200 replies to this topic

[The Lorcan Nagle]

And here. We. Go

[Arjan Dirkse]

And what would you replace it with?

Maybe we can try an Internet meme/social network based economy? Liking someone's meme or post or tweet or status update will allow that person to get one cookie for free!

The person without any facebook friends will have to bake the cookies.

This is very true. Capitalism is supposed to be a system for increasing prosperity across the board, but it needs to be anchored in truly productive activities - not playing games with numbers the way modern finance and economics has become.

And yet capitalism has been great for humanity. I'd say that the lot of the people who lost their homes in this crisis is still preferable to that of ordinary people who lived before capitalism became such a success.

The functioning of credit - and the banks - in society is vital to that. It gives people acces to opportunity who otherwise would not have had that opportunity. On the other hand, I do think it has to be regulated, and it has to remain transparent.

Edited by Arjan Dirkse, 17 August 2012 - 12:18 PM.

[The Lorcan Nagle]

Maybe we can try an Internet meme/social network based economy? Liking someone's meme or post or tweet or status update will allow that person to get one cookie for free!

The person without any facebook friends will have to bake the cookies.

http://en.wikipedia.org/wiki/Gift_economy
http://en.wikipedia.org/wiki/Whuffie
http://en.wikipedia.org/wiki/Social_capital

The idea is out there...

[Ogul]

The speaker for the campaign said it was covered by some blanket licence, which sounds about right. You don't specifically ask the bands for every song you want to play at an event.

But you should ask each band that you want to play a song from.

[Christian U]

But you should ask each band that you want to play a song from.

Again, I don't think that's how it works. When the guy says that they paid a cover licence I expect that's the usual way of it.

And yet capitalism has been great for humanity. I'd say that the lot of the people who lost their homes in this crisis is still preferable to that of ordinary people who lived before capitalism became such a success.

Sure, although the question is how much of that was capitalism? Democracy and social mobility are what we're talking about, and capitalism and trade is far older than that.

[Arjan Dirkse]

Sure, although the question is how much of that was capitalism? Democracy and social mobility are what we're talking about, and capitalism and trade is far older than that.

Yeah, that's a good point.

I think access to credit is vital in getting people to thrive. It empowers people to participate in the economy. Get a house, get a car, go to university, start a business. Now somehow the whole concept is tarnished; because we feel we are being robbed.

Then on the other hand, there is "microfinancing." Which sounds really cute and cuddly. You have "financing," but it's not bad because "it's micro!" People can start micro-enterprises, and even manage to make micro-profits and micro-savings.

The wikipedia article for microfinancing comes with non-threatening pictures like this:



Would people say it's evil to give people these loans? It seems pretty similar to the idea of subprime mortgages, namely lending to people who do not qualify for "regular" loans.

[Christian U]

Yeah, that's a good point.

I think access to credit is vital in getting people to thrive. It empowers people to participate in the economy. Get a house, get a car, go to university, start a business. Now somehow the whole concept is tarnished; because we feel we are being robbed.

I agree that banks and debt are important, and I don't think those concepts themselves are tarnished. I've never felt comfortable with debt, but you're absolutely right, it empowers people, it opens up opportunities. There's a risk, of course, but that's just how it is. But there are many people who abused the system, and the bigger issue is that they have changed the system, over time, in order to make it more profitable, but also more ab-usable and more prone to risks. The proponents of laissez-faire capitalism and deregulation of Wall Street and the abusers are the ones the the pitchforks, tar and feather are and should be for.

I think this anger is important - vital, in fact. Because we badly need change, we need to go back to a more regulated, more humane form of capitalism, and this kind of change is very hard to achieve because all the money and its power are working behind the scenes to keep us headed the other way. The only way to get out of this, to gain back some measure of control over the markets, is for people to be so disgusted, so angry, that the politicians simply cannot afford not to act, in spite of all the money the lobbyists are pumping into their campaigns.

Would people say it's evil to give people these loans? It seems pretty similar to the idea of subprime mortgages, namely lending to people who do not qualify for "regular" loans.

It depends on what my aim is. Am I lending them money that they will in time pay back to me, with reasonable interest?

Or am I rigging things so their interest rates will keep rising, and I've given them the money knowing they'll never be able to pay it back, making them de facto debt slaves who from now on work only for my financial benefit, not for their own?


A sensibly regulated financial system, Arjan, that includes real accountability. That's all any reasonable person would ask for.

Edited by Christian U, 17 August 2012 - 02:00 PM.

[Ogul]

Would people say it's evil to give people these loans? It seems pretty similar to the idea of subprime mortgages, namely lending to people who do not qualify for "regular" loans.

But the problem in this case is that many people were given sub-prime loans when they were worthy of getting "prime" loans instead. Please please please take this point in so that I don't have to keep repeating it.

Also, micro-loans are a good idea, but they are based on giving out small loans, hopefully to people that will pay them back. When you're giving out a $100K+ loan though, it's important for both loaner and loanee that they both understand what goes in to paying that loan off, and that the loanee will be able to comfortably afford to do so, even if their situation changes a bit. The practice of just jacking up the rate on it to make the gamble more worth the bank's time, rather than to actually reduce the risk to both parties, just causes more harm than good.

[Todd Gross]

I heard the following many years ago and it has always stuck with me:


When a bank loans you $20,000 and you can't pay it back, you have a problem.

When a bank loans you $20,000,000 and you can't pay it back, the bank has a problem.

[Arjan Dirkse]

But the problem in this case is that many people were given sub-prime loans when they were worthy of getting "prime" loans instead. Please please please take this point in so that I don't have to keep repeating it.

This article argues against that:

A study conducted by Kristopher Gerardi and Paul S. Willen from the Federal Reserve Bank of Boston and Harvey S. Rosen of Princeton, Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market (National Bureau of Economic Research Working Paper 12967), shows that the three decades from 1970 to 2000 witnessed an incredible flowering of new types of home loans. These innovations mainly served to give people power to make their own decisions about housing, and they ended up being quite sensible with their newfound access to capital.
These economists followed thousands of people over their lives and examined the evidence for whether mortgage markets have become more efficient over time. Lost in the current discussion about borrowers’ income levels in the subprime market is the fact that someone with a low income now but who stands to earn much more in the future would, in a perfect market, be able to borrow from a bank to buy a house. That is how economists view the efficiency of a capital market: people’s decisions unrestricted by the amount of money they have right now.
And this study shows that measured this way, the mortgage market has become more perfect, not more irresponsible. People tend to make good decisions about their own economic prospects. As Professor Rosen said in an interview, “Our findings suggest that people make sensible housing decisions in that the size of house they buy today relates to their future income, not just their current income and that the innovations in mortgages over 30 years gave many people the opportunity to own a home that they would not have otherwise had, just because they didn’t have enough assets in the bank at the moment they needed the house.” (...)

Also, the historical evidence suggests that cracking down on new mortgages may hit exactly the wrong people. As Professor Rosen explains, “The main thing that innovations in the mortgage market have done over the past 30 years is to let in the excluded: the young, the discriminated against, the people without a lot of money in the bank to use for a down payment.” It has allowed them access to mortgages whereas lenders would have once just turned them away.

[Lucian Von Dooom]

And what would you replace it with?

Well I'm not entirely sure about that but there are some people who are experimenting with different ideas. The people over at freetheplanet.net for example. They have information on community trust, refusing to register births, sweat equity and lots more. There's a lot of interesting stuff on their site. And as much as I think they're just a bunch of hippies, I tend to agree with most of the ideas they present.

[Ogul]

This article argues against that:

That article from 2007? That doesn't really argue anything. No question that sub-prime mortgages were the only option for some people, but not for a lot of the ones that ended up with them. 60 Minutes did a piece on it a while back, I recommend gong to their site and watching any of the pieces they've done on sub prime mortgages over the past few years.

[Arjan Dirkse]

That article from 2007? That doesn't really argue anything. No question that sub-prime mortgages were the only option for some people, but not for a lot of the ones that ended up with them. 60 Minutes did a piece on it a while back, I recommend gong to their site and watching any of the pieces they've done on sub prime mortgages over the past few years.

Done in hindsight, I assume

[Jim Ohara]

It'd be awesome to go back to the stone age and rely of foraging for food every day or risk starvation like the animals do. Who needs X-box when you can sleep in a ditch every night?!

I think this anger is important - vital, in fact. Because we badly need change, we need to go back to a more regulated, more humane form of capitalism, and this kind of change is very hard to achieve because all the money and its power are working behind the scenes to keep us headed the other way.

Not trying to be a dick, but what specifically needs to change? What current financial practice should be outlawed? Offering ARM's? Should there be a government mandated upper limit on the mortgage you can get? What happens if you change jobs or lose your job? Should we limit credit default swaps? Ban them outright? Cap the gross revenue of a company, forcing them to break up if they hit $100 billion? Should we limit how much wealth a company can manage?

The financial collapse is a subject most people talk about, are angry about and blame the bankers for, but if you ask what activity should have been illegal and who committed a crime I've never heard a clear answer. It's as complicated a situation and the financial industry itself.

The housing bubble collapse was obviously coming. It was a bubble, we all knew it was. We're not in a bubble. Should we remove the opportunity for another bubble? Should you not be allowed to sell you house for more than 10% of what you paid for it? Should your taxes on house flipping be at a 90% rate? Should we remove the mortgage interest tax deduction? I don't think anyone has very good answers.

[Ogul]

Well I'm not entirely sure about that but there are some people who are experimenting with different ideas. The people over at freetheplanet.net for example. They have information on community trust, refusing to register births, sweat equity and lots more. There's a lot of interesting stuff on their site. And as much as I think they're just a bunch of hippies, I tend to agree with most of the ideas they present.

Yeah, this is just hippy bullshit. There are way too many people on this planet for "natural law" to apply. We've become a super-natural species and natural law can no longer sustain us. We would need to cull the population down into the low seven digits to be able to survive like this. Besides which, and sort of pacifist society like this would just get raided constantly by those that don't subscribe to that philosophy. They'd just be Viking meat.

Done in hindsight, I assume

Done in hindsight, but interviewing people who were there, and admitting to knowing what they were doing was wrong.

Not trying to be a dick, but what specifically needs to change? What current financial practice should be outlawed? Offering ARM's? Should there be a government mandated upper limit on the mortgage you can get? What happens if you change jobs or lose your job? Should we limit credit default swaps? Ban them outright? Cap the gross revenue of a company, forcing them to break up if they hit $100 billion? Should we limit how much wealth a company can manage?

Off the top of my head, I think that these are good ideas:
-Require higher levels of capitalization, enough that even if a ton of loans go to crap, the bank can absorb them without outside assistance.
-Limit the total size of the network that a single unseverable entity can extend themselves. If a bank is too big to collapse without taking numerous other entities with them, then they have to break into separate parts that can each live or die on their own.
-Remove all "negative" financial transactions, all the ones that benefit investors based on failures, such as credit defaults and short sales. These are inherently selfish and destructive practices. All financial transactions should only provide benefit when everyone wins.
-Prevent the transfer of loans from one entity to another, without significant direct approval from an independent agency, and perhaps the approval of the indebted party. Basically, no giving someone a home loan and then passing the ownership of that loan around, dividing it up, or otherwise messing with it, unless they specifically agree to this (in a non-arbitrary way), and an oversight board agrees that this is a fair thing to do. If you take out a loan from "County Bank," then you should only ever have to deal with "County Bank."
-Have requirements about financial documents that make them easy to understand for laymen with zero financial understanding, preferably using a standardize system. If a debtor can reasonable show in a court of law that they did not understand the nature of the loan they were signing, then they can have it voided, making it very much in the loaner's interest to make sure they understand.
-Better oversight. Banks should have to put a considerable amount of money into a blind fund that pays for a solid core of independent financial investigators, so that the "police" can be as well funded as the potential "crooks."

I'm sure those could use some tweaking, and there are likely plenty more to go, but I think those are a good start.

The financial collapse is a subject most people talk about, are angry about and blame the bankers for, but if you ask what activity should have been illegal and who committed a crime I've never heard a clear answer. I

That's because it's so complicated. It's like if a patient dies on the table, and there's some evidence that the doctor screwed up, you can't expect the patient's family to know exactly how, but that doesn't mean that the doctor didn't screw up, and that nothing should happen to him, it just means that people who do understand the system need to come up with rules to prevent it from happening again.

[The Lorcan Nagle]

Again, I don't think that's how it works. When the guy says that they paid a cover licence I expect that's the usual way of it.

There's different licenses in place in different areas. The BBC, for example pays a fee to the UK equivalent of the RIAA to allow them to use pretty much any music released in the UK, and it covers their radio stations, documentaries, news, drama and so on. They even get early copies of singles to use in drama series that are meant to be set on the day they air.

Whether Romney's campaign had a similar license - as they claim - is the question. Compare to when Fox news used some Nine Inch Nails songs for ads, and it turned out they didn't have an appropriate license in place and Trent Reznor threatened to sue them. Or indeed when Reagan famously wanted to use Born in the USA for his campaign.

If Romney's campaign does have a general license, then I'd assume the artist has to opt out rather than in.

[Arjan Dirkse]

Done in hindsight, but interviewing people who were there, and admitting to knowing what they were doing was wrong.

How would they persuade clients to take out a subprime mortgage rather than a regular mortgage? If they deceived clients to make them believe they didn't qualify for a regular mortgage, then I agree that they should be prosecuted of course. That is simply scamming them.

[Ogul]

How would they persuade clients to take out a subprime mortgage rather than a regular mortgage? If they deceived clients to make them believe they didn't qualify for a regular mortgage, then I agree that they should be prosecuted of course. That is simply scamming them.

I don't know the exact language used, but most people wouldn't understand the difference anyways, and I imagine there is a way one could phrase it that were not be outright fraud, much like infomercials do.

[Arjan Dirkse]

I don't know the exact language used, but most people wouldn't understand the difference anyways, and I imagine there is a way one could phrase it that were not be outright fraud, much like infomercials do.

Right I see.

Preying on people's naivity or ignorance is serious but it's difficult to legislate against. I mean that is exactly why those infomercials work on some people...I'm not against laws that prohibit business practices that are clearly misleading.

[garjones]

Yeah, that's a good point.

I think access to credit is vital in getting people to thrive. It empowers people to participate in the economy. Get a house, get a car, go to university, start a business. Now somehow the whole concept is tarnished; because we feel we are being robbed.

Credit is vital, microfinancing is great.

I'll say it again though, this 5 year long slump was not caused by consumer lending or sub prime mortgages. Everyone knew those were risky anyway, when my bank bought a sub-prime subsidiary it was open comment in the business pages.

Poor people not being abe to pay their mortgages does not take down an investment bank that doesn't sell any mortgages like Bear Stearns, or an insurance company like AIG. What did was the gaming or fraud (depending on your POV) that managed to transform that dodgy credit, that we all knew was risky, into AAA guaranteed credit, which we all thought wasn't. Once that curtain was ripped open by the sub-prime issue we could see that loads of the assets of these finance companies were worthless.

It was Enron on a bigger scale. Basically what was presented was not the truth. Risky consumer lending can take down a few small banks, not the entire system globally. It's the wrong focus but financial systems are so bloody complicated now that it's easy to take the discussion there because we can understand it.