jon Stewart of the Daily Show had some choice words for Mr. Santelli.
prostoalex 11y ago
Most of the banks' underwriting policies involve loans at 80% maximum LTV (hence 20% down payment expected from the buyer). Most of the subprime sector evolved from trying to game the 20% requirement, either legislatively (through HUD and other "assistance" programs), financially (interest-only loans) or just plain old dishonesty (no-doc loans) originated by companies like Countrywide.

spinlock 11y ago

You don't think any individuals committed fraud when they applies for NINJA loans?