12 ms·

The title made me think that this was going to be about subprime auto loans, which are definitely in "crisis" territory. This whole mess (subprime auto, renova

The title made me think that this was going to be about subprime auto loans, which are definitely in "crisis" territory. This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street. It used to be that fortunes were both made and lost on Wall Street. Now, for large investors ("whales"), it's 3.5% or I take my money to another fund. If I don't have a consistent positive return, then it's something wrong with the fund/firm, not the natural order of things. This behavior encourages siphoning from pensions, the retirement funds of average people and "fudging the numbers" on packaged securities in order to keep up with the expected returns of the "whales". The sad thing is, I don't see a change. We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail. This shit is fucked.

sologoub 10y ago
Making the tax agency also the debt collector for this type of loan is quite ingenious, but also evil. If I'm reading it right, defaulting is basically equivalent to being behind on your taxes. Does anyone know if this bundling to property tax payments also gives these loans repayment priority in a foreclosure? If it does, such loans could poison otherwise sound mortgages by superseding them to the remaining equity.
- John23832 10y ago
  I would assume so. I'd think that this would be treated the same as government backed student loans. Bankruptcy and foreclosure don't mean anything... the loans are here to stay. That just highlights another problem. Big money using the government as its muscle... but that's another rant for another time.
- phkahler 10y ago
  >> Making the tax agency also the debt collector for this type of loan is quite ingenious, but also evil. Hey, it worked for student loans right? I have no idea how all this is going to play out, but it won't be pretty.
- JumpCrisscross 10y ago
  > Making the tax agency also the debt collector for this type of loan is quite ingenious, but also evil Also, because "PACE financing is structured as a tax assessment instead of a loan, the PACE programs do not have to provide to homeowners the same disclosures about the financing costs that traditional lenders must provide" [1]. > defaulting is basically equivalent to being behind on your taxes Beyond being collectable as a tax lien, such a default would complicate the property's underlying mortgage. This is because "the tax liens for PACE financing take priority over other lien-holders, and those lien-holders are not notified or given an opportunity to object." Furthermore, based on the article, it is unclear if some municipal or state governments are partially or fully guaranteeing their PACE liabilities. [1] https://en.wikipedia.org/wiki/PACE_financing https://en.wikipedia.org/wiki/PACE_financing
  - sologoub 10y ago
    Wow, thank you for sharing this! The ability to sabotage mortgage underwriting is basically a timebomb. Apart from being potentially very bad for the financial health of the homeowner (which is subjective in case by case - Inglewood homeowner is definitely in trouble, but the Woodland Hills example seems to be fine with it), I can't see how this is at all fair to the few banks doing proper due diligence, like the local credit unions that hold many of their mortgages.
- Bartweiss 10y ago
  The line that struck me most powerfully was just tossed in offhand: Riverside's government collects 15% of its annual budget from PACE loans. The headline here was overhyped. The total volume of PACE loans isn't anything like the mortgage crisis, and total volume shapes secondary effects like bank failures and property value crashes. But if PACE is becoming a large portion of local government budgets, that causes its own problems. We've already seen the kind of abusive practices which arise when towns get their funding from speed traps. No one likes taxes, but tax revenue is generally a shared burden, and positively correlated with growth and population. When the incentives for financing are to operate against a smaller group of people, things go to hell really fast.
thesagan 10y ago
Agreed. Also, some economists/researchers are claiming that subprime lending wasn't alone in triggering the crisis, but that it was also a prime crisis as well; that debt levels were already unsustainable, more generally. Not to say that subprime wasn't a big component, but that there may be macro patterns still emerging that's difficult to see/process. I think this article from M.I.T. Sloan was posted here a while back: http://mitsloan.mit.edu/newsroom/articles/rethinking-how-the-housing-crisis-happened http://mitsloan.mit.edu/newsroom/articles/rethinking-how-the...
roymurdock 10y ago
> We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. The elderly woman in the article initially refused the $50k renovation to her 5 bedroom home, but then agreed because she thought the government was going to subsidize it for her. The contractor was able to sell her the loan because she needed to reduce heating/utilities/energy costs in her massive (for one or two people living on SS presumably) home, and she thought the savings from the PACE program would pay for the solar panels, smart lightbulbs, etc. I don't know the exact details of her situation, but it seems like perhaps the correct decision would have been to sell the house and move to a smaller, more efficient house if the current house is too expensive to maintain given the number of occupants and their age/level of income. I'm 24 and currently rent half a large house in the suburbs from a single guy in his 60s who needs the extra income to maintain the house which he bought when he had a larger family. Unfortunately it seems like the loan was misrepresented to her by the contractor when she agreed to go into debt, and obviously many will do anything to avoid moving out of homes/communities they've been in for a long time. Others have no family to rely on or go to even if they do want to move. I'm not a huge fan of Wall St. and big bank loan & derivative making and selling culture, but it's not entirely to blame, nor was it entirely to blame during the financial crisis of 2007-08 as many consumers took on home loans they had no intention of ever making good on (maybe there was some fraud/misrepresentation on the part of the contractor in this case, maybe not). People have always been greedy since the beginning of time - we are just struggling overall at the moment to raise financial literacy and strengthen altruism: family/community/country-wide ties (patriotism) due to poor economic conditions for the majority of Americans.
- John23832 10y ago
  > Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used on targeted groups (I'm looking at the elderly, minorities and groups that are generally less financially sophisticated). Most people generally aren't in a position to "vote with their wallet". This is because most people are leveraged to their eyeballs with rents. This is a problem with Wall Street that trickles down, not a problem with the consumer that worked it's way up. > many consumers took on home loans they had no intention of ever making good on I disagree with this as well. People generally are not scam artist. On the contrary, most people like paying off their debts. Were people probably overly confident in their ability to repay, sure. Saying that people intended to default however, is not true. --- Wall Street (and it's derivatives... I'm looking at you, ad funded Silicon Valley) is full of fraud. The fraud stems from the fact that the only people who can realistically perform checks and balances on this group(s) are the groups themselves. You may be able to blame the consumer when they have full and clear knowledge of how the system works, but that's not the case. Wall Street is full of so many obscurities and 40k ft descriptions that the average consumer really has no chance. A good example of how the average person thinks financially... how many homeowners do you know that consider their home an "investment". Probably most, if not all.
elastic_church 10y ago
Could just leverage up on some 30 year treasury bills for at least 9% annually. 3-4x leverage will get you that.
- ant6n 10y ago
  So borrow money to lend money? What if the interest rate changes in those 30 years?
  - beachstartup 10y ago
    > So borrow money to lend money? this is how it works. you don't think those lenders were lending you their own money do you? > What if the interest rate changes in those 30 years? the original loans are almost certainly fixed rate, the end borrowers may very well have to pay an adjustable rate, which just means more profits for the intermediate lender.
- John23832 10y ago
  And tie up at least $1k for 30 years... most people can't afford to do that. The current rate is 2.9 and the long term average is 7. If you can get a 9 return right now, it's illegal.
  - elastic_church 10y ago
    a) its not tied up, treasuries are one of the most liquid markets, you can buy and sell in a milliseconds notice. b) if you are talking about self directed investments at all, you are waaaaay past the financial situation that "most people" are in and probably accepted that a long time ago c) and what's 2.9 multipled by 4?
- refurb 10y ago
  And what happens if the inflation rises and interest rates follow? You'll be earning a cool 7% nominal interest rate and a -2% real interest rate.
- shostack 10y ago
retube 10y ago
> It used to be that fortunes were both made and lost on Wall Street. They still are. Hedge Funds lose money and/or go bust all the time. Firms go bust. The stock market has only just recovered levels last seen over a decade ago. > it's 3.5% or I take my money to another fund When has any investor ever said "I want to lose money" ?
- John23832 10y ago
  > They still are. Hedge Funds lose money and/or go bust all the time. Firms go bust. The stock market has only just recovered levels last seen over a decade ago. I'm speaking about personal fortunes. Maybe I should have been more clear. > When has any investor ever said "I want to lose money" ? An investor losing money is different than an investor realizing that losing money is part of the game. I'm saying that high net-worth individuals won't even consider losing money as an option anymore.
bogomipz 10y ago
>"We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail." Once upon time there were three categories of banks: retail, commercial and investment. Retail banks were known as 3-6-3s. They gave 3 percent interest on deposits, lent money out 6 percent and were on the golf course by 3:00PM. https://en.wikipedia.org/wiki/3-6-3_Rule https://en.wikipedia.org/wiki/3-6-3_Rule The banks held the loans on their books and had to properly manage their risk portfolio or else go out of business and be out of job. This worked really well for retail banks, they made decent profits and ran a tight ship. Since banking deregulation, risk has been transferred to the tax payer and banks have come to expect outsized returns as the new normal. When regulation tightens in one area in response to a crisis they develop another exotic "product" to exploit some other loophole in order to reach those outsize returns. Its akin to patching a car radiator rather than fixing it. The same tired refrain sold by these folks is always "the market will regulate itself." The US basically has a system of "privatize the profits but socialize risks." I was struck by this sentence from the article: "Some local governments that embraced the loans as a way to bring clean energy to the masses didn’t anticipate the messy consequences." I think "really"? Given the recent history - 2008, unintended consequences didn't enter into your discussions or calculations? More likely is that folks were in the pockets of those with a vested business interest in establishing such program. I have little doubt that lobbyists at least in part helped write legislation that enabled these programs.
latj 10y ago
The behavior you describe is the way every investor should act. And the behavior of the underlying fund managers, and the executives of the companies below- they're all acting the way they're supposed to be acting-- maximizing profit, minimizing risk. Its not the fault of whales, greedy fund managers, poorly managed banks, or ineffective governance. This is capitalism and it is working exactly as designed- to funnel private wealth to a few people and distribute the risk among the masses.
- CalChris 10y ago
  Rent seeking. https://en.m.wikipedia.org/wiki/Rent-seeking https://en.m.wikipedia.org/wiki/Rent-seeking
- John23832 10y ago
  I'm not saying that rent seeking behavior isn't encouraged by Capitalism. I'm saying that rent seeking behavior is screwing society up.
randomtossr88 10y ago
Humans have a tendency for unwavering "belief". The obvious is belief in deities. Our other institutions are just as vulnerable to being treated as infallible. Our economics are, and basically "putting all our eggs" into a global financial system over which we have little say, is this thing we have to keep believing in. "The debt, the debt!" not considering that if humans in the future really need to for survival, an imaginary number on paper can be waved away. We have to believe these things matter. And it isn't just laymen that are victim to unwavering belief. Very smart people can also be convinced of bullshit. And the rest of us just have to nod and smile in agreement. What other choice is there? I think we're in a period of social adjustment from the previous 100 years into the next. The last one was the great depression, leading into ww1 and ww2, after an era of extreme growth in wealth inequality (guilded age). Our population grew, but not enough were brought along. A number of us have backslid (my personal buying power has decreased despite raises, anyone in the $100,000/yr realm has power than equivalent pay in the previous generation). Like religions not accounting for non-believers, the system thinks its these folks fault, not its own. Maybe it's time we start considering resets in our social structures every few years. Jefferson argued for one in the Constitution. And maybe it's time we heed Adam Smith's advice and fight for equality of outcomes, not just opportunity (a notion we believe exists, but the reality that we are a society where everyone has equal opportunity is laughable). Cause it seems to me, it would do a lot to avoid these lopsided social structures if we're all kept on the same page materially. Game theory suggests it is a good idea when talking about community policing: https://aeon.co/essays/game-theory-s-cure-for-corruption-make-us-all-cops https://aeon.co/essays/game-theory-s-cure-for-corruption-mak...
tn13 10y ago
This is one area I think government ought to play its basic role. However given that government its self has been predatory with out money it is hard to expect that they will do anything other than bailing wall street out. Baptists and bootleggers!
smallnamespace 10y ago
Marx and other classical economic thinkers speculatively connected the fall in the rate of profit to increases in inequality and long-run economic cycles [1]. Essentially, the idea is that since the rate of profit exceeds the rate of growth, rent seekers (capital holders) tend to get richer and richer and own more and more of the wealth. This impoverishes all other parts of the economy and starves it of resources, causing the rate of profit (return on capital) to start declining. The end result is usually a prolonged crisis of some sort which causes the destruction of large amounts of capital, 'resetting' the economy again so the cycle can repeat anew. For some reason this idea has been rejected by the mainstream for the last 70 years or so, but I think some people are starting to take it up again. [1] https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit...
- erikpukinskis 10y ago
  Sounds right... Not sure Marx imagined what that process would look like alongside the emergence of a new species through (autonomous corporations). I expect the details of solvency for funds, pensioners, etc, will fade away into history as we move away from the large institutions and individual risk that necessitate them. What happens when every citizen controls thousands of autonomous corporations, each with perfect credit (if limited means)? Many rules of economics will no longer apply.
- deleted 10y ago
  [deleted]
- AnimalMuppet 10y ago
  The standard view of the business cycle is that the capital gets invested somewhere. When all the good places are gone, what's left gets invested in marginal places, and then in bad ones. That capital gets destroyed, because the bad ideas can't pay it back. That can result in a crisis, but more often in merely results in a recession. So that's somewhat similar to Marx's idea, with two key differences: 1. Capital only grows by getting returns on previous investment. If capital "starves all other parts of the economy of resources", that means that capital is wasting the resources, which means that the capital is not earning a return, which means that it stops growing. 2. The end of the cycle doesn't have to be horrible. Marx hadn't seen much in the way of soft landings, but the Fed has gotten fairly good at them. (1929 and 2008 are exceptions, not the rule.)
djschnei 10y ago
The ONLY thing that facilitates that is government intervention and market perversion.
yuhong 10y ago
At least part of it comes from how an increase in credit cause the economy to "boom". Basic income would be better, but still may have the same fundamental problems.
gozur88 10y ago
> This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street. You don't support this statement at all. >It used to be that fortunes were both made and lost on Wall Street. Now, for large investors ("whales"), it's 3.5% or I take my money to another fund. Investors have always done this, large and small. And 3.5% isn't a great rate of return. The official CPI, which probably understates increases in the cost of living, was 1.7%. >If I don't have a consistent positive return, then it's something wrong with the fund/firm, not the natural order of things. This behavior encourages siphoning from pensions, the retirement funds of average people and "fudging the numbers" on packaged securities in order to keep up with the expected returns of the "whales". That's pretty illegal if true. Do you have any evidence it's actually happening?

sologoub 10y ago

Making the tax agency also the debt collector for this type of loan is quite ingenious, but also evil. If I'm reading it right, defaulting is basically equivalent to being behind on your taxes. Does anyone know if this bundling to property tax payments also gives these loans repayment priority in a foreclosure? If it does, such loans could poison otherwise sound mortgages by superseding them to the remaining equity.

John23832 10y ago
I would assume so. I'd think that this would be treated the same as government backed student loans. Bankruptcy and foreclosure don't mean anything... the loans are here to stay. That just highlights another problem. Big money using the government as its muscle... but that's another rant for another time.
phkahler 10y ago
>> Making the tax agency also the debt collector for this type of loan is quite ingenious, but also evil. Hey, it worked for student loans right? I have no idea how all this is going to play out, but it won't be pretty.
JumpCrisscross 10y ago
> Making the tax agency also the debt collector for this type of loan is quite ingenious, but also evil Also, because "PACE financing is structured as a tax assessment instead of a loan, the PACE programs do not have to provide to homeowners the same disclosures about the financing costs that traditional lenders must provide" [1]. > defaulting is basically equivalent to being behind on your taxes Beyond being collectable as a tax lien, such a default would complicate the property's underlying mortgage. This is because "the tax liens for PACE financing take priority over other lien-holders, and those lien-holders are not notified or given an opportunity to object." Furthermore, based on the article, it is unclear if some municipal or state governments are partially or fully guaranteeing their PACE liabilities. [1] https://en.wikipedia.org/wiki/PACE_financing https://en.wikipedia.org/wiki/PACE_financing
- sologoub 10y ago
  Wow, thank you for sharing this! The ability to sabotage mortgage underwriting is basically a timebomb. Apart from being potentially very bad for the financial health of the homeowner (which is subjective in case by case - Inglewood homeowner is definitely in trouble, but the Woodland Hills example seems to be fine with it), I can't see how this is at all fair to the few banks doing proper due diligence, like the local credit unions that hold many of their mortgages.
Bartweiss 10y ago
The line that struck me most powerfully was just tossed in offhand: Riverside's government collects 15% of its annual budget from PACE loans. The headline here was overhyped. The total volume of PACE loans isn't anything like the mortgage crisis, and total volume shapes secondary effects like bank failures and property value crashes. But if PACE is becoming a large portion of local government budgets, that causes its own problems. We've already seen the kind of abusive practices which arise when towns get their funding from speed traps. No one likes taxes, but tax revenue is generally a shared burden, and positively correlated with growth and population. When the incentives for financing are to operate against a smaller group of people, things go to hell really fast.

thesagan 10y ago

Agreed. Also, some economists/researchers are claiming that subprime lending wasn't alone in triggering the crisis, but that it was also a prime crisis as well; that debt levels were already unsustainable, more generally. Not to say that subprime wasn't a big component, but that there may be macro patterns still emerging that's difficult to see/process. I think this article from M.I.T. Sloan was posted here a while back: http://mitsloan.mit.edu/newsroom/articles/rethinking-how-the-housing-crisis-happened http://mitsloan.mit.edu/newsroom/articles/rethinking-how-the...

roymurdock 10y ago

> We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. The elderly woman in the article initially refused the $50k renovation to her 5 bedroom home, but then agreed because she thought the government was going to subsidize it for her. The contractor was able to sell her the loan because she needed to reduce heating/utilities/energy costs in her massive (for one or two people living on SS presumably) home, and she thought the savings from the PACE program would pay for the solar panels, smart lightbulbs, etc. I don't know the exact details of her situation, but it seems like perhaps the correct decision would have been to sell the house and move to a smaller, more efficient house if the current house is too expensive to maintain given the number of occupants and their age/level of income. I'm 24 and currently rent half a large house in the suburbs from a single guy in his 60s who needs the extra income to maintain the house which he bought when he had a larger family. Unfortunately it seems like the loan was misrepresented to her by the contractor when she agreed to go into debt, and obviously many will do anything to avoid moving out of homes/communities they've been in for a long time. Others have no family to rely on or go to even if they do want to move. I'm not a huge fan of Wall St. and big bank loan & derivative making and selling culture, but it's not entirely to blame, nor was it entirely to blame during the financial crisis of 2007-08 as many consumers took on home loans they had no intention of ever making good on (maybe there was some fraud/misrepresentation on the part of the contractor in this case, maybe not). People have always been greedy since the beginning of time - we are just struggling overall at the moment to raise financial literacy and strengthen altruism: family/community/country-wide ties (patriotism) due to poor economic conditions for the majority of Americans.

John23832 10y ago
> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used on targeted groups (I'm looking at the elderly, minorities and groups that are generally less financially sophisticated). Most people generally aren't in a position to "vote with their wallet". This is because most people are leveraged to their eyeballs with rents. This is a problem with Wall Street that trickles down, not a problem with the consumer that worked it's way up. > many consumers took on home loans they had no intention of ever making good on I disagree with this as well. People generally are not scam artist. On the contrary, most people like paying off their debts. Were people probably overly confident in their ability to repay, sure. Saying that people intended to default however, is not true. --- Wall Street (and it's derivatives... I'm looking at you, ad funded Silicon Valley) is full of fraud. The fraud stems from the fact that the only people who can realistically perform checks and balances on this group(s) are the groups themselves. You may be able to blame the consumer when they have full and clear knowledge of how the system works, but that's not the case. Wall Street is full of so many obscurities and 40k ft descriptions that the average consumer really has no chance. A good example of how the average person thinks financially... how many homeowners do you know that consider their home an "investment". Probably most, if not all.

elastic_church 10y ago

Could just leverage up on some 30 year treasury bills for at least 9% annually. 3-4x leverage will get you that.

ant6n 10y ago
So borrow money to lend money? What if the interest rate changes in those 30 years?
- beachstartup 10y ago
  > So borrow money to lend money? this is how it works. you don't think those lenders were lending you their own money do you? > What if the interest rate changes in those 30 years? the original loans are almost certainly fixed rate, the end borrowers may very well have to pay an adjustable rate, which just means more profits for the intermediate lender.
John23832 10y ago
And tie up at least $1k for 30 years... most people can't afford to do that. The current rate is 2.9 and the long term average is 7. If you can get a 9 return right now, it's illegal.
- elastic_church 10y ago
  a) its not tied up, treasuries are one of the most liquid markets, you can buy and sell in a milliseconds notice. b) if you are talking about self directed investments at all, you are waaaaay past the financial situation that "most people" are in and probably accepted that a long time ago c) and what's 2.9 multipled by 4?
refurb 10y ago
And what happens if the inflation rises and interest rates follow? You'll be earning a cool 7% nominal interest rate and a -2% real interest rate.
shostack 10y ago

retube 10y ago

> It used to be that fortunes were both made and lost on Wall Street. They still are. Hedge Funds lose money and/or go bust all the time. Firms go bust. The stock market has only just recovered levels last seen over a decade ago. > it's 3.5% or I take my money to another fund When has any investor ever said "I want to lose money" ?

John23832 10y ago
> They still are. Hedge Funds lose money and/or go bust all the time. Firms go bust. The stock market has only just recovered levels last seen over a decade ago. I'm speaking about personal fortunes. Maybe I should have been more clear. > When has any investor ever said "I want to lose money" ? An investor losing money is different than an investor realizing that losing money is part of the game. I'm saying that high net-worth individuals won't even consider losing money as an option anymore.

bogomipz 10y ago

>"We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail." Once upon time there were three categories of banks: retail, commercial and investment. Retail banks were known as 3-6-3s. They gave 3 percent interest on deposits, lent money out 6 percent and were on the golf course by 3:00PM. https://en.wikipedia.org/wiki/3-6-3_Rule https://en.wikipedia.org/wiki/3-6-3_Rule The banks held the loans on their books and had to properly manage their risk portfolio or else go out of business and be out of job. This worked really well for retail banks, they made decent profits and ran a tight ship. Since banking deregulation, risk has been transferred to the tax payer and banks have come to expect outsized returns as the new normal. When regulation tightens in one area in response to a crisis they develop another exotic "product" to exploit some other loophole in order to reach those outsize returns. Its akin to patching a car radiator rather than fixing it. The same tired refrain sold by these folks is always "the market will regulate itself." The US basically has a system of "privatize the profits but socialize risks." I was struck by this sentence from the article: "Some local governments that embraced the loans as a way to bring clean energy to the masses didn’t anticipate the messy consequences." I think "really"? Given the recent history - 2008, unintended consequences didn't enter into your discussions or calculations? More likely is that folks were in the pockets of those with a vested business interest in establishing such program. I have little doubt that lobbyists at least in part helped write legislation that enabled these programs.

latj 10y ago

The behavior you describe is the way every investor should act. And the behavior of the underlying fund managers, and the executives of the companies below- they're all acting the way they're supposed to be acting-- maximizing profit, minimizing risk. Its not the fault of whales, greedy fund managers, poorly managed banks, or ineffective governance. This is capitalism and it is working exactly as designed- to funnel private wealth to a few people and distribute the risk among the masses.

CalChris 10y ago
Rent seeking. https://en.m.wikipedia.org/wiki/Rent-seeking https://en.m.wikipedia.org/wiki/Rent-seeking
John23832 10y ago
I'm not saying that rent seeking behavior isn't encouraged by Capitalism. I'm saying that rent seeking behavior is screwing society up.

randomtossr88 10y ago

Humans have a tendency for unwavering "belief". The obvious is belief in deities. Our other institutions are just as vulnerable to being treated as infallible. Our economics are, and basically "putting all our eggs" into a global financial system over which we have little say, is this thing we have to keep believing in. "The debt, the debt!" not considering that if humans in the future really need to for survival, an imaginary number on paper can be waved away. We have to believe these things matter. And it isn't just laymen that are victim to unwavering belief. Very smart people can also be convinced of bullshit. And the rest of us just have to nod and smile in agreement. What other choice is there? I think we're in a period of social adjustment from the previous 100 years into the next. The last one was the great depression, leading into ww1 and ww2, after an era of extreme growth in wealth inequality (guilded age). Our population grew, but not enough were brought along. A number of us have backslid (my personal buying power has decreased despite raises, anyone in the $100,000/yr realm has power than equivalent pay in the previous generation). Like religions not accounting for non-believers, the system thinks its these folks fault, not its own. Maybe it's time we start considering resets in our social structures every few years. Jefferson argued for one in the Constitution. And maybe it's time we heed Adam Smith's advice and fight for equality of outcomes, not just opportunity (a notion we believe exists, but the reality that we are a society where everyone has equal opportunity is laughable). Cause it seems to me, it would do a lot to avoid these lopsided social structures if we're all kept on the same page materially. Game theory suggests it is a good idea when talking about community policing: https://aeon.co/essays/game-theory-s-cure-for-corruption-make-us-all-cops https://aeon.co/essays/game-theory-s-cure-for-corruption-mak...

tn13 10y ago

This is one area I think government ought to play its basic role. However given that government its self has been predatory with out money it is hard to expect that they will do anything other than bailing wall street out. Baptists and bootleggers!

smallnamespace 10y ago

Marx and other classical economic thinkers speculatively connected the fall in the rate of profit to increases in inequality and long-run economic cycles [1]. Essentially, the idea is that since the rate of profit exceeds the rate of growth, rent seekers (capital holders) tend to get richer and richer and own more and more of the wealth. This impoverishes all other parts of the economy and starves it of resources, causing the rate of profit (return on capital) to start declining. The end result is usually a prolonged crisis of some sort which causes the destruction of large amounts of capital, 'resetting' the economy again so the cycle can repeat anew. For some reason this idea has been rejected by the mainstream for the last 70 years or so, but I think some people are starting to take it up again. [1] https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit...

erikpukinskis 10y ago
Sounds right... Not sure Marx imagined what that process would look like alongside the emergence of a new species through (autonomous corporations). I expect the details of solvency for funds, pensioners, etc, will fade away into history as we move away from the large institutions and individual risk that necessitate them. What happens when every citizen controls thousands of autonomous corporations, each with perfect credit (if limited means)? Many rules of economics will no longer apply.
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AnimalMuppet 10y ago
The standard view of the business cycle is that the capital gets invested somewhere. When all the good places are gone, what's left gets invested in marginal places, and then in bad ones. That capital gets destroyed, because the bad ideas can't pay it back. That can result in a crisis, but more often in merely results in a recession. So that's somewhat similar to Marx's idea, with two key differences: 1. Capital only grows by getting returns on previous investment. If capital "starves all other parts of the economy of resources", that means that capital is wasting the resources, which means that the capital is not earning a return, which means that it stops growing. 2. The end of the cycle doesn't have to be horrible. Marx hadn't seen much in the way of soft landings, but the Fed has gotten fairly good at them. (1929 and 2008 are exceptions, not the rule.)

djschnei 10y ago

The ONLY thing that facilitates that is government intervention and market perversion.

yuhong 10y ago

At least part of it comes from how an increase in credit cause the economy to "boom". Basic income would be better, but still may have the same fundamental problems.

gozur88 10y ago

> This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street. You don't support this statement at all. >It used to be that fortunes were both made and lost on Wall Street. Now, for large investors ("whales"), it's 3.5% or I take my money to another fund. Investors have always done this, large and small. And 3.5% isn't a great rate of return. The official CPI, which probably understates increases in the cost of living, was 1.7%. >If I don't have a consistent positive return, then it's something wrong with the fund/firm, not the natural order of things. This behavior encourages siphoning from pensions, the retirement funds of average people and "fudging the numbers" on packaged securities in order to keep up with the expected returns of the "whales". That's pretty illegal if true. Do you have any evidence it's actually happening?