7 ms·

This isn’t the financial engineers. This is just greedy lenders preying on consumers by offering them loans they really can’t afford, and people constantly bomb

This isn’t the financial engineers. This is just greedy lenders preying on consumers by offering them loans they really can’t afford, and people constantly bombarded by marketing messages telling them to spend beyond their means and finance it with credit. The financial engineering here is basically zero.

throwawayqqq11 9mo ago
... except locking these financially illiterate victims into bad conditions.
- seanhunter 9mo ago
  That’s not financial engineering though. That’s predatory lending.
  - direwolf20 9mo ago
    What separates predatory lending from being a form of financial engineering?
    - seanhunter 9mo ago
      They simply are completely different things. Financial engineering refers to the creation of complex financial products (usually derivatives) using techniques from financial mathematics[1]. Predatory lending is just lending to people who can’t afford to borrow. No engineering of any kind involved. [1] https://corporatefinanceinstitute.com/resources/financial-modeling/financial-engineering/ https://corporatefinanceinstitute.com/resources/financial-mo...
  - graemep 9mo ago
    Financial engineering can enable predatory lending by repacking low quality debt into complex securities that are easier to sell. It happened with sub-prime lending that ended with the 1008 crash. I do not know whether it is a significant factor with private credit now.
masfuerte 9mo ago
If there's no financial engineering, who cares if some sketchy lenders go bust?
- seanhunter 9mo ago
  Probably most people outside the Wall St bubble don’t care very much. However if some of these financial institutions take big hits that could cause ripples in the broader “real” economy that might have a bigger impact. Given the current backdrop of inflation and uncertainty due to tariffs etc this could be bad but it’s hard to say how bad. Although people have tried to make the financial system more resilient since the 2008 crisis, it’s really impossible to say how well those measures will hold up until they are really tested, which isn’t a very comforting thought. It’s very unlikely (in my opinion) that things melt down in exactly the same way as last time, but there’s nothing to say they won’t find a new and exciting (slightly) different way to melt down. Financial engineering isn’t the only thing that can cause a financial crisis.

throwawayqqq11 9mo ago

... except locking these financially illiterate victims into bad conditions.

seanhunter 9mo ago
That’s not financial engineering though. That’s predatory lending.
- direwolf20 9mo ago
  What separates predatory lending from being a form of financial engineering?
  - seanhunter 9mo ago
    They simply are completely different things. Financial engineering refers to the creation of complex financial products (usually derivatives) using techniques from financial mathematics[1]. Predatory lending is just lending to people who can’t afford to borrow. No engineering of any kind involved. [1] https://corporatefinanceinstitute.com/resources/financial-modeling/financial-engineering/ https://corporatefinanceinstitute.com/resources/financial-mo...
- graemep 9mo ago
  Financial engineering can enable predatory lending by repacking low quality debt into complex securities that are easier to sell. It happened with sub-prime lending that ended with the 1008 crash. I do not know whether it is a significant factor with private credit now.

masfuerte 9mo ago

If there's no financial engineering, who cares if some sketchy lenders go bust?

seanhunter 9mo ago
Probably most people outside the Wall St bubble don’t care very much. However if some of these financial institutions take big hits that could cause ripples in the broader “real” economy that might have a bigger impact. Given the current backdrop of inflation and uncertainty due to tariffs etc this could be bad but it’s hard to say how bad. Although people have tried to make the financial system more resilient since the 2008 crisis, it’s really impossible to say how well those measures will hold up until they are really tested, which isn’t a very comforting thought. It’s very unlikely (in my opinion) that things melt down in exactly the same way as last time, but there’s nothing to say they won’t find a new and exciting (slightly) different way to melt down. Financial engineering isn’t the only thing that can cause a financial crisis.