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I'm sure you can find enough anecdata of predatory lenders to get your dudgeon up, but the reality is that they were a cause of the crisis only at the far margi

by JackFr 12y ago

I'm sure you can find enough anecdata of predatory lenders to get your dudgeon up, but the reality is that they were a cause of the crisis only at the far margins. Th bulk of the crisis was caused by banks and borrowers making foolish decisions in good faith. The crisis, like virtually all financial crises, was caused by leverage. Home buyers want it (they'd rather put 3% down than 20%); home lenders should be averse to it. The combination of the originate-to-sell model along with asset-backed security structures which were intended to de-lever the loans to make them palatable to investors had consequences which should have been foreseeable, but which were not. People (and bankers) did not somehow become more greedy, more evil and more shortsighted in the lead up to the crisis.

bsder 12y ago
> People (and bankers) did not somehow become more greedy, more evil and more shortsighted in the lead up to the crisis. Actually, by most accounts, they did. The problem was that when 90+% of your financial colleagues are betting that the market will go a certain way, it doesn't pay to fight that. That self-reinforces and things get worse and worse. Look at the game theory: 1) I'm right about the economy going bust and the economy is about to collapse. Well, I can protect myself (a bit), but my company is going to collapse if the economy goes off a cliff and I'm out a job. 2) I'm wrong about the economy going bust and the economy is not about to collapse. Well, I'm still out a job. 3) I'm wrong about the economy going gangbusters and it goes haywire, I'm laid off along with everybody else. 4) I'm right about the economy going gangbusters and it goes gangbusters, "Yay! We're all rich. Where's the hookers and blow?" I only have one good outcome--drink the Kool-Aid and pray I can get out before it all goes bust.
- frandroid 12y ago
  Prem Watsa of Fairfax Financial lost money for a few years betting against the markets, until the markets tanked in 2008 and he finally made a boatload on selling short. Unfortunately for him, he then turned around and invested his winnings in Blackberry. :)
- JackFr 12y ago
  I really find it hard to believe that people became more greedy, more evil, and more shortsighted. 1) there was a global capital glut chasing returns. 2) stability and growth in the US economy, made investing in US property (through mortgage backed securities.) 3) this additional capital was enough to prime the bubble and drive up home prices faster than the general price level. 4) a combination of economic and political factors in the US led to the growth of 'affordability product' -- subprime loans -- which kept the bubble inflating. No extra evil, no extra greed.

by JackFr 12y ago

bsder 12y ago

> People (and bankers) did not somehow become more greedy, more evil and more shortsighted in the lead up to the crisis. Actually, by most accounts, they did. The problem was that when 90+% of your financial colleagues are betting that the market will go a certain way, it doesn't pay to fight that. That self-reinforces and things get worse and worse. Look at the game theory: 1) I'm right about the economy going bust and the economy is about to collapse. Well, I can protect myself (a bit), but my company is going to collapse if the economy goes off a cliff and I'm out a job. 2) I'm wrong about the economy going bust and the economy is not about to collapse. Well, I'm still out a job. 3) I'm wrong about the economy going gangbusters and it goes haywire, I'm laid off along with everybody else. 4) I'm right about the economy going gangbusters and it goes gangbusters, "Yay! We're all rich. Where's the hookers and blow?" I only have one good outcome--drink the Kool-Aid and pray I can get out before it all goes bust.

frandroid 12y ago
Prem Watsa of Fairfax Financial lost money for a few years betting against the markets, until the markets tanked in 2008 and he finally made a boatload on selling short. Unfortunately for him, he then turned around and invested his winnings in Blackberry. :)
JackFr 12y ago
I really find it hard to believe that people became more greedy, more evil, and more shortsighted. 1) there was a global capital glut chasing returns. 2) stability and growth in the US economy, made investing in US property (through mortgage backed securities.) 3) this additional capital was enough to prime the bubble and drive up home prices faster than the general price level. 4) a combination of economic and political factors in the US led to the growth of 'affordability product' -- subprime loans -- which kept the bubble inflating. No extra evil, no extra greed.