6 ms·

I feel like there is a natural tension between adults having the right to make their own decisions, and 'protecting' them from making bad decisions. Maybe what

I feel like there is a natural tension between adults having the right to make their own decisions, and 'protecting' them from making bad decisions. Maybe what we need is a two-part market for financial services, a tightly regulated one where only regulator-approved, simple products can be sold, and one with much looser regulation, but that only those consumers willing to take a financial literacy exam are eligible for (with the financial firm being responsible for checking, and contracts being void if sold to unqualified buyers). After all, even brokers and traders have to take an exam before they are allowed to trade more complicated financial instruments (https://en.m.wikipedia.org/wiki/Series_7_exam https://en.m.wikipedia.org/wiki/Series_7_exam). We also don't allow people to drive a car without proving they can do so reasonably safely. The public could reasonably assume that the government might provide guarantees for products in the first group, in the way they do for bank accounts. Products in the second group would explicitly be excluded from any government guarantee - if you passed the exam, and want to risk your own money, totally up to you, but don't come expecting your fellow citizens to bail you out if things go terribly wrong later. So for example, interest-only home mortgages are almost always a bad choice for most consumers, so they would probably be in the second group. So you could still get them if you really wanted one, but you would have to prove you knew what you were doing, and were willing to give up any hope of a government bailout.

mynameishere 9y ago
interest-only home mortgages are almost always a bad choice for most consumers Just for future reference, if anyone lets you make an infinitely leveraged 500,000 dollar bet that you can walk away from at any time, you take that bet.
- CamTin 9y ago
  On the other hand, if someone offers to let you make an infinitely leveraged 500,000 dollar bet that you can walk away from at any time provided you are OK with the consequence of being unable to access another mortgage loan or to rent (because of outstanding housing debt), then probably don't take that bet.
  - TrickyRick 9y ago
    But wasn't a big part of the '08 crisis the fact that you actually could walk away from all of it as a home owner and the banks were stuck with the loss? Sure it sucks to be homeless but it suck a hell of a lot less than being homeless with huge debts.
ncallaway 9y ago
I would think a financial literacy exam would be too much. I think a large red disclaimer page that says in very simple language: "This contract is unregulated and may be a dangerous financial transaction. Do not proceed unless you know what you are doing" that must be signed should be sufficient. Simpler, tightly regulated contracts, wouldn't require this disclosure. If implemented well, it should be like the warning page you get when a certificate doesn't validate. Rare and scary is the best way to warn a consumer that something worth paying attention to is happening.
repiret 9y ago
I feel that there should be two types of contracts in the world 1. Take it or leave it, fine print consumer contracts, which includes most loans. These contracts should very limited in power / heavily regulated. 2. Negotiated contracts, where both parties sign, both parties have the power to negotiate for different terms, both parties have legal representation. These contracts should have very little regulation.

mynameishere 9y ago

interest-only home mortgages are almost always a bad choice for most consumers Just for future reference, if anyone lets you make an infinitely leveraged 500,000 dollar bet that you can walk away from at any time, you take that bet.

CamTin 9y ago
On the other hand, if someone offers to let you make an infinitely leveraged 500,000 dollar bet that you can walk away from at any time provided you are OK with the consequence of being unable to access another mortgage loan or to rent (because of outstanding housing debt), then probably don't take that bet.
- TrickyRick 9y ago
  But wasn't a big part of the '08 crisis the fact that you actually could walk away from all of it as a home owner and the banks were stuck with the loss? Sure it sucks to be homeless but it suck a hell of a lot less than being homeless with huge debts.

ncallaway 9y ago

I would think a financial literacy exam would be too much. I think a large red disclaimer page that says in very simple language: "This contract is unregulated and may be a dangerous financial transaction. Do not proceed unless you know what you are doing" that must be signed should be sufficient. Simpler, tightly regulated contracts, wouldn't require this disclosure. If implemented well, it should be like the warning page you get when a certificate doesn't validate. Rare and scary is the best way to warn a consumer that something worth paying attention to is happening.

repiret 9y ago

I feel that there should be two types of contracts in the world 1. Take it or leave it, fine print consumer contracts, which includes most loans. These contracts should very limited in power / heavily regulated. 2. Negotiated contracts, where both parties sign, both parties have the power to negotiate for different terms, both parties have legal representation. These contracts should have very little regulation.