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> If you replaced your current mental model for mortgages with “it’s like a paper electronic flow meter for money, possibly with less paper these days”, it woul

by mvkel 2y ago

> If you replaced your current mental model for mortgages with “it’s like a paper electronic flow meter for money, possibly with less paper these days”, it would improve your ability to understand the mortgage industry. I feel even more confused

beezlewax 2y ago
Yep that was the last thing I read. Absolute gibberish
- abrichr 2y ago
  The second half of the following sentence clears it up: > The analogy is less about providing visibility into the contents of pipes (though mortgages must do that) and more “highly specialized manufactured widget that the entire world sits downstream of.”
  - epolanski 2y ago
    Does it? I feel even more confused. I think many people would benefit from getting something out of the Economist's style guide: https://cdn.static-economist.com/sites/default/files/store/Style_Guide_2015.pdf https://cdn.static-economist.com/sites/default/files/store/S...
  - mvkel 2y ago
    No. Why use "widgets" and "electronic flow meters" as analogies? The average person knows even less about those than mortgages. Here's my attempt: Mortgages are not primarily a service that a bank provides to homeowners. They are akin to a farmer growing crops to sell to a food processing company. The food processing company (like institutional investors) doesn't want to deal with the complexities of farming (like dealing with individual homeowners). Instead, they prefer to buy large quantities of raw produce (bundles of mortgages) and process it into packaged food products (guaranteed cashflows). Just as the food processing company focuses on producing and selling packaged food rather than farming, pension funds focus on managing payouts to retirees rather than issuing individual mortgages. Banks, like farmers, have to grow (originate) the raw product (mortgages) to sell it in bulk to these large institutions, thus transforming the upfront cash into a steady stream of future revenue.
bryanrasmussen 2y ago
argument clearer if it just said "it's a flow meter for money" then you can analyze that and see if it makes any sense. Can't say it makes sense for me. Maybe it makes sense for the banks, but not the person with the mortgage.
- toxik 2y ago
  But even then, a flow meter exists and works by physical laws. The device and the contract are separate. A mortgage is an abstract agreement that works because we simulate its dynamics (well the bank does). The device and the contract are one and the same.
  - bryanrasmussen 2y ago
    all analogies, metaphors, and similes will fall apart at some point as the two things being analogized are not exactly alike (otherwise there would not be any need to analogize)
    - toxik 2y ago
      Of course, but a useful analogy must bring some new perspective to a thing. Here it just made me wonder what point the author is trying to make.
yareal 2y ago
It's a terrible analogy, and does nothing to simplify or abstract in plain terms. And it pervades the rest of the article in a confounding way.
jjmarr 2y ago
The thesis is that mortgages are not primarily a service a bank provides to a homeowner. They are a financial product that banks sell to institutional investors (as an example) that want a guaranteed cashflow decades into the future. Of course, a multibillion dollar pension fund does not want to directly write John Doe a mortgage and deal with him. Their business is giving money to pensioners, not selling mortgages. They would rather buy a bundle of thousands of mortgages at once and outsource the hassle of taking the payments to someone else. The bundling and administration of mortgages is akin to a manufacturing process for electronic flow meters. The customer just cares about seeing a number go up, and pension funds just want to see money hit their accounts. Since a great way of turning a bunch of cash upfront into a larger amount of cash over decades is through mortgages, banks unfortunately have to find actual people and help them buy a house.
- hkt 2y ago
  A thought I've had regularly is that any financial product so widely required ought to be provided at cost (base rate of interest) through central banks. Why bother with middlemen? As the author says, it is because the mortgage is hardly for my benefit. Its purpose is to grant some privileges to those who remain on the treadmill of work for a long time without falling off, and to act as something like a tax, levied on behalf of the absurdly wealthy + institutional investors.
  - anamax 2y ago
    > A thought I've had regularly is that any financial product so widely required ought to be provided at cost (base rate of interest) through central banks. Why bother with middlemen? In the US at least, govt has problems running "retail." (It also has problems running wholesale, as evidenced by the give-aways to BlackRock, but ...)
    - deprecative 2y ago
      The US certainly has issues with even accepting the government being able to do good things. A small but highly vocal part of the populace has all but ensured the well is poisoned. I think we could, if we wanted, create an institution like the USPS for financial services. That would be able to issue a mortgage. It's not going to happen for the simple fact they're doing their best to privatize the USPS and beloved programs like Social Security.

by mvkel 2y ago

beezlewax 2y ago

Yep that was the last thing I read. Absolute gibberish

abrichr 2y ago
The second half of the following sentence clears it up: > The analogy is less about providing visibility into the contents of pipes (though mortgages must do that) and more “highly specialized manufactured widget that the entire world sits downstream of.”
- epolanski 2y ago
  Does it? I feel even more confused. I think many people would benefit from getting something out of the Economist's style guide: https://cdn.static-economist.com/sites/default/files/store/Style_Guide_2015.pdf https://cdn.static-economist.com/sites/default/files/store/S...
- mvkel 2y ago
  No. Why use "widgets" and "electronic flow meters" as analogies? The average person knows even less about those than mortgages. Here's my attempt: Mortgages are not primarily a service that a bank provides to homeowners. They are akin to a farmer growing crops to sell to a food processing company. The food processing company (like institutional investors) doesn't want to deal with the complexities of farming (like dealing with individual homeowners). Instead, they prefer to buy large quantities of raw produce (bundles of mortgages) and process it into packaged food products (guaranteed cashflows). Just as the food processing company focuses on producing and selling packaged food rather than farming, pension funds focus on managing payouts to retirees rather than issuing individual mortgages. Banks, like farmers, have to grow (originate) the raw product (mortgages) to sell it in bulk to these large institutions, thus transforming the upfront cash into a steady stream of future revenue.

bryanrasmussen 2y ago

argument clearer if it just said "it's a flow meter for money" then you can analyze that and see if it makes any sense. Can't say it makes sense for me. Maybe it makes sense for the banks, but not the person with the mortgage.

toxik 2y ago
But even then, a flow meter exists and works by physical laws. The device and the contract are separate. A mortgage is an abstract agreement that works because we simulate its dynamics (well the bank does). The device and the contract are one and the same.
- bryanrasmussen 2y ago
  all analogies, metaphors, and similes will fall apart at some point as the two things being analogized are not exactly alike (otherwise there would not be any need to analogize)
  - toxik 2y ago
    Of course, but a useful analogy must bring some new perspective to a thing. Here it just made me wonder what point the author is trying to make.

yareal 2y ago

It's a terrible analogy, and does nothing to simplify or abstract in plain terms. And it pervades the rest of the article in a confounding way.

jjmarr 2y ago

The thesis is that mortgages are not primarily a service a bank provides to a homeowner. They are a financial product that banks sell to institutional investors (as an example) that want a guaranteed cashflow decades into the future. Of course, a multibillion dollar pension fund does not want to directly write John Doe a mortgage and deal with him. Their business is giving money to pensioners, not selling mortgages. They would rather buy a bundle of thousands of mortgages at once and outsource the hassle of taking the payments to someone else. The bundling and administration of mortgages is akin to a manufacturing process for electronic flow meters. The customer just cares about seeing a number go up, and pension funds just want to see money hit their accounts. Since a great way of turning a bunch of cash upfront into a larger amount of cash over decades is through mortgages, banks unfortunately have to find actual people and help them buy a house.

hkt 2y ago
A thought I've had regularly is that any financial product so widely required ought to be provided at cost (base rate of interest) through central banks. Why bother with middlemen? As the author says, it is because the mortgage is hardly for my benefit. Its purpose is to grant some privileges to those who remain on the treadmill of work for a long time without falling off, and to act as something like a tax, levied on behalf of the absurdly wealthy + institutional investors.
- anamax 2y ago
  > A thought I've had regularly is that any financial product so widely required ought to be provided at cost (base rate of interest) through central banks. Why bother with middlemen? In the US at least, govt has problems running "retail." (It also has problems running wholesale, as evidenced by the give-aways to BlackRock, but ...)
  - deprecative 2y ago
    The US certainly has issues with even accepting the government being able to do good things. A small but highly vocal part of the populace has all but ensured the well is poisoned. I think we could, if we wanted, create an institution like the USPS for financial services. That would be able to issue a mortgage. It's not going to happen for the simple fact they're doing their best to privatize the USPS and beloved programs like Social Security.