5 ms·

this is a good thing. all I see is that someone who would normally not have the ability to drive a BMW be able to enjoy the use of one - however temporarily. I

by princeb 12y ago

this is a good thing. all I see is that someone who would normally not have the ability to drive a BMW be able to enjoy the use of one - however temporarily. I do not believe I have the moral superiority nor the arrogance to determine what constitutes a "responsible" decision for another person, or make a value judgement for them without appreciation of their values, let alone forcing them on such a path. here are two parties - one who needs a car (and all the intangible satisfaction in excess of the basic utility that comes with it), and another who is willing to take extra risk on their capital for a bit more income. how presumptuous it is to stand between their relationship.

Spooky23 12y ago
There is a moral hazard here, which has nothing to do with arrogance or superiority. We have all sorts of predictive analytics and common sense that makes it pretty trivial to figure out that the 19 year old with no income can't afford 72 months of payments on the shiny new BMW. But who gives a shit? The buyer is ignorant. The salesman gets paid to move the car, the bank charging usurious rates makes a profit for the few months the buyer pays, and the repo-man with the license plate tracking recovers the asset. This is a problem, because none of these parties has any expectation that the counter party can fulfill the contract. That's a moral hazard, and arguably fraud. (Actually, if you are a private individual, it is fraud in most states! If you're a federally chartered bank, no problem) That's why before banking became a national industry we have usury laws. It's unfortunate that we have loopholes allowing states like South Dakota and Nevada to neutralize these laws.
- mc32 12y ago
  Yes and no. I mean yes, there is a proscriptive world where we would tell people, 'sorry, you don't qualify' for reasons a, b and c. But there is also a world where those reasons mean that that tool is taken away from the poor, or at least the less financially savvy. Basically banks would turn more into an institution for people who have money and don't need a bank (financial institution). Perhaps a middle ground could be requiring people taking out these kinds of loans to receive two hours instruction on the side effects of taking out these loans and delivered by a consumer advocacy group --but without advocacy bias. Let them make their decision at the end of the day and put a three day waiting period in there.
  - Spooky23 12y ago
    I'd argue that we lived in such a world until the 90s. When the big investment houses were partnerships with directors holding personal liability, they didn't pretend that 30% car loans were AAA paper. Dodgy car loans were often held by the dealer, and were sold for what they are worth -- pennies in the dollar. And it isn't a tool for the poor, it's a funnel, draining wealth from people who don't have much to begin with.
    - yummyfajitas 12y ago
      There is a fundamental difference between a 30% subprime car loan, and the senior tranch of a portfolio of them. There is absolutely nothing wrong with building AAA securities from subprime loans. You'll only get into trouble if you fundamentally misestimate the default probabilities. This is true for any debt instrument, however, prime or subprime, fancy or vanilla.
      - eli_gottlieb 12y ago
        > There is a fundamental difference between a 30% subprime car loan, and the senior tranch of a portfolio of them. There is absolutely nothing wrong with building AAA securities from subprime loans. Then what caused the 2008 crash?
        yummyfajitas 12y ago
        We made bad assumptions regarding default probability. Analysis of internal documents has been done - even the "pessimistic" estimates were far less bad than what actually happened. That would have been a problem regardless of securitization. Securitization didn't fix this risk, nor was it meant to. Regulators allowed banks to satisfy capitalization requirements with senior tranches of other banks, but not with the senior tranches of their own portfolios. This isn't necessarily a terrible idea - it reduces local mispricing risk (i.e., one bank's underwriters suck), just not global mispricing risk (everyone sucks in the same way).
readme 12y ago
Please allow me to share my experiences with you. When I was 18, I had not yet capitalized on any of my talents, and I worked at a Starbucks. I took out a loan on a car, with a 27%+ interest rate. I grew up in a poor family and I didn't really know any better at the time. That is, I knew, but I had not yet developed the /discretion/ to act on that knowledge with sound judgement. So, I signed for the car. Approx 2.5 years later I defaulted on the car. Truly, 100% my fault, of course. 3 years later I finally paid off the car, but that's only after I got a decent few gigs developing mobile apps. So, for a lot of my life I worked way more than I should have just to pay the upkeep on this car, because full coverage insurance is pretty high when you're young. Fast forward a few years and I haven't missed a payment in 3 years and I have an amex. So yeah, I learned from some mistakes. But did it have to be that way? Do I want it to be that way for future generations? No, that's what HUMAN PROGRESS is for. I'm in the Army now. There's a law that protects servicemembers. Pretty much whatever debts you have when you join the military must have interest reduced to 6% or less. Also, if you look at a lot of state laws, the limit on interest rates before the loans are considered usury is around 6%... This is because of the general attitude amongst people that servicemembers should be treated well. Geez, wouldn't it be nice if everyone was exploited less? It's a pretty safe bet to say that, anyone loaning someone money at an interest rate above 20% is basically robbing that person blind. To posit that the other party is morally responsible for his own choices, and not the lender, is certainly correct. Caveat emptor is very common knowledge by now. The real question though is: is it for the greater good that we do this? Does offering predatory loans to inexperienced buyers who have not yet developed a strong enough will or learned enough about personal finance serve a higher purpose, beyond making oneself rich? Is making oneself rich, the ultimate goal in life, or is there something more important than that? Sure, it's the buyers fault for purchasing. That doesn't make you a good person if you're that predatory lender, or the guy who invested in those bonds. It makes you someone who willfully exploited another human being's ignorance or inexperience for their own personal gain. Which in my book, makes you a pretty despicable person. So I don't think we should take away the freedom of buyers to choose what they want. I think we should take away the freedom of sellers to behave in ways that is obviously not conducive to human progress and prosperity.
- nationcrafting 12y ago

by princeb 12y ago

Spooky23 12y ago

There is a moral hazard here, which has nothing to do with arrogance or superiority. We have all sorts of predictive analytics and common sense that makes it pretty trivial to figure out that the 19 year old with no income can't afford 72 months of payments on the shiny new BMW. But who gives a shit? The buyer is ignorant. The salesman gets paid to move the car, the bank charging usurious rates makes a profit for the few months the buyer pays, and the repo-man with the license plate tracking recovers the asset. This is a problem, because none of these parties has any expectation that the counter party can fulfill the contract. That's a moral hazard, and arguably fraud. (Actually, if you are a private individual, it is fraud in most states! If you're a federally chartered bank, no problem) That's why before banking became a national industry we have usury laws. It's unfortunate that we have loopholes allowing states like South Dakota and Nevada to neutralize these laws.

mc32 12y ago
Yes and no. I mean yes, there is a proscriptive world where we would tell people, 'sorry, you don't qualify' for reasons a, b and c. But there is also a world where those reasons mean that that tool is taken away from the poor, or at least the less financially savvy. Basically banks would turn more into an institution for people who have money and don't need a bank (financial institution). Perhaps a middle ground could be requiring people taking out these kinds of loans to receive two hours instruction on the side effects of taking out these loans and delivered by a consumer advocacy group --but without advocacy bias. Let them make their decision at the end of the day and put a three day waiting period in there.
- Spooky23 12y ago
  I'd argue that we lived in such a world until the 90s. When the big investment houses were partnerships with directors holding personal liability, they didn't pretend that 30% car loans were AAA paper. Dodgy car loans were often held by the dealer, and were sold for what they are worth -- pennies in the dollar. And it isn't a tool for the poor, it's a funnel, draining wealth from people who don't have much to begin with.
  - yummyfajitas 12y ago
    There is a fundamental difference between a 30% subprime car loan, and the senior tranch of a portfolio of them. There is absolutely nothing wrong with building AAA securities from subprime loans. You'll only get into trouble if you fundamentally misestimate the default probabilities. This is true for any debt instrument, however, prime or subprime, fancy or vanilla.
    - eli_gottlieb 12y ago
      > There is a fundamental difference between a 30% subprime car loan, and the senior tranch of a portfolio of them. There is absolutely nothing wrong with building AAA securities from subprime loans. Then what caused the 2008 crash?
      - yummyfajitas 12y ago
        We made bad assumptions regarding default probability. Analysis of internal documents has been done - even the "pessimistic" estimates were far less bad than what actually happened. That would have been a problem regardless of securitization. Securitization didn't fix this risk, nor was it meant to. Regulators allowed banks to satisfy capitalization requirements with senior tranches of other banks, but not with the senior tranches of their own portfolios. This isn't necessarily a terrible idea - it reduces local mispricing risk (i.e., one bank's underwriters suck), just not global mispricing risk (everyone sucks in the same way).

readme 12y ago

Please allow me to share my experiences with you. When I was 18, I had not yet capitalized on any of my talents, and I worked at a Starbucks. I took out a loan on a car, with a 27%+ interest rate. I grew up in a poor family and I didn't really know any better at the time. That is, I knew, but I had not yet developed the /discretion/ to act on that knowledge with sound judgement. So, I signed for the car. Approx 2.5 years later I defaulted on the car. Truly, 100% my fault, of course. 3 years later I finally paid off the car, but that's only after I got a decent few gigs developing mobile apps. So, for a lot of my life I worked way more than I should have just to pay the upkeep on this car, because full coverage insurance is pretty high when you're young. Fast forward a few years and I haven't missed a payment in 3 years and I have an amex. So yeah, I learned from some mistakes. But did it have to be that way? Do I want it to be that way for future generations? No, that's what HUMAN PROGRESS is for. I'm in the Army now. There's a law that protects servicemembers. Pretty much whatever debts you have when you join the military must have interest reduced to 6% or less. Also, if you look at a lot of state laws, the limit on interest rates before the loans are considered usury is around 6%... This is because of the general attitude amongst people that servicemembers should be treated well. Geez, wouldn't it be nice if everyone was exploited less? It's a pretty safe bet to say that, anyone loaning someone money at an interest rate above 20% is basically robbing that person blind. To posit that the other party is morally responsible for his own choices, and not the lender, is certainly correct. Caveat emptor is very common knowledge by now. The real question though is: is it for the greater good that we do this? Does offering predatory loans to inexperienced buyers who have not yet developed a strong enough will or learned enough about personal finance serve a higher purpose, beyond making oneself rich? Is making oneself rich, the ultimate goal in life, or is there something more important than that? Sure, it's the buyers fault for purchasing. That doesn't make you a good person if you're that predatory lender, or the guy who invested in those bonds. It makes you someone who willfully exploited another human being's ignorance or inexperience for their own personal gain. Which in my book, makes you a pretty despicable person. So I don't think we should take away the freedom of buyers to choose what they want. I think we should take away the freedom of sellers to behave in ways that is obviously not conducive to human progress and prosperity.

nationcrafting 12y ago