We Wanted Safer Banks, We Got More Inequality(bloomberg.com)
bloomberg.com
We Wanted Safer Banks, We Got More Inequality
https://www.bloomberg.com/view/articles/2018-08-06/inequality-why-bank-rules-and-fed-rates-hurt-middle-class
192 comments
One of the biggest contributors to income inequality is a lack of economic mobility. Maybe that sounds like a tautology - the difference between rich and poor solidifies the more difficult that it becomes for poor people to turn into rich people.
To oversimplify, easy access to capital can allow a poor person to turn a great idea that solves real problems and a strong work ethic into a sustainable business that pulls him out into the middle class or higher. Without access to capital, the poor man is beholden to whichever employers are in his area, and whatever is on offer from them - odds are, it won't be enough to allow the poor man to send his children to private school.
To oversimplify, easy access to capital can allow a poor person to turn a great idea that solves real problems and a strong work ethic into a sustainable business that pulls him out into the middle class or higher. Without access to capital, the poor man is beholden to whichever employers are in his area, and whatever is on offer from them - odds are, it won't be enough to allow the poor man to send his children to private school.
To elaborate, easy access to capital is what allows those employers in his area to actually hire him. That profitable restaurant down the road, owned not by a Wall Street mogul but by a passionate middle-class entrepreneur, needs capital to renovate a second dining room, and if it doesn't get it, it's not going to be able to hire servers for that new capacity. It's going to stagnate, maybe remain a profitable small restaurant, but never have a chance to become a multi-location or multi-state job-creation engine. And this is where the "middle class bank products" come in. Anything that artificially discourages banks from making the purely-economic decision to finance that owner to expand the business - and there's always the tantalizing option to just cater to silver-plattered large-business loans and wealthy clients instead - is going to slow growth and make general inequality in the area that much worse. There's a shrinking middle class of businesses just as there is of individuals.
Now, sure, the economic decision to finance this person should not be based on the idea that you could make subprime loans and repackage them to unwitting buyers. But there are perhaps middle grounds from a regulatory perspective. And there are also opportunities to address non-regulatory aspects that discourage capital sources from lending/investing; my company Belstone builds software to allow lower-middle-market investment bankers, the advocates for medium-sized businesses in the capital markets (who have the same dynamics described above), to close deals on behalf of their clients more efficiently, to support more businesses and more job growth. None of these efforts on its own is a panacea, but we have to try everything we can to move the needle.
Now, sure, the economic decision to finance this person should not be based on the idea that you could make subprime loans and repackage them to unwitting buyers. But there are perhaps middle grounds from a regulatory perspective. And there are also opportunities to address non-regulatory aspects that discourage capital sources from lending/investing; my company Belstone builds software to allow lower-middle-market investment bankers, the advocates for medium-sized businesses in the capital markets (who have the same dynamics described above), to close deals on behalf of their clients more efficiently, to support more businesses and more job growth. None of these efforts on its own is a panacea, but we have to try everything we can to move the needle.
>> far more important causes of inequality, including increasing automation of labor, winner-take-all markets, concentration of corporate and market power, minimal antitrust regulation
That's true but I think that winner-take-all markets exist in a large part because of the centralization of capital and how new capital enters the economy.
New money from the Fed flows into the system through massive institutions first; the money trickles down from the government to a few big corporations and then it trickles down to a few big private capital and VC firms and then it trickles down to a select few startups... VC firms collectively run an oligopoly; their main customers are big corporations so they don't have much interest in funding too many competing startups. The corporations which are funding the VCs don't want to acqui-hire too many of the same startups otherwise it gets difficult to justify their M&A strategy to shareholders.
That's true but I think that winner-take-all markets exist in a large part because of the centralization of capital and how new capital enters the economy.
New money from the Fed flows into the system through massive institutions first; the money trickles down from the government to a few big corporations and then it trickles down to a few big private capital and VC firms and then it trickles down to a select few startups... VC firms collectively run an oligopoly; their main customers are big corporations so they don't have much interest in funding too many competing startups. The corporations which are funding the VCs don't want to acqui-hire too many of the same startups otherwise it gets difficult to justify their M&A strategy to shareholders.
Money doesn't trickle to a select few startups, and even so, there's a good reason: many startups operate in winner-take-all markets, so you can only once in the winner.
> What I am saying is that now some lenders — banks — are under rules so tough they can’t support equality-enhancing mortgages
What is an equality-enhancing mortgage? My guess is that it's akin to an equal opportunity / affirmative action campaign. The thing is, actuarial tables aren't oppressive - they're merely reflective of reality. If a particular group presents a higher risk profile than another, the only sane course of action is to be more restrictive when lending to members of that group.
The alternative is for banks to give out easy money again like in the leadup to 2008 and that didn't work out well. I'm sorry that some people can't get mortgages but the answer is not to aggregate out their financial problems onto those of us who do, in fact, pay our bills.
What is an equality-enhancing mortgage? My guess is that it's akin to an equal opportunity / affirmative action campaign. The thing is, actuarial tables aren't oppressive - they're merely reflective of reality. If a particular group presents a higher risk profile than another, the only sane course of action is to be more restrictive when lending to members of that group.
The alternative is for banks to give out easy money again like in the leadup to 2008 and that didn't work out well. I'm sorry that some people can't get mortgages but the answer is not to aggregate out their financial problems onto those of us who do, in fact, pay our bills.
> What I am saying is that now some lenders — banks — are under rules so tough they can’t support equality-enhancing mortgages
What is an equality-enhancing mortgage?
My wife works at a community bank which has been cited as an important institution for social justice on the west coast. Equality enhancing mortgages could well be mortgages accessible to under-served populations who have the financial means to pay them back, but who face cultural barriers or ethnic discrimination.
Community banks have been railroaded out of the home mortgage business. There are now a lot of timing-dependent requirements and really stiff penalties in the banking regulations. It was sold to the public as a curb on the big banks, but what really it means, is that only banks large enough to write their own software or wealthy enough to license custom software can stay in the home mortgage business. Basically, we the public were sold flowery rhetoric by politicians on the wave of sentiment following the banking crisis, while big banks lobbied to write into law an even bigger advantage.
What is an equality-enhancing mortgage?
My wife works at a community bank which has been cited as an important institution for social justice on the west coast. Equality enhancing mortgages could well be mortgages accessible to under-served populations who have the financial means to pay them back, but who face cultural barriers or ethnic discrimination.
Community banks have been railroaded out of the home mortgage business. There are now a lot of timing-dependent requirements and really stiff penalties in the banking regulations. It was sold to the public as a curb on the big banks, but what really it means, is that only banks large enough to write their own software or wealthy enough to license custom software can stay in the home mortgage business. Basically, we the public were sold flowery rhetoric by politicians on the wave of sentiment following the banking crisis, while big banks lobbied to write into law an even bigger advantage.
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> could well be
Do you have any evidence of that - the discrimination part? Is there evidence that lending institutions choose to lend based on criteria other than ability to repay? Also, do/did smaller lenders fare as well or better than the big lenders during the financial crisis? Or were their loans more risky? I think that would be the strongest evidence either way.
Your second paragraph is really interesting, and creating an expensive barrier to entry is always a tactic big business implements to stifle competition. I just wonder what the way out of that is?
Do you have any evidence of that - the discrimination part? Is there evidence that lending institutions choose to lend based on criteria other than ability to repay? Also, do/did smaller lenders fare as well or better than the big lenders during the financial crisis? Or were their loans more risky? I think that would be the strongest evidence either way.
Your second paragraph is really interesting, and creating an expensive barrier to entry is always a tactic big business implements to stifle competition. I just wonder what the way out of that is?
Do you have any evidence of that - the discrimination part?
The various Chinatown community banks wouldn't even exist (and have greatly succeeded for awhile) if some form of cultural barrier didn't exist. The barrier isn't all the fault of one side or another. However, it's simply historical fact that big banks left a lot of money on the table -- in a way which could be characterized with gross demographics -- which smaller banks made their bread and butter for a few decades.
Is there evidence that lending institutions choose to lend based on criteria other than ability to repay?
Of course community banks choose to lend based on criteria other than ability to repay. Basically, community banks must use their advantage in local intelligence to distinguish between prospects who look a bit marginal but who are really strong, versus prospects who might look a bit marginal to normal but who constitute a risk. Basically, the big banks swoop up almost all of the "normal" customers and leave the smaller banks scrambling for the best of the odd ones left over.
Your second paragraph is really interesting, and creating an expensive barrier to entry is always a tactic big business implements to stifle competition. I just wonder what the way out of that is?
An informed electorate.
The various Chinatown community banks wouldn't even exist (and have greatly succeeded for awhile) if some form of cultural barrier didn't exist. The barrier isn't all the fault of one side or another. However, it's simply historical fact that big banks left a lot of money on the table -- in a way which could be characterized with gross demographics -- which smaller banks made their bread and butter for a few decades.
Is there evidence that lending institutions choose to lend based on criteria other than ability to repay?
Of course community banks choose to lend based on criteria other than ability to repay. Basically, community banks must use their advantage in local intelligence to distinguish between prospects who look a bit marginal but who are really strong, versus prospects who might look a bit marginal to normal but who constitute a risk. Basically, the big banks swoop up almost all of the "normal" customers and leave the smaller banks scrambling for the best of the odd ones left over.
Your second paragraph is really interesting, and creating an expensive barrier to entry is always a tactic big business implements to stifle competition. I just wonder what the way out of that is?
An informed electorate.
Thanks to Dodd-Frank regulation, banks now don't offer "semi doc loans". Basically, the pendulum swung back to tougher underwriting standards. Before Dodd-Frank, banks and underwrites had huge discretion. So, that discretion was abused.
Now it is almost tough for self-employed, small business owners, to get mortgage through normal channels. When one doesn't get mortgage through normal channels, one goes to a FI(financial institution) that keeps these mortgages on their books. Such FIs charge extra interest rates, demand more downpayment like 30%, etc.
Now it is almost tough for self-employed, small business owners, to get mortgage through normal channels. When one doesn't get mortgage through normal channels, one goes to a FI(financial institution) that keeps these mortgages on their books. Such FIs charge extra interest rates, demand more downpayment like 30%, etc.
> It was sold to the public as a curb on the big banks, but what really it means, is that only banks large enough to write their own software or wealthy enough to license custom software can stay in the home mortgage business. Basically, we the public were sold flowery rhetoric by politicians on the wave of sentiment following the banking crisis, while big banks lobbied to write into law an even bigger advantage.
This is a characteristic of nearly all federal regulations since approximately the Nixon administration, across all industries with incumbents large enough to fund lobbying at that level.
The industry does something outrageous, or whips up a media storm about some non-issue, so that calls to regulate come. Then the industry itself pulls a thousand page bill out of a drawer whose title sounds like it's going to do something good but whose details are all written by the industry's lawyers.
The average voter doesn't have the time or domain expertise to understand a thousand pages of dry legal text, so the bill passes and nobody figures out what's actually in it until a decade later when the evidence of what it allowed the industry to do starts to surface. Then we get a renewed call for laws to fix the "unexpected" disaster and the cycle repeats.
Hopefully at some point people are going to figure out that the answer is to remove federal regulations and pass local laws that purposely favor small local businesses with local ownership and ties to the community.
This is a characteristic of nearly all federal regulations since approximately the Nixon administration, across all industries with incumbents large enough to fund lobbying at that level.
The industry does something outrageous, or whips up a media storm about some non-issue, so that calls to regulate come. Then the industry itself pulls a thousand page bill out of a drawer whose title sounds like it's going to do something good but whose details are all written by the industry's lawyers.
The average voter doesn't have the time or domain expertise to understand a thousand pages of dry legal text, so the bill passes and nobody figures out what's actually in it until a decade later when the evidence of what it allowed the industry to do starts to surface. Then we get a renewed call for laws to fix the "unexpected" disaster and the cycle repeats.
Hopefully at some point people are going to figure out that the answer is to remove federal regulations and pass local laws that purposely favor small local businesses with local ownership and ties to the community.
To be fair even if it literally is 100% reflective of reality that doesn't mean it lacks unjust feedback loops. If after generations of past policies the stats say 100% of people with red hair are bandits and the longstanding policy is that they are to be shot at on sight only redheads with plans to rob or kill you will approach within rifle range.
I think the best that can be hoped for is rigorous justification of lending criteria in non pure correlative ways. As opposed to discrimination laundering bullshit like sentencing based on the size of their yard. Judge them via their neighborhood foreclosure rates as opposed to ethnic make up. There are antidiscrimination in real estate laws on the books but I don't know enough to comment upon the current implementation and its pros and cons.
I think the best that can be hoped for is rigorous justification of lending criteria in non pure correlative ways. As opposed to discrimination laundering bullshit like sentencing based on the size of their yard. Judge them via their neighborhood foreclosure rates as opposed to ethnic make up. There are antidiscrimination in real estate laws on the books but I don't know enough to comment upon the current implementation and its pros and cons.
> To be fair even if it literally is 100% reflective of reality that doesn't mean it lacks unjust feedback loops.
if you're worried about feedback loops, maybe don't lend based on any criteria other than the best possible estimate of ability to pay the loan back.
if you loan somebody money for a house that they can't pay back, they're going to 1) end up with even worse credit and 2) lose the house, which they made other emotional and financial investments in.
if you're worried about feedback loops, maybe don't lend based on any criteria other than the best possible estimate of ability to pay the loan back.
if you loan somebody money for a house that they can't pay back, they're going to 1) end up with even worse credit and 2) lose the house, which they made other emotional and financial investments in.
So how do you measure "the best possible estimate of ability to pay the loan back"? Because I think that broad assumption is a lot more complex and interesting than a simple FICO score.
For a crude example, pick health history. The leading cause of bankruptcy in the US is medical bills due to a health crisis. This of course spills over into mortgage foreclosure. But someone might have excellent credit, and a high cancer risk. They get cancer, byebye loan. Are you accounting for that?
Someone has excellent credit, but works in a dying industry and has no skills to move to an equal-paying job in another industry. Their job goes away in five years, byebye mortgage. I can go on with these. But my point is, I don't know if you realize just what a difficult point you're making with your simple answer.
For a crude example, pick health history. The leading cause of bankruptcy in the US is medical bills due to a health crisis. This of course spills over into mortgage foreclosure. But someone might have excellent credit, and a high cancer risk. They get cancer, byebye loan. Are you accounting for that?
Someone has excellent credit, but works in a dying industry and has no skills to move to an equal-paying job in another industry. Their job goes away in five years, byebye mortgage. I can go on with these. But my point is, I don't know if you realize just what a difficult point you're making with your simple answer.
Likewise, if you watch "Abacus, Small enough to Jail," you can see an Asian community bank president talking about lending to small business owners because he can go to their restaurant and see how crowded it is, all the time. There are actual 50-something Chinese businessmen who make over a million a year but who work 80+ hour weeks and man their own forklift to save on money. There are people with little empires of alternative health businesses, who keep some large portion of their money in the proverbial mattress because they've had experiences in the past where a different government confiscated their or a friend's holdings, and there are some people like that who try to apply for loans by sending in screenshots of their bank's web apps.
And banking industry consolidation has cut into those community ties that can change lending patterns. If we want to do something with regulatory policy, I'd think trying to keep banks small and local would be a fine start.
How did smaller banks fare during the crisis? I think that's the issue at the heart of whether encouraging them or not.
I think the problem with using money lending as a tool for social justice and equality was laid bare during the crisis. The downsides - lack of mobility for workers, pushing the risk from wealthy people (investors) to poorer people and the fact to function the system needs loans to be paid back at some percentage approaching 100 - all conspire to make this a really poor tool for change.
I think that something like the Australian approach - with enforced retirement savings set at 9% of income (where you earn $50K, and your employer pays $4.5K into super) - is a saner approach to wealth creation for the poorer groups than lumbering them with mortgages.
I think the problem with using money lending as a tool for social justice and equality was laid bare during the crisis. The downsides - lack of mobility for workers, pushing the risk from wealthy people (investors) to poorer people and the fact to function the system needs loans to be paid back at some percentage approaching 100 - all conspire to make this a really poor tool for change.
I think that something like the Australian approach - with enforced retirement savings set at 9% of income (where you earn $50K, and your employer pays $4.5K into super) - is a saner approach to wealth creation for the poorer groups than lumbering them with mortgages.
I think the problem with using money lending as a tool for social justice And equality was paid bair during the crisis
That’s not what happened. It wasn’t poor people who caused most of the defaults - it was investors working with mortgage brokers, real estate agents, and appraisers who were all part of the take. Poor people weren’t doing most of the no doc/negative interest or other types of “non conforming mortgages”. The investors walked away, did strategic defaults, and were free and clear within 3 years - ask me how I know....
That’s not what happened. It wasn’t poor people who caused most of the defaults - it was investors working with mortgage brokers, real estate agents, and appraisers who were all part of the take. Poor people weren’t doing most of the no doc/negative interest or other types of “non conforming mortgages”. The investors walked away, did strategic defaults, and were free and clear within 3 years - ask me how I know....
I think the problem with using money lending as a tool for social justice and equality was laid bare during the crisis.
There's a big difference between a community bank using community ties as a source of superior intelligence, and a big company acting as a mortgage mill trying to maximize throughput "countrywide" until the bubble bursts. Before the community banks existed, Asian community groups would arrange private lending within the community.
I think that something like the Australian approach - with enforced retirement savings set at 9% of income (where you earn $50K, and your employer pays $4.5K into super) - is a saner approach to wealth creation for the poorer groups than lumbering them with mortgages.
It sounds good on the surface. I'd let people opt-in on that, though.
There's a big difference between a community bank using community ties as a source of superior intelligence, and a big company acting as a mortgage mill trying to maximize throughput "countrywide" until the bubble bursts. Before the community banks existed, Asian community groups would arrange private lending within the community.
I think that something like the Australian approach - with enforced retirement savings set at 9% of income (where you earn $50K, and your employer pays $4.5K into super) - is a saner approach to wealth creation for the poorer groups than lumbering them with mortgages.
It sounds good on the surface. I'd let people opt-in on that, though.
I can think of at least one instance from an earlier crisis (the 1980s S&L crisis) in which a community bank - in this case, Harlem Bank - had large government deposits suddenly withdrawn in order to shore up a "Too big to fail" bank, causing the collapse of the small, community-oriented bank. This matters. Government is a major cash depositor in many banks, and so government policy of cash placement affects the health of banks and the kinds of banks they support with their business.
> if you're worried about feedback loops, maybe don't lend based on any criteria other than the best possible estimate of ability to pay the loan back.
That is itself the tightest of feedback loops, because the best estimator is either current wealth, or past performance of loans. It is massively exclusionary so I don't think your point is very well made.
That is itself the tightest of feedback loops, because the best estimator is either current wealth, or past performance of loans. It is massively exclusionary so I don't think your point is very well made.
Or, alternatively, 3) - they sell the house for a profit, and everyone (who matters) wins.
The assumption of 3) was what drove 2008.
The assumption of 3) was what drove 2008.
> the best that can be hoped for is rigorous justification of lending criteria in non pure correlative ways
OP's point is government has better tools for enacting social policy than lending regulations. Improving low-income borrowers' finances, instead of pushing banks to stretch to them, seems saner. Unfortunately, we have a broad segment of the population that enjoys "sticking it" to the banks, thereby perpetuating the cycle.
OP's point is government has better tools for enacting social policy than lending regulations. Improving low-income borrowers' finances, instead of pushing banks to stretch to them, seems saner. Unfortunately, we have a broad segment of the population that enjoys "sticking it" to the banks, thereby perpetuating the cycle.
To be fair even if it literally is 100% reflective of reality that doesn't mean it lacks unjust feedback loops.
If you study immigrant minorities across history, around the world and going back 1000's of years, certain patterns emerge. Immigrant minority groups who can pool their resources and become participants in the economic life of the host country find a way to prosper, somehow. Before the 20th century, this pattern of prosperity could result in confiscation. With the widespread ideas of Human Rights, this has become less of a problem. (Though it can still be a problem.) Likewise, minority groups who remain in isolation tend to remain poor. Often, this is by the machinations of the elites of those groups, who use this isolation to remain in a position of relative power.
If you study immigrant minorities across history, around the world and going back 1000's of years, certain patterns emerge. Immigrant minority groups who can pool their resources and become participants in the economic life of the host country find a way to prosper, somehow. Before the 20th century, this pattern of prosperity could result in confiscation. With the widespread ideas of Human Rights, this has become less of a problem. (Though it can still be a problem.) Likewise, minority groups who remain in isolation tend to remain poor. Often, this is by the machinations of the elites of those groups, who use this isolation to remain in a position of relative power.
That's an interesting concept. Can you name a couple of examples, or a link to further reading?
> If after generations of past policies the stats say 100% of people with red hair are bandits and the longstanding policy is that they are to be shot at on sight only redheads with plans to rob or kill you will approach within rifle range.
The only reason that happens it that you're using exactly 100%.
If it's 98% then the top 2% in that group get approved, which gives you new data on that group that tells you your old numbers are inaccurate and a lower percentage of the group defected than predicted, so in the next generation you approve the top 10% in that group and so on.
This is the exact opposite of a feedback loop. As time passes it amplifies the signal, not the noise.
The only reason that happens it that you're using exactly 100%.
If it's 98% then the top 2% in that group get approved, which gives you new data on that group that tells you your old numbers are inaccurate and a lower percentage of the group defected than predicted, so in the next generation you approve the top 10% in that group and so on.
This is the exact opposite of a feedback loop. As time passes it amplifies the signal, not the noise.
If what you are describing were anything like reality, the battle for Civil Rights would have been over a hundred years ago and we wouldn't be having this discussion, at least with respect to discrimination in mortgage loans and other financial instruments.
All it takes is a cursory glance at almost any mass migration in the US to show why that amplifying effect doesn't exist: when the [x]% finally get the money to move in, everyone else usually moves because of prejudice, driving the value of the neighborhood down and the [x]% into bankruptcy or financial destitution. I can even name a few towns in California where this has happened in my lifetime.
That's the kind of feedback loop we're talking about. No one bases their prejudices on actuarial tables.
All it takes is a cursory glance at almost any mass migration in the US to show why that amplifying effect doesn't exist: when the [x]% finally get the money to move in, everyone else usually moves because of prejudice, driving the value of the neighborhood down and the [x]% into bankruptcy or financial destitution. I can even name a few towns in California where this has happened in my lifetime.
That's the kind of feedback loop we're talking about. No one bases their prejudices on actuarial tables.
> If what you are describing were anything like reality, the battle for Civil Rights would have been over a hundred years ago and we wouldn't be having this discussion, at least with respect to discrimination in mortgage loans and other financial instruments.
Jim Crow laws were enforced until 1965. They existed in the lifetimes of part of the current generation of would-be homeowners, and that is one thing you can't lay at the feet of the banks.
> All it takes is a cursory glance at almost any mass migration in the US to show why that amplifying effect doesn't exist: when the [x]% finally get the money to move in, everyone else usually moves because of prejudice, driving the value of the neighborhood down and the [x]% into bankruptcy or financial destitution. I can even name a few towns in California where this has happened in my lifetime.
The events you're describing should have the opposite effect. The first family to move in is obviously screwed, but screwed in a long-term sense where they lose the value they paid for their home which only happens in some decades when they want to sell it. Until then their mortgage payment is the same one they budgeted for to begin with. And all the racist white people who are leaving are in the same boat, but right away -- they want to leave but no one will buy their house for what it was worth last year.
Meanwhile there is suddenly a whole neighborhood where housing prices have plummeted and a bunch of white people who would otherwise come in and bid the prices back up are opting out. Doesn't that just make it easier for other black people to buy those homes for a discounted price?
Jim Crow laws were enforced until 1965. They existed in the lifetimes of part of the current generation of would-be homeowners, and that is one thing you can't lay at the feet of the banks.
> All it takes is a cursory glance at almost any mass migration in the US to show why that amplifying effect doesn't exist: when the [x]% finally get the money to move in, everyone else usually moves because of prejudice, driving the value of the neighborhood down and the [x]% into bankruptcy or financial destitution. I can even name a few towns in California where this has happened in my lifetime.
The events you're describing should have the opposite effect. The first family to move in is obviously screwed, but screwed in a long-term sense where they lose the value they paid for their home which only happens in some decades when they want to sell it. Until then their mortgage payment is the same one they budgeted for to begin with. And all the racist white people who are leaving are in the same boat, but right away -- they want to leave but no one will buy their house for what it was worth last year.
Meanwhile there is suddenly a whole neighborhood where housing prices have plummeted and a bunch of white people who would otherwise come in and bid the prices back up are opting out. Doesn't that just make it easier for other black people to buy those homes for a discounted price?
Equality-enhancing mortgages WERE subprime mortgages. Congress pushed the banks into doing them in the early 2000s to extend credit to marginalized populations!
oh man, here we go again! I wonder if Y Combinator will fund my Collateralized Equality Enhanced Swap
oh man, here we go again! I wonder if Y Combinator will fund my Collateralized Equality Enhanced Swap
The government didn’t push subprime loans. Subprime loans were by definition “non comforming loans” that were not backed by any government institution like FHA or Fannie Mae.
> Congress pushed the banks into doing them in the early 2000s to extend credit to marginalized populations!
...but didn't push banks to lever the loans 10x, securitize, sell and repeat over and over again. Fault for those days lied in a lot of places, and sub-prime mortgages aren't inherently a bad thing.
...but didn't push banks to lever the loans 10x, securitize, sell and repeat over and over again. Fault for those days lied in a lot of places, and sub-prime mortgages aren't inherently a bad thing.
> and sub-prime mortgages aren't inherently a bad thing.
Correct.
> ...but didn't push banks to lever the loans 10x, securitize, sell and repeat over and over again.
Yeah, but I'm not going to pretend like I wouldn't. Worst case scenario is that my failed bets get paid out by the future productivity of the entire working population, and the distressed assets get transferred to the balance sheets of special purpose vehicles also funded by taxpayers.
And I get to keep all the performance fees.
Correct.
> ...but didn't push banks to lever the loans 10x, securitize, sell and repeat over and over again.
Yeah, but I'm not going to pretend like I wouldn't. Worst case scenario is that my failed bets get paid out by the future productivity of the entire working population, and the distressed assets get transferred to the balance sheets of special purpose vehicles also funded by taxpayers.
And I get to keep all the performance fees.
If "I would screw over my entire society in exchange for performance fees" isn't the definition of immoral, what is? Why would you do that?
The way markets work is that there is a certain opportunity work $X based on the actual (not idealized) consequences of setting up a series of transactions. If incentives are such that there is a market opportunity worth $600B by selling subprime mortgages and socializing the risks, then eventually somebody is going to capitalize on that market opportunity, regardless of how immoral it is. If only one person does it, they make $600B. If 10,000 people do it, they each make $60M, modulo inequality within the market. The only thing that being moral gets you - other than warm fuzzies, which unfortunately you cannot eat - is larger wealth inequality that happens to benefit the person who is most immoral. (In fact, I wonder if one of the other drivers of inequality today is that by-and-large, most Americans are nice, decent, moral, hardworking people, which means that the market opportunities available to scumbags are only capitalized on by a tiny minority.)
The only way to avoid immoral behavior is to fix the incentives so that it doesn't pay off. In this situation, that means either make it uneconomical to sell (perhaps by penalties like jail time), or to not allow the sellers to socialize the risks (perhaps by not bailing them out when they failed). The former means that low-income borrowers can't buy homes; the latter means that the financial system would've imploded. Personally I think Obama would've been better off taking the latter course and letting the banks fail, but the point is TANSTAAFL and whichever course you to take will require some sacrifices, whether in equality, stability, or trust.
The only way to avoid immoral behavior is to fix the incentives so that it doesn't pay off. In this situation, that means either make it uneconomical to sell (perhaps by penalties like jail time), or to not allow the sellers to socialize the risks (perhaps by not bailing them out when they failed). The former means that low-income borrowers can't buy homes; the latter means that the financial system would've imploded. Personally I think Obama would've been better off taking the latter course and letting the banks fail, but the point is TANSTAAFL and whichever course you to take will require some sacrifices, whether in equality, stability, or trust.
Ask those that did, and did not go to prison.
Our society rewards greed over conscience.
A lot of subprime issues from 2000 had to with diligence on the originator. There was widespread fraud on income, and employment reporting to meet the demand for CDOs and other mortgage-backed securities. Subprime has its place to loan out money to people who have the capability of repaying the loan but might not have the credit history/score to get a standard loan.
This is a mantra repeated by everyone who is not business of making loans.
There's enormous competition for people with capabilities of repaying a loan but no thin credit files/scores. Those are credit scores between 575 and 650. There are government programs that target these people administered via Freddie, Fannie and FHA for automatic underwriting. Those are done? No matter, USDA(!) would guarantee loans in rural areas! Banks themselves do manual underwriting for people who barely qualify or on a cusp of qualifying at prime + rates. Those were not the subprime loan customers.
Subprime loans were originated with the same rationality as the loans covering Buy Here, Pay Here car loans: they were originated with a total knowledge that the buyer will fail to make payments and will be foreclosed on - no matter! Buyer would make payments for first 6-7 months, default, get foreclosed on and the house would be sold to someone else for higher amount than the defaulted loan. Housing was an appreciating asset when these loans worked fine on depreciating assets ( cars ).
Structural inequality or not, people who have shitty jobs and shitty financial position typically make shitty financial decisions over the long term. 30 year mortgage is a very long term financial play.
There's enormous competition for people with capabilities of repaying a loan but no thin credit files/scores. Those are credit scores between 575 and 650. There are government programs that target these people administered via Freddie, Fannie and FHA for automatic underwriting. Those are done? No matter, USDA(!) would guarantee loans in rural areas! Banks themselves do manual underwriting for people who barely qualify or on a cusp of qualifying at prime + rates. Those were not the subprime loan customers.
Subprime loans were originated with the same rationality as the loans covering Buy Here, Pay Here car loans: they were originated with a total knowledge that the buyer will fail to make payments and will be foreclosed on - no matter! Buyer would make payments for first 6-7 months, default, get foreclosed on and the house would be sold to someone else for higher amount than the defaulted loan. Housing was an appreciating asset when these loans worked fine on depreciating assets ( cars ).
Structural inequality or not, people who have shitty jobs and shitty financial position typically make shitty financial decisions over the long term. 30 year mortgage is a very long term financial play.
Perhaps I am misunderstanding your point, but that still sounds like a fundamental problem with the originator.
If you are lending money with the unspoken understanding that the note is likely doomed to be a loss unless the real estate market continues to go up, then you are not really in the loan business anymore. You are putting letting your capital ride on the real estate roulette wheel, while enjoying the fat fees in the short term. The fact their were enough greater fools around to move your capital from new bad loans to newer bad loans may let you bank a few more fees, but it still means the originator is choosing to screw up while hoping to be rescued by real estate market forces completely beyond his control.
If you are lending money with the unspoken understanding that the note is likely doomed to be a loss unless the real estate market continues to go up, then you are not really in the loan business anymore. You are putting letting your capital ride on the real estate roulette wheel, while enjoying the fat fees in the short term. The fact their were enough greater fools around to move your capital from new bad loans to newer bad loans may let you bank a few more fees, but it still means the originator is choosing to screw up while hoping to be rescued by real estate market forces completely beyond his control.
When you have over 50% delinquencies, it is a bad thing.
> When you have over 50% delinquencies, it is a bad thing.
They didn't.
The banks levered up so much that 7% of delinquencies was enough to crash the global economy.
They didn't.
The banks levered up so much that 7% of delinquencies was enough to crash the global economy.
> 7% of delinquencies was enough to crash the global economy
The delinquencies ended up being less of a problem than the uncertainty around them. 7% delinquencies didn't kill anyone. Investors' fears that 7 would become 20 did.
The delinquencies ended up being less of a problem than the uncertainty around them. 7% delinquencies didn't kill anyone. Investors' fears that 7 would become 20 did.
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Can you provide a source?
https://www.chicagofed.org/~/media/publications/profitwise-n... quotes average default rates in the 30+% range on subprime mortgages.
https://www.chicagofed.org/~/media/publications/profitwise-n... quotes average default rates in the 30+% range on subprime mortgages.
yes, it looks like you are correct.
The Collateralized Debt Objects reduced this risk down by being bundled with better credit worthy debt servicing.
The Collateralized Debt Objects reduced this risk down by being bundled with better credit worthy debt servicing.
No, that is not how CDOs work.
The way that securitization works is that you take many thin streams of cash from individual loans, and bundle them into a giant river of money. That river will dry up at some point, and what point depends on how much defaulting there is. You then take horizontal chunks out of that river and sell them off. The first few slices are low risk - they will pay off even if lots of people default. The last one is very high risk indeed and are only worth pennies on the dollar, if that.
The principle is that it is safe not because it is bundled with better debt, but because those bonds still pay even if lots of people default. They may pay late, but they should pay.
However the models quantifying the risk assumed that there was a lot less correlation in defaults than there actually was. So when the housing market moved against the loans at the same time as people lost jobs in the financial crisis, investments that were supposed to be safe suddenly weren't.
I could believe 7% as the losses in bonds that originated as AAA bonds. But not as the losses in AAA bonds.
The way that securitization works is that you take many thin streams of cash from individual loans, and bundle them into a giant river of money. That river will dry up at some point, and what point depends on how much defaulting there is. You then take horizontal chunks out of that river and sell them off. The first few slices are low risk - they will pay off even if lots of people default. The last one is very high risk indeed and are only worth pennies on the dollar, if that.
The principle is that it is safe not because it is bundled with better debt, but because those bonds still pay even if lots of people default. They may pay late, but they should pay.
However the models quantifying the risk assumed that there was a lot less correlation in defaults than there actually was. So when the housing market moved against the loans at the same time as people lost jobs in the financial crisis, investments that were supposed to be safe suddenly weren't.
I could believe 7% as the losses in bonds that originated as AAA bonds. But not as the losses in AAA bonds.
That’s right, but perhaps I can give a stab at a more technical explanation.
An RMBS is a portfolio of mortgages financed by multiple bonds, with an order of subordination between them. When a loss occurs on a mortgage, it is allocated to the most junior bond first, until it is fully written down, then the next junior bond, etc. So if you own the most senior bond (often rated AAA), you are really exposed to high default rates and high correlation. Ie if the portfolio of mortgages is diversified (low correlation) some mortages will default but not all at the same time, and there will always be enough mortgages that do not default to avoid a loss on the most senior bonds.
The big fuck up in the financial crisis is that the correlation was misestimated. There had never been a large, US wide, real estate crisis since 1929 and therefore everyone assumed a US wide portfolio was well diversified. That turned out to be wrong in 2006-2007, and delinquencies (ie balances of loans not paying interest or principal) shot up. This led to losses (not 100% of a defaulted loan, the house still had some residual value) that ultimately hit the AAA bonds.
A CDO is the same structure but using bonds in the portfolio instead of residential mortgages. But when people refer to large losses on CDOs in the financial crisis they usually refer to CDO of ABS, which basically uses junior RMBS bonds in the portfolio, so effectively you leverage the mortgages twice, first through an RMBS, and then another time through a CDO.
In those you are even more exposed to correlation. The portfolio is made up of junior RMBS bonds from multiple RMBS transactions originated by multiple subprime lenders across the country, so these structures were playing on not all of these RMBS going bad simultaneously, which is exactly what happened.
So the TL DR is that these portfolio of subprime mortgages and RMBS bonds were of a similar credit quality, but correlation is what got really badly mispriced, they were assumed to be diversified but what we got is a large US wide real estate crisis that hit everybody,
An RMBS is a portfolio of mortgages financed by multiple bonds, with an order of subordination between them. When a loss occurs on a mortgage, it is allocated to the most junior bond first, until it is fully written down, then the next junior bond, etc. So if you own the most senior bond (often rated AAA), you are really exposed to high default rates and high correlation. Ie if the portfolio of mortgages is diversified (low correlation) some mortages will default but not all at the same time, and there will always be enough mortgages that do not default to avoid a loss on the most senior bonds.
The big fuck up in the financial crisis is that the correlation was misestimated. There had never been a large, US wide, real estate crisis since 1929 and therefore everyone assumed a US wide portfolio was well diversified. That turned out to be wrong in 2006-2007, and delinquencies (ie balances of loans not paying interest or principal) shot up. This led to losses (not 100% of a defaulted loan, the house still had some residual value) that ultimately hit the AAA bonds.
A CDO is the same structure but using bonds in the portfolio instead of residential mortgages. But when people refer to large losses on CDOs in the financial crisis they usually refer to CDO of ABS, which basically uses junior RMBS bonds in the portfolio, so effectively you leverage the mortgages twice, first through an RMBS, and then another time through a CDO.
In those you are even more exposed to correlation. The portfolio is made up of junior RMBS bonds from multiple RMBS transactions originated by multiple subprime lenders across the country, so these structures were playing on not all of these RMBS going bad simultaneously, which is exactly what happened.
So the TL DR is that these portfolio of subprime mortgages and RMBS bonds were of a similar credit quality, but correlation is what got really badly mispriced, they were assumed to be diversified but what we got is a large US wide real estate crisis that hit everybody,
No, on subprime portfolios, the delinquencies were as high as 50% sometimes worse.
Saddling someone with (or allowing him to take on) an unpayable debt raises him to a state more equal with people who were previously better off?
How? Doesn't buying a house (at market price) have an approximately zero effect on your net worth?
How? Doesn't buying a house (at market price) have an approximately zero effect on your net worth?
> How? Doesn't buying a house (at market price) have an approximately zero effect on your net worth?
As of the closing date, sure. However, closing on a home allows a renter to become an owner for about the same monthly cost (plus produces some significant tax benefits typically only available to the wealthy). After 30 years of paying a mortgage, if holding all else constant, one probably owns the property. After 30 years of paying rent, holding all else constant, one still owns nothing.
As of the closing date, sure. However, closing on a home allows a renter to become an owner for about the same monthly cost (plus produces some significant tax benefits typically only available to the wealthy). After 30 years of paying a mortgage, if holding all else constant, one probably owns the property. After 30 years of paying rent, holding all else constant, one still owns nothing.
This is okay as long as you are in one of the locations where mortgage is roughly equal to rent. In some places it’s closer to double, unless you want a 100 year mortgage.
If you live in a place where a mortgage is double rent, you're basically a temporary resident.
Our rent: 700NZD pw
Our calculated repayment on a 20 year mortgage with a 300k down payment on the estimated CV of this house: $1370 NZD pw
Yep!
Our calculated repayment on a 20 year mortgage with a 300k down payment on the estimated CV of this house: $1370 NZD pw
Yep!
Also, interest-only loans are a thing in some parts of the world.
Beijing is a good example of a place where rents are way lower than sale prices, so you can totally wind up paying $1000/month to rent something that is on the market for $1 million.
Beijing is a good example of a place where rents are way lower than sale prices, so you can totally wind up paying $1000/month to rent something that is on the market for $1 million.
That only makes sense for absurdly aggressive speculators or people with the political connections to borrow money for 1% or less.
I have a fixed 15 year loan at 2.75%, which seems like a pretty good deal to me. Know where I can borrow a few hundred thou at 1%?
I have a fixed 15 year loan at 2.75%, which seems like a pretty good deal to me. Know where I can borrow a few hundred thou at 1%?
The interest rate isn’t only important, so is the principal.
Yes, sometimes buying makes sense, but sometimes renting makes sense as well.
Yes, sometimes buying makes sense, but sometimes renting makes sense as well.
In UK mortgage usually works out a lot lot cheaper than renting. I could cut my rent by about 25% by buying a place, the only issue is I need a deposit in the first place.
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I didn't do the math, but know people who did and got that the initial deposit is a real game changer.
Assuming we pay the same for mortgage and rent, who wouldn't want to pay rather mortgage?
But remember, to pay the same, there was a huge downpayment. If you were to invest that rationally, long term returns could be worth it, even while paying rent.
OTOH, rational investing (in a balanced fund portfolio) is hard, and mortgage forces you to save.
YMMV, do your math.
Assuming we pay the same for mortgage and rent, who wouldn't want to pay rather mortgage?
But remember, to pay the same, there was a huge downpayment. If you were to invest that rationally, long term returns could be worth it, even while paying rent.
OTOH, rational investing (in a balanced fund portfolio) is hard, and mortgage forces you to save.
YMMV, do your math.
There's lots of other factors to take into account though. I guess I was really unlucky, and had to move relatively frequently in the last 8 years(on average once a year) - the cost of moving is easily £1500-2000, just in agency fees and moving fees and everything else. That makes renting even more expensive.
And then I definitely want to own my house before brexit, as an immigrant I will not risk not being able to rent if things go tits up.
And then I definitely want to own my house before brexit, as an immigrant I will not risk not being able to rent if things go tits up.
> After 30 years of paying rent, holding all else constant, one still owns nothing.
Nothing except all the money saved on property taxes, maintenance and repairs, home insurance, etc. And, as another poster noted, this assumes mortgage payments similar to rental prices. The math on home ownership is not a slam dunk in favor of owning in every region and should be considered carefully.
Nothing except all the money saved on property taxes, maintenance and repairs, home insurance, etc. And, as another poster noted, this assumes mortgage payments similar to rental prices. The math on home ownership is not a slam dunk in favor of owning in every region and should be considered carefully.
If your rent doesn't cover the property taxes, maintenance and repairs, and home insurance, the owner is going broke.
yes, but that doesn't mean that someone could buy a house right now and provide the same deal as the existing owner. The existing owner could have bought while interest rates were higher and prices were lower and refinanced down to a much lower monthly payment.
Yeah, but a mortgage payment stays constant through those 30 years, assuming you didn't get an adjustable rate. Rents rise every year.
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As long as zoning and housing markets remain as dysfunctional as they are, you get to enjoy the benefits of housing going up 20+% per year.
Leverage to the hilt, get a million-dollar home, keep it for three years, pocket a cool 500k.
Obviously this time it's different, and housing shall continue it's spectacular bull run forever.
Leverage to the hilt, get a million-dollar home, keep it for three years, pocket a cool 500k.
Obviously this time it's different, and housing shall continue it's spectacular bull run forever.
This is only happening in a handful of cities, though, right?
Pretty much all cities above a certain size, at least in the "west". Not sure how it's on other parts of the planet.
Populations are migrating to cities en masse, which creates huge demand for city housing. And most cities haven't really been keeping up with the supply side since the 1930s or so.
Populations are migrating to cities en masse, which creates huge demand for city housing. And most cities haven't really been keeping up with the supply side since the 1930s or so.
> Congress pushed the banks into doing them in the early 2000s to extend credit to marginalized populations!
How so? Subprime mortgages were largely not sold to government entities, but to private investors as CDOs. And government banking regulations about investing in low income communities never required making subprime loans.
How so? Subprime mortgages were largely not sold to government entities, but to private investors as CDOs. And government banking regulations about investing in low income communities never required making subprime loans.
They pushed as in asked them to. It is often times prudent to strengthen relationships in the country you do business. This turned out to be fruitful as a different congress hedged their failed bets with money that taxpayers were going to give Congress.
With all the money banks pay for lobbying, do you really think they would go against their own self interest just to “strengthen relationships”?
This is exactly what lead up to the 2008 crisis. Like, exactly. In the 90s when wage growth was low one of the mechanisms for addressing it was to simply give everybody access to mortgages they couldn’t really afford. By 2008, most banks were levered by more than 30:1. The key result of Dodd-Frank was that it gave the Fed power to influence how leveraged banks were, and now most of them are levered at about 10:1. Changing this would remove the key element of protection against another crisis occurring.
It is so easy to get an FHA loan, if you don't qualify for one -- you really don't deserve it.
This is coming from someone who was able to get a less than 4% FHA $340K mortgage three years after having two foreclosures a short sale, and three additional loans that were settled for less than full value.
Unless you live in an high priced area where rent is going up more than inflation a mortgage isn't really worth it. It ties you to a location and makes it harder to move to where the jobs are.
This is coming from someone who was able to get a less than 4% FHA $340K mortgage three years after having two foreclosures a short sale, and three additional loans that were settled for less than full value.
Unless you live in an high priced area where rent is going up more than inflation a mortgage isn't really worth it. It ties you to a location and makes it harder to move to where the jobs are.
> It ties you to a location and makes it harder to move to where the jobs are.
This sentiment gets expressed frequently in these discussions. There is a hell of a lot anchoring me to a particular place than whether or not I own the place I live. If I had to move, selling my residence would be a relatively minor consideration in the grand scheme.
This sentiment gets expressed frequently in these discussions. There is a hell of a lot anchoring me to a particular place than whether or not I own the place I live. If I had to move, selling my residence would be a relatively minor consideration in the grand scheme.
Not if you happen to be underwater. Some places still haven’t recovered from 2008. There are parts of the metro area where I live that are still underwater.
It wouldn’t be easy, but if I had a choice between staying where I am where I couldn’t find any jobs and moving. I would move. But in my case, if I can’t find any company that’s looking for a software developer with an up to date skill in my entire metro area and I couldn’t find any type of remote job or contract, I’ve got bigger issues.
My responsibilities are only to my spouse, minor children, and some day maybe my parents. My parents already live in a different town than I do, but they would have to move to wherever I move to.
It wouldn’t be easy, but if I had a choice between staying where I am where I couldn’t find any jobs and moving. I would move. But in my case, if I can’t find any company that’s looking for a software developer with an up to date skill in my entire metro area and I couldn’t find any type of remote job or contract, I’ve got bigger issues.
My responsibilities are only to my spouse, minor children, and some day maybe my parents. My parents already live in a different town than I do, but they would have to move to wherever I move to.
When I buy I intentionally buy well below what I can afford, so being underwater has not been an issue for me.
As far as abandoning a metro area, it took quite a bit for my wife and I to finally uproot. That we owned our house was relatively low on the friction list. Hell, my wife wants to delay buying again (we rent) because she finds the act of moving so stressful.
As far as abandoning a metro area, it took quite a bit for my wife and I to finally uproot. That we owned our house was relatively low on the friction list. Hell, my wife wants to delay buying again (we rent) because she finds the act of moving so stressful.
Being “underwater” is not about buying less than you can afford. It’s about when you get ready to sell, the house is worth less than you owe if you have to move.
My mortgage is less than 25% of our net pay, but if it fell in value to a point where it was worth less than $50K what we owed on it and we had to move, we would be in trouble.
My mortgage is less than 25% of our net pay, but if it fell in value to a point where it was worth less than $50K what we owed on it and we had to move, we would be in trouble.
I think you're reading a partisan meaning into "equality-enhancing" that is not what the speaker intended, and then kicking a strawman down the road. Are you sure that's what she meant, or is it just an easier thing for you to argue against?
Inequality in the context of this interview means wealth distribution. It does not refer to racial equality, as I interpret your reference to affirmative action. "...We Got More Inequality" refers to the ease with which people can borrow money from a bank. New regulations make it more expensive for banks to loan money to people with relatively less capital. So those with less capital have less access to credit. This includes people who are capable of paying off the loans. And those with more capital have easier access to credit, simply because it is less expensive for the bank. So now it is easier for the wealthy to grow their wealth and the result is a less even wealth distribution.
Banks can't meet capital requirements for lower than prime lending or aren't willing to do it.
This leads to a segment of the population (usually lower income, but not always) without broad access to credit or leverage.
This leads to a segment of the population (usually lower income, but not always) without broad access to credit or leverage.
So? If they cannot afford to pay a reasonable interest rate on the money, could they even really afford to pay it back at 0%, or even negative?
There are certainly segments of this population that can afford to pay back a loan. Or there is a loan that can be structured so that this segment of customer can pay it back. Its just not profitable or efficient for a bank to lend in this segment as a whole currently.
I think you meant to say “can, in fact, pay our bills.”
Actuarial tables don't lie, but the question they answer isn't necessarily the correct one.
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They’re similar to all the government support(subsidized mortgages, education) given to white people post WWII that allowed them to build the generational wealth and greater proportion of middle class standing they enjoy today.
The alternative is to accept we have a lot of people without adequate housing and actively deal with it and quit playing games to satisfy the fetish of spoiled rich people
Edit: https://www.cnbc.com/2018/08/08/gop-congressman-chris-collin...
I’m sure things like this are isolated incidents given that members of Congress have a level of immunity from such laws.
Let’s keep discussing market solutions in a market that has been and always will be rigged and rerigged as needed coughpanamapaperscough
Edit: https://www.cnbc.com/2018/08/08/gop-congressman-chris-collin...
I’m sure things like this are isolated incidents given that members of Congress have a level of immunity from such laws.
Let’s keep discussing market solutions in a market that has been and always will be rigged and rerigged as needed coughpanamapaperscough
>> The alternative is for banks to give out easy money again like in the leadup to 2008 and that didn't work out well
It could have worked out well if the Obama administration had just allowed the financial system to collapse instead of bailing it out. The collapse of the financial system would have meant that many poorly run companies would have disappeared and they would have been replaced by newer, smaller and more efficient companies. Europe recovered from WW2 relatively quickly; surely the US could also recover from a partial market collapse.
Before 2008, there were a lot of talented, ambitious people desperately waiting for an opportunity to compete on the marketplace but the government bailouts took away that opportunity and allowed corporations to keep running their inefficient oligopolies uninterrupted. Today, most of these talented, ambitious people have become losers; they're poor and paralyzed by self-doubt. The reality is that they might actually have succeeded if the government had simply allowed capitalism to take its natural course. The carpet was pulled from under them.
It could have worked out well if the Obama administration had just allowed the financial system to collapse instead of bailing it out. The collapse of the financial system would have meant that many poorly run companies would have disappeared and they would have been replaced by newer, smaller and more efficient companies. Europe recovered from WW2 relatively quickly; surely the US could also recover from a partial market collapse.
Before 2008, there were a lot of talented, ambitious people desperately waiting for an opportunity to compete on the marketplace but the government bailouts took away that opportunity and allowed corporations to keep running their inefficient oligopolies uninterrupted. Today, most of these talented, ambitious people have become losers; they're poor and paralyzed by self-doubt. The reality is that they might actually have succeeded if the government had simply allowed capitalism to take its natural course. The carpet was pulled from under them.
> Europe recovered from WW2 relatively quickly; surely the US could also recover from a partial market collapse.
Well, part of that is because of countries like ours which weren't completely destroyed were able to assist financially, help rebuild essential infrastructure, and -- perhaps most importantly -- provide political stability to the region (which they desperately needed in 1945).
I'm not sure who would have played that role if we had let the entire global financial system melt down in 2008.
Well, part of that is because of countries like ours which weren't completely destroyed were able to assist financially, help rebuild essential infrastructure, and -- perhaps most importantly -- provide political stability to the region (which they desperately needed in 1945).
I'm not sure who would have played that role if we had let the entire global financial system melt down in 2008.
I feel everyone saying this is completely ignoring what that would mean. You like 10% unemployment? Cool. Here's 25+% unemployment. Sure, a few people might have benefitted in such a way that it would allow them to be the new entrenched banking class, but millions more people would have found themselves laid off, foreclosed upon, and in general completely fucked over through no fault of their own.
Everyone would have survived and they would have gained a great deal of wisdom from this experience.
Rich people would have learned humility and everyone else would have learned that the system actually works.
Instead, rich people learned complacency and everyone else learned that the system is rigged.
Rich people would have learned humility and everyone else would have learned that the system actually works.
Instead, rich people learned complacency and everyone else learned that the system is rigged.
Observation: Housing is not affordable (for any but the rich).
Hypothesis: Basic market theory suggests that the need for housing is probably inelastic (everyone needs it, can't do without it), therefore if housing is to become more affordable an increase in supply must happen.
Prediction: If additional housing were encouraged (near where jobs are actually located) prices would eventually stabilize at sustainable levels.
Prediction 2: non-inflated housing prices will also lower the cost of living in those areas, creating a net benefit for members of society (which are not of the rent-seeking classes).
Testing: Please vote according to the above logic.
Results: To be determined.
Hypothesis: Basic market theory suggests that the need for housing is probably inelastic (everyone needs it, can't do without it), therefore if housing is to become more affordable an increase in supply must happen.
Prediction: If additional housing were encouraged (near where jobs are actually located) prices would eventually stabilize at sustainable levels.
Prediction 2: non-inflated housing prices will also lower the cost of living in those areas, creating a net benefit for members of society (which are not of the rent-seeking classes).
Testing: Please vote according to the above logic.
Results: To be determined.
One big problem with this is that people vote their incentives. If you're a homeowner in San Francisco, are you really going to vote to halve the price of your home and immediately put your mortgage underwater?
People voting themselves higher house prices through using local zoning laws to create housing shortages is a national crisis. We need something pretty dramatic, like congress using the interstate commerce clause to ensure the free movement of labor via banning states and local municipalities from enacting their own zoning. Or a national land-value tax.
People voting themselves higher house prices through using local zoning laws to create housing shortages is a national crisis. We need something pretty dramatic, like congress using the interstate commerce clause to ensure the free movement of labor via banning states and local municipalities from enacting their own zoning. Or a national land-value tax.
Could not agree with this more. I live in SF and the difficulty in building new housing is so outrageous. To make the housing prices in SF lower, supply must increase. While it makes sense for voters in a locality to have control/say in the environment around them, the ability of homeowners to control land they do not own and prevent new construction and shift the burden to other districts and public transportation is extremely flawed.
That is the fear, yes, but housing prices do not jump so quickly. They really are not likely to drop, as, perhaps, climb much more slowly.
It seems we have achieved a self-reinforcing civic virtue "anti-pattern", where middle class anxiety about high housing prices ends up squeezing the future housing supply. In other words, the negative feedback via anxiety caused by high demand may be greater than the usual positive correcting effect we expect from the "invisible hand", to add supply in the face of high demand.
IMHO it is a matter of homeowners acting on incomplete information. Sure, your house price going up seems nice, but it is only a significant benefit if you sell and move elsewhere for your retirement days. Those who actually like where they live and want to set roots have the practical problem of how affordable the place they live is now and when they retire. That is a death by a thousand cuts.
Regarding the future, I do hope to make the world a better place through my job. But in the practical world of the now, we need mechanics, teachers, grocers, plumbers, nurses, handymen, construction workers/contractors, waiters, etc. etc. or the SF Bay becomes an expensive hellhole.
Having enough people around who keep the community livable requires more affordable housing.
It seems we have achieved a self-reinforcing civic virtue "anti-pattern", where middle class anxiety about high housing prices ends up squeezing the future housing supply. In other words, the negative feedback via anxiety caused by high demand may be greater than the usual positive correcting effect we expect from the "invisible hand", to add supply in the face of high demand.
IMHO it is a matter of homeowners acting on incomplete information. Sure, your house price going up seems nice, but it is only a significant benefit if you sell and move elsewhere for your retirement days. Those who actually like where they live and want to set roots have the practical problem of how affordable the place they live is now and when they retire. That is a death by a thousand cuts.
Regarding the future, I do hope to make the world a better place through my job. But in the practical world of the now, we need mechanics, teachers, grocers, plumbers, nurses, handymen, construction workers/contractors, waiters, etc. etc. or the SF Bay becomes an expensive hellhole.
Having enough people around who keep the community livable requires more affordable housing.
Simon Wren-Lewis argues that increasing supply won't help so long as there exists an arbitrage between rental yields and interest rates. Wealthy people will just outbid everyone else for the increased supply: https://mainlymacro.blogspot.com/2018/02/house-prices-and-re...
Richard Werner points out that the mortgage lending, with associated house price inflation, caught fire in the UK after Thatcher eliminated "corset" credit controls. That may be key to sorting the whole mess out.
Richard Werner points out that the mortgage lending, with associated house price inflation, caught fire in the UK after Thatcher eliminated "corset" credit controls. That may be key to sorting the whole mess out.
Another possibility is that, by pricing many potential employees out of the market, local zoning laws force businesses to move to where there employees are (either through opening up new facilities/branch offices, or allowing remote work).
The consequence of which is that there becomes a plurality of growing urban centers rather than one megapolis, and the citizens get to live in houses larger than sardine cans.
The consequence of which is that there becomes a plurality of growing urban centers rather than one megapolis, and the citizens get to live in houses larger than sardine cans.
In the SF Bay Area, the East Bay may relieve growth pressure to some degree. But fundamentally that can only go so far. If we cannot figure out how to develop wisely along the transportation spine of 101/Caltrain/ElCam, then we are pretty much doomed. Replicating a failing model in other places is likely to be a vast sprawling failure, rather than a success.
What constitutes a failure vs. a success? Even if we[0] permit limitless high-density housing, there's a limit to the number of people an environment[1] can hold. Pushing an environment to the limit of it's carrying capacity strikes me as a risky proposition.
[0]I say "we", but I am not a resident of the bay.
[1]by "environment" I mean not just air, water, physical space etc., but also infrastructure, good govenance, and other public goods.
[0]I say "we", but I am not a resident of the bay.
[1]by "environment" I mean not just air, water, physical space etc., but also infrastructure, good govenance, and other public goods.
To oversimplify the issue a bit, it boils down to which you believe is more auspicious for both the planet and humankind: (1) a mix of housing with more dense housing, or (2) a mix of housing with more suburban single family dwellings.
While there are many arguments for #2, I believe most of those arguments are more emotional than real. In fact, in the world of many young dual income families on the SF peninsula specifically, lots of families spend approximately zero time in their yards.
While I recognize that individual families should, of course, have the freedom to splurge their resources on dwellings that are underutilized, as a matter of social policy, it is foolish to promote a suburban lifestyle as some kind of ideal when it turns out the reality is very different.
(Due to a family health issue, I once had a year where I needed to be available at home, but I did have MUCH time to garden. It was shocking how extremely rarely most of my neighbors' yards were used. Even the majority of yards of families with children were unused, both weekdays and weekends.)
While there are many arguments for #2, I believe most of those arguments are more emotional than real. In fact, in the world of many young dual income families on the SF peninsula specifically, lots of families spend approximately zero time in their yards.
While I recognize that individual families should, of course, have the freedom to splurge their resources on dwellings that are underutilized, as a matter of social policy, it is foolish to promote a suburban lifestyle as some kind of ideal when it turns out the reality is very different.
(Due to a family health issue, I once had a year where I needed to be available at home, but I did have MUCH time to garden. It was shocking how extremely rarely most of my neighbors' yards were used. Even the majority of yards of families with children were unused, both weekdays and weekends.)
Seems like the second idea (interest rates should be higher) contradicts the first (it should be easier for banks to make loans to small business). Higher interest rates would tend to discourage loans.
Edit: I guess the idea is to increase supply and reduce demand?
Edit: I guess the idea is to increase supply and reduce demand?
It would discourage people from taking loans, but why would it discourage banks from making them? In fact, higher interest rates would mean that the cost of liquid capital, a bank's main equipment for making money, were suddenly more productive, right?
Because the way the fed increases interest rates is by selling a bunch of bonds. Which incentivizes people to moves money from the private economy to the Fed, and which leaves less money available to lend to small businesses.
>In fact, higher interest rates would mean that the cost of liquid capital, a bank's main equipment for making money, were suddenly more productive, right?
Banks basically just borrow money at x then lend it out at x+y. With y being expenses, defaults, and profits. Now if x grows that doesn't grow y, if anything it shrinks it because there are less individuals looking for a loan at the increases price.
Basically if banks were toy makers, the interest rate would.be the price of plastic. Sure if the price of plastic went up toy makers would charge more for toys. But they wouldn't be making more money, if anything they'd me making less.
>In fact, higher interest rates would mean that the cost of liquid capital, a bank's main equipment for making money, were suddenly more productive, right?
Banks basically just borrow money at x then lend it out at x+y. With y being expenses, defaults, and profits. Now if x grows that doesn't grow y, if anything it shrinks it because there are less individuals looking for a loan at the increases price.
Basically if banks were toy makers, the interest rate would.be the price of plastic. Sure if the price of plastic went up toy makers would charge more for toys. But they wouldn't be making more money, if anything they'd me making less.
Wouldn't it be pointless to make something that nobody buy?
Clearly high interest rates in the 80s didn't prevent banks from making loans. Lets talk about the inverse of of what you're suggesting - perhaps the lack of ROI on loans is preventing banks from doing what they're supposed to be doing - lending to small businesses.
[deleted]
How does a low interest rate prevent a bank from making a loan to a small business?
A low interest rate is not a federally mandated cap on interest it is an increase in supply which drives down the cost. Which should increase ROI.
A low interest rate is not a federally mandated cap on interest it is an increase in supply which drives down the cost. Which should increase ROI.
What you say may be true for almost all the products, unless when the product is 'money' itself. Something worth considering.
Easy access to low-cost loans creates the illusion of affordability and exacerbates over-consumption (over-consumption: a general malady afflicting most humans)
Easy access to low-cost loans creates the illusion of affordability and exacerbates over-consumption (over-consumption: a general malady afflicting most humans)
But the article is arguing the opposite of over-consumption, that there are not enough loans to small business.
It doesn't discourage loans. Fast growing small companies are one of the only constituents who can justify higher interest rates. Now giant companies and individuals going on vacation get cheap credit but small businesses mostly can't get any.
This seems odd, because it seems like if a business is willing to pay a bit more when interest rates are low, it would mean more profit for the bank willing to take the other side of the deal.
Yes, the spread would be better, but banks don't do it unless you have several years of high cash flow and positive on-paper income. Even if the owner is deliberately trying to offload the income into another corporation, they can't figure it out and say the income statement looks bad. Banks don't even understand small businesses at this point.
If you're looking at banking regulation for causes for inequality, you're looking at the wrong place.
The article pointed out the gulf widened at the 1980s. That should be more than enough hints as to how to fix it.
There's no political will though.
The article pointed out the gulf widened at the 1980s. That should be more than enough hints as to how to fix it.
There's no political will though.
Income inequality in the USA has been increasing since the 1970's so whatever theory you have that explains the increase starting in the 1980's is simply incorrect.
[deleted]
Agree on bank regulations but central banks still have their fair share of responsibility through QE.
But agree, there are probably other reasons, starting with outsourcing to china, automation, under supply of highly skilled workforce, etc.
But agree, there are probably other reasons, starting with outsourcing to china, automation, under supply of highly skilled workforce, etc.
I'm not sharp enough to take the hint. What is the proper way to fix it?
Labour losing their power is one of them. Trickle down "economics", slashing the income tax of the top bracket drastically would be another one.
Unions.
what happened in 1980s?
Politicians started to suck on the teat of Hayek and Friedman, to disastrous results for all but the already wealthy.
Neoliberalism and supply side economics got tried out in the UK (Thatcher) and the US (Reagan).
The political party I don't like got elected and remained in power.
“KP: I’m not blaming the banks. I’m blaming the unintended consequences of the rules. I think the rules unduly penalize equality-enhancing financial services.”
(1) Bankers (rich people) lobby to have Glass–Steagall taken out back and shot in the head.
(2) Banks go nuts with financial wizardry leading to a housing bubble.
(3) Bubble bursts which ends up ruining the lives of millions, mostly lower and middle class folk. Nation enters into the worst recession since the Great One.
(4) Banks are bailed out with taxpayer money because banks have somehow become "too big to fail".
(5) Some regulations placed belatedly and half-heartedly on banks because of (1-4)
(6) Hardly anyone rich loses their shirt and hardly anyone is locked up† and some make out like bandits.
(7) Wall Street salaries and bonuses through the roof.
(8) Gov Regulations (along with Fed quantitative easing – the Fed is kind of a collection of banks, no?) exacerbate income and wealth inequality. Where did the Secretary of the Treasury at the time of the crisis, Hank Paulson, work beforehand?‡
(9) Banking policy "expert" Karen Petrou says “I’m not blaming the banks”
(0) In the words of Ace Ventura, “Allllrighty then!”
† https://www.bloomberg.com/view/articles/2017-07-26/why-no-on...
‡ “Before becoming Treasury Secretary, he was required to liquidate all of his stock holdings in Goldman Sachs, valued at over $600 million in 2006, in order to comply with conflict-of-interest regulations. Because of a tax provision passed under President George H.W. Bush, Paulson was not subject to capital gains tax. This saved him between $36 and $50 million in taxes.”
(1) Bankers (rich people) lobby to have Glass–Steagall taken out back and shot in the head.
(2) Banks go nuts with financial wizardry leading to a housing bubble.
(3) Bubble bursts which ends up ruining the lives of millions, mostly lower and middle class folk. Nation enters into the worst recession since the Great One.
(4) Banks are bailed out with taxpayer money because banks have somehow become "too big to fail".
(5) Some regulations placed belatedly and half-heartedly on banks because of (1-4)
(6) Hardly anyone rich loses their shirt and hardly anyone is locked up† and some make out like bandits.
(7) Wall Street salaries and bonuses through the roof.
(8) Gov Regulations (along with Fed quantitative easing – the Fed is kind of a collection of banks, no?) exacerbate income and wealth inequality. Where did the Secretary of the Treasury at the time of the crisis, Hank Paulson, work beforehand?‡
(9) Banking policy "expert" Karen Petrou says “I’m not blaming the banks”
(0) In the words of Ace Ventura, “Allllrighty then!”
† https://www.bloomberg.com/view/articles/2017-07-26/why-no-on...
‡ “Before becoming Treasury Secretary, he was required to liquidate all of his stock holdings in Goldman Sachs, valued at over $600 million in 2006, in order to comply with conflict-of-interest regulations. Because of a tax provision passed under President George H.W. Bush, Paulson was not subject to capital gains tax. This saved him between $36 and $50 million in taxes.”
You'll have to explain 8.
From first principles it makes sense that reducing the price of capital would help workers, and hurt capital owners.
And all the research I've seen backs up this intuition and show that a loose monetary policy helps inequality.
From first principles it makes sense that reducing the price of capital would help workers, and hurt capital owners.
And all the research I've seen backs up this intuition and show that a loose monetary policy helps inequality.
QE 'printed' roughly 3 Trillion dollars out of nothing, including at least 1.7T that went to buying Mortgage Backed Securities from banks whose original mortgage borrowers were never going to be able to pay off those mortgages. That had the effect of raising house prices for everyone, while turning debts of many that were never going to be repaid into the profits for the banks who aggregated these bad loans. Yves Smith over at the Naked Capitalism blog has called it 'the greatest upward transfer of wealth in history.'
Frankie Boyle agrees with you (warning: lots of profanity): https://youtu.be/GtWA3jQN1Pg
(11) Wall Street has consistently had more $$ in bonuses than the entire full time minimum wage workforce received in wages [1].
[1] https://www.nytimes.com/2015/03/14/upshot/wall-street-bonuse...
[1] https://www.nytimes.com/2015/03/14/upshot/wall-street-bonuse...
Don't know why you're being down-voted – unless of course our brothers and sisters and their kin who work in finance don't like being reminded of the great income and wealth disparity between them and those at the bottom of society.
“For all of these uncertainties, the broad picture doesn’t change. My judgment is that we can be pretty confident that Ms. Anderson’s estimate that the sum of Wall Street bonuses is roughly twice the total amount paid to all full-time workers paid minimum wage seems like a fair characterization.”
Thanks for the article. It is shocking. Where is the moral outrage? There are huge media-storms over all sorts of identity politics hoo-hah and a whimper every now and again over the Inequality Question.
“For all of these uncertainties, the broad picture doesn’t change. My judgment is that we can be pretty confident that Ms. Anderson’s estimate that the sum of Wall Street bonuses is roughly twice the total amount paid to all full-time workers paid minimum wage seems like a fair characterization.”
Thanks for the article. It is shocking. Where is the moral outrage? There are huge media-storms over all sorts of identity politics hoo-hah and a whimper every now and again over the Inequality Question.
Reading the analysis of unintended side-effects reminds me of programming, and contemplating how my system might fail.
The article starts out with a "correlation causes causation" argument, and the unsubstantiated claim that the biggest driver of inequality is banking regulation.
Then it implies that business financing matters to the 50-90 percentile of earners. Bullshit detected!
I'm inclined to see this as correlation, not causation. Where is the powerful coupling between <10 years of tighter bank lending standards and income inequality?
How would bank lending standards affect income, wouldn't it be much more likely to affect wealth?
> predatory lending
I've often wondered just what people are talking about when they use that term.
I've often wondered just what people are talking about when they use that term.
Early in my career, I worked at a shop that serviced credit cards for bottom of the barrel subprime customers.
They got slapped by OCC (Office of the Comptroller of the Currency) for offering a card with a $300 limit, that upon issuance, already had $300 in fees billed to it (offering a credit product with no usable credit, or something like that), and settled with them by lowering the fees to $250, and paying a million dollar "fine" — which, IIRC, they were able to both write off, and "earn back" with "good behavior".
I don't think that's exhaustive of "predatory lending", but it's damned well exemplary. And the "punishment" was, too.
They got slapped by OCC (Office of the Comptroller of the Currency) for offering a card with a $300 limit, that upon issuance, already had $300 in fees billed to it (offering a credit product with no usable credit, or something like that), and settled with them by lowering the fees to $250, and paying a million dollar "fine" — which, IIRC, they were able to both write off, and "earn back" with "good behavior".
I don't think that's exhaustive of "predatory lending", but it's damned well exemplary. And the "punishment" was, too.
Lending to people who will likely default, often by misleading them about the terms of the mortgage. You could also look at it from the other end and say that the people receiving the loans are predatory borrowers: people who can't afford to own the home they want but are taking advantage of lax lending standards to get one.
When people default, the lender loses.
Setting oneself up to be prey is not generally considered predatory - though faking it, as anglerfish do, is.
In this case they are preying on the lenders, who don't really care because they are passing off the risk to someone else.
The issue is really who gets eaten. While the lender, or whoever ends up holding the loan, might get burned, it is very unusual for the borrower of a predatory loan to end up better off for it.
If I loan you money, and you don't pay it back, how do I gain?
As I said, the lender might get burned.
OP appeared to be talking about trying to take advantage of predatory lenders, and my point is that the borrower would usually be harmed more by attempting to do so than the lender, whose business model can typically accommodate a fairly high default rate.
Consider balloon mortgages, which are structured to encourage the borrower to pay all the interest, then, if they default on the final payment, the lender repossesses the property. In the lead-up to 2008, when prices all around were rising rapidly, repossession could look almost as attractive a proposition as getting the principal back, or possibly more so, and it made it easy to sell the risk in the secondary market.
OP appeared to be talking about trying to take advantage of predatory lenders, and my point is that the borrower would usually be harmed more by attempting to do so than the lender, whose business model can typically accommodate a fairly high default rate.
Consider balloon mortgages, which are structured to encourage the borrower to pay all the interest, then, if they default on the final payment, the lender repossesses the property. In the lead-up to 2008, when prices all around were rising rapidly, repossession could look almost as attractive a proposition as getting the principal back, or possibly more so, and it made it easy to sell the risk in the secondary market.
My mortgage documents say that if my house is repossessed due to non-payment, and the lender sells the house, any value received that is in excess of the amount owed acrues to me, not the lender.
There is no advantage to the lender in repossessing the house in a rising housing market.
There is no advantage to the lender in repossessing the house in a rising housing market.
In the post I was replying to, you were asking about whether there is a downside for the lender. As I mentioned, there are scenarios in which the lender does badly, but in this one, the lender gets what it wants, a stream of interest income followed by the return of principal. The borrower has, in effect, and probably inadvertently, flipped the house, but if you were doing that intentionally, you would be much better off selling the property rather than allowing it to be repossessed. Of course, someone facing a balloon payment he cannot afford is probably best advised to sell before repossession, but if that is not the situation he wanted to be in, it is likely a pyrrhic outcome at best.
I suppose someone intending to flip a property might prefer a balloon mortgage if it has lower payments - financing flips is not something I know anything about - but that would seem to be a win-win situation, at least up to questions of risk. The important question with regard to so-called predatory lending is how things usually work out in practice.
I suppose someone intending to flip a property might prefer a balloon mortgage if it has lower payments - financing flips is not something I know anything about - but that would seem to be a win-win situation, at least up to questions of risk. The important question with regard to so-called predatory lending is how things usually work out in practice.
I am not seeing how a lender is better off lending money to people who cannot pay it back.
A lender who makes an unsecured or insufficiently-secured loan to a person who makes no attempt to pay interest or return the principal, and has exhausted all means to collect on the debt, is indeed worse off than if he had kept the loaned amount in a risk-free asset (unless, perhaps, there is some compensating tax advantage, though I wouldn't know anything about that, and it seems unlikely that such opportunities would be widely available.)
Have you tried looking it up?
I think it refers to advertising that your loan is fabulous and easy to get, to people who would be much better off not taking your loan, and who are not sophisticated enough to realise this.
I think "whack-a-mole" might best describe the proclivity for regulation to fix unintended side-effects of previous regulation, causing more unintended side-effects. Or maybe "the cure is worse than the disease?"
Being on a very small governmental body, I witnessed first-hand the tendency to want to "do something" when confronted with a potential problem - And it did come to pass several times that we enacted policy that later seemed to have made the original situation worse or caused another flare-up in issues that had not existed before.
My experience is it can be very difficult to enact good public policy... And frequently an efficient (unfettered) capitalist market will come up with a solution more elegant than what we could contemplate.
I am left thinking this is a basic truism...
Being on a very small governmental body, I witnessed first-hand the tendency to want to "do something" when confronted with a potential problem - And it did come to pass several times that we enacted policy that later seemed to have made the original situation worse or caused another flare-up in issues that had not existed before.
My experience is it can be very difficult to enact good public policy... And frequently an efficient (unfettered) capitalist market will come up with a solution more elegant than what we could contemplate.
I am left thinking this is a basic truism...
Yes and this simple model worked quite well up until the great depression. "But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again" - Keynes
i think your concern about unintended side-effects is very valid, but i disagree with your conclusion.
in most cases, we need more innovative approaches to policy development rather than defaulting to a market as the only alternative.
as an example off the top of my head: using a faster, instrumented, and iterative approach to policy design, as startups are encouraged to do. or, cultivate new methods for finding better, more effective policies quickly (like design sprints, for example).
in most cases, we need more innovative approaches to policy development rather than defaulting to a market as the only alternative.
as an example off the top of my head: using a faster, instrumented, and iterative approach to policy design, as startups are encouraged to do. or, cultivate new methods for finding better, more effective policies quickly (like design sprints, for example).
> as an example off the top of my head: using a faster, instrumented, and iterative approach to policy design, as startups are encouraged to do. or, cultivate new methods for finding better, more effective policies quickly (like design sprints, for example).
the resulting regulatory uncertainty would probably be worse than bad regulations.
the resulting regulatory uncertainty would probably be worse than bad regulations.
yes, that's possible, but the regulatory environment is already uncertain, and trending toward less certainty, due to increased partisanship and the ping-ponging between ideological extremes (accelerated by the money pouring into politics).
so if citizens & businesses knew that regulations were generally going to trend toward more fairness, the regulatory environment would be less uncertain (the cone of future possibilities narrows, even if the path was entirely a random walk).
so if citizens & businesses knew that regulations were generally going to trend toward more fairness, the regulatory environment would be less uncertain (the cone of future possibilities narrows, even if the path was entirely a random walk).
No, the capitalist market will come up with a solution that is most profitable for business. Occasionally that will line up with what's better for everyone else, but not often.
Even worse, from what I've seen in my lifetime, markets are very reactionary. How often/well do markets predict 50 years into the future?
For instance a good long-term solution for climate change might be the movement to renewable energy.
A market solution to climate change might be opening condos on Antarctica.
For instance a good long-term solution for climate change might be the movement to renewable energy.
A market solution to climate change might be opening condos on Antarctica.
There are some policies that have lots of unintended consequences. But increased capital requirements is a pretty simple one that we understand. We knew there'd be less lending. That was kind of the point of increased capital requirements.
Freedom is a double edge sword. Some people use their freedom to elevate themselves, others are free to fail. In the West we treat an disinclination to handle freedom responsibly as either a moral failing (the right) or reject the possibility that failing to handle freedom can have anything to do with one's character at all and thus inequality must be blamed on external forces (the left). The truth is it is not necessarily a moral failing to handle freedom irresponsibility and handling freedom irresponsibly very likely has a lot to do with someone's personality.
What does one's character depend on in your opinion?
Expecting downvotes, but looking for ideas-
Serious question, what is the issue with inequality when low income people are overweight and have iphones?
This is obviously a simplification, but in 1 sentence I think I got my point across.
Standard of living is undisputed the best in human history, not even some 1960s era fantasy has overweight humans. This has nothing to do with 'unhealthy' food, this is abundance.
So back to the serious question, what makes inequality bad? Some ideas
>Political inequality
>multi-generational oppression(which doesnt line up with the whole "First generation makes it. 2nd generation maintains it, 3rd generation blows it")
I'm trying to understand the issue with inequality when everyone is living a fantastic by organic life standards.
Serious question, what is the issue with inequality when low income people are overweight and have iphones?
This is obviously a simplification, but in 1 sentence I think I got my point across.
Standard of living is undisputed the best in human history, not even some 1960s era fantasy has overweight humans. This has nothing to do with 'unhealthy' food, this is abundance.
So back to the serious question, what makes inequality bad? Some ideas
>Political inequality
>multi-generational oppression(which doesnt line up with the whole "First generation makes it. 2nd generation maintains it, 3rd generation blows it")
I'm trying to understand the issue with inequality when everyone is living a fantastic by organic life standards.
> Serious question, what is the issue with inequality when low income people are overweight and have iphones?
People is overweight because they can not afford healthy food. Fruits and other healthier food is more expensive than junk food.
Poor people does not have iPhones. They have cheap Android devices that they need to work, keep in contact with family, etc.
> Standard of living is undisputed the best in human history
In the USA you can see a difference of life expectancy based on their economically status. So, people is dying earlier and this can be avoided.
> I'm trying to understand the issue with inequality when everyone is living a fantastic by organic life standards.
So this is the end of all progress? We are good now, lets stop improving health care, education, etc.? Let people die at 70 even when they could have a more healthy live to be 80? Let a cancer patient die because "on average" society is better and his suffering is just statistics?
Your argument is based in the misconception that things can not improve anymore. That people does not deserve better that what they have now.
You will probably get support in the Amish community, for example. But most of the world moved past that point.
People is overweight because they can not afford healthy food. Fruits and other healthier food is more expensive than junk food.
Poor people does not have iPhones. They have cheap Android devices that they need to work, keep in contact with family, etc.
> Standard of living is undisputed the best in human history
In the USA you can see a difference of life expectancy based on their economically status. So, people is dying earlier and this can be avoided.
> I'm trying to understand the issue with inequality when everyone is living a fantastic by organic life standards.
So this is the end of all progress? We are good now, lets stop improving health care, education, etc.? Let people die at 70 even when they could have a more healthy live to be 80? Let a cancer patient die because "on average" society is better and his suffering is just statistics?
Your argument is based in the misconception that things can not improve anymore. That people does not deserve better that what they have now.
You will probably get support in the Amish community, for example. But most of the world moved past that point.
>People is overweight because they can not afford healthy food. Fruits and other healthier food is more expensive than junk food.
This is wrong. I study food as my expertise, and junk food is always less than 200 calories per dollar. Fresh fruit is similar while home cooked food is a significantly better value.
I wont address the other points until you revise this one. Its factually incorrect. Google Calories Per Dollar or Nutrient Per Dollar, or Mcdonalds Calories Per Dollar.
The data exists and you need to get up to speed.
This is wrong. I study food as my expertise, and junk food is always less than 200 calories per dollar. Fresh fruit is similar while home cooked food is a significantly better value.
I wont address the other points until you revise this one. Its factually incorrect. Google Calories Per Dollar or Nutrient Per Dollar, or Mcdonalds Calories Per Dollar.
The data exists and you need to get up to speed.
I have seen in this thread people comparing prepared food to raw food. And, of course, raw food is cheaper. You need to compare apples to apples. Prepared healthy food is way more expensive than junk food.
Healthy diet costs three times that of junk food https://www.telegraph.co.uk/news/11149644/Healthy-diet-costs...
I hope that his answers your question and we can talk about the rest of the points. :)
Healthy diet costs three times that of junk food https://www.telegraph.co.uk/news/11149644/Healthy-diet-costs...
I hope that his answers your question and we can talk about the rest of the points. :)
Ouch Telegraph?
Remember that the telegraph posted this advertisement
https://www.telegraph.co.uk/foodanddrink/10210327/McDouble-i...
Google Efficiency Is Everything.
Thats actually data and not some tabloid click bait.
Remember that the telegraph posted this advertisement
https://www.telegraph.co.uk/foodanddrink/10210327/McDouble-i...
Google Efficiency Is Everything.
Thats actually data and not some tabloid click bait.
What about prep time? Calories-per-dollar / prep time. That might be a factor, especially with the long hours many poor people face.
Funny you mention this, the actual unit would be
Calories squared/(dollar*second).
The article was studied literally yesterday and the conclusion for under 3 minute (prep) meals was that Ramen was number 1. However, I'm considering putting this recipe on the list since its a slow cooker http://www.kidsinkitchens.org/
Calories squared/(dollar*second).
The article was studied literally yesterday and the conclusion for under 3 minute (prep) meals was that Ramen was number 1. However, I'm considering putting this recipe on the list since its a slow cooker http://www.kidsinkitchens.org/
> People is overweight because they can not afford healthy food. Fruits and other healthier food is more expensive than junk food.
While I agree with the sentiment of your post, the meme quoted above needs to stop. Two bags of Doritos cost as much as a package of raw chicken that can feed a family, not to mention mass quantities of rice, beans, or even potatoes. Fruits and vegetables are very often <1 USD per pound. A single fast food combo meal can hit $10 USD, which can be groceries for one person for a week.
The problem with bad diets emerge from high stress, transportation issues, and lack of food education; not price tags.
While I agree with the sentiment of your post, the meme quoted above needs to stop. Two bags of Doritos cost as much as a package of raw chicken that can feed a family, not to mention mass quantities of rice, beans, or even potatoes. Fruits and vegetables are very often <1 USD per pound. A single fast food combo meal can hit $10 USD, which can be groceries for one person for a week.
The problem with bad diets emerge from high stress, transportation issues, and lack of food education; not price tags.
I just had Burger King at the airport the other day. I could have easily gotten away with spending $3 for an entire meal, with sugar water included. For a meal, that's pretty cheap. Especially if I work a 12 hours shift and don't have time to cook.
Also, I grew up in the midwest, and often fruits and veggies look like they were picked up off the side of a freeway.
Not saying that you're entirely wrong, but neither is the "it's cheaper to eat shitty food" camp. There's probably a happy medium: less sugar, less meat, less stress, better education, better prices...all things that would help.
Also, I grew up in the midwest, and often fruits and veggies look like they were picked up off the side of a freeway.
Not saying that you're entirely wrong, but neither is the "it's cheaper to eat shitty food" camp. There's probably a happy medium: less sugar, less meat, less stress, better education, better prices...all things that would help.
Yes, when I eat fast food, it's always from the value menu. But if you're strapped for cash, $3 per meal on a consistent basis still adds up, compared to <$1 meals prepared at home and ready to grab from the fridge.
Certainly convenience & taste is a factor in these decisions as well, but if the primary pain point is raw cost for your baseline consumption because you have no money to spare, you really should be kitchen-based.
Of course, all of this assumes that one is being financially sensitive, and not just impulse spending without realizing how much is trickling out. Too many people I know who struggle with their meager finances (even if they make similar or more than I do) are entirely too flippant and just go for the $10 combo meal, not realizing how often they're "treating themselves" and how it's adding up against their monthly balance.
Certainly convenience & taste is a factor in these decisions as well, but if the primary pain point is raw cost for your baseline consumption because you have no money to spare, you really should be kitchen-based.
Of course, all of this assumes that one is being financially sensitive, and not just impulse spending without realizing how much is trickling out. Too many people I know who struggle with their meager finances (even if they make similar or more than I do) are entirely too flippant and just go for the $10 combo meal, not realizing how often they're "treating themselves" and how it's adding up against their monthly balance.
"compared to <$1 meals prepared at home and ready to grab from the fridge."
They're never "ready to grab". They take time and effort, and do require knowledge to prepare. They also require you to then do the dishes after. For someone who's working multiple jobs, that may be time they just plain don't have.
They're never "ready to grab". They take time and effort, and do require knowledge to prepare. They also require you to then do the dishes after. For someone who's working multiple jobs, that may be time they just plain don't have.
They're ready to grab if you sensibly prepare a bunch of food ahead of time, once or twice a week. Nobody who's strapped for time starts from scratch every meal, and our American fridges are plenty large.
Besides, if I may rant a bit: If you have no money, then time, effort, knowledge, and social currency is what you have to spend to get by. Either you're going to spend those things, or spend money you don't have which will make your immediate future immediately worse. This is a situation that sucks to be in, and the only way to have any sense of even partially managing this is discipline. Many of us have grown up in and/or lived through these sorts of situations as adults, and you simply do what you have to and try to be smart about it. Obviously you need to put in time and effort, and do the dishes. But you can buffer things a bit to match your schedule, or establish specific routines, and any little lessening or organization of crunch is a huge affirming step. If you step back for a bit you also see that maintaining your health (including having mental and physical energy) is super important when you have no money and are working hard, and so making food at home hits multiple critically important facets. It does not matter that it takes effort, what matters is that you put forth effort commensurate to what you're facing.
And to position this back to the initial contentious point, it reaffirms my position that it is not an issue of healthy groceries being somehow priced higher, but rather that of stressful life situations that people turn to convenience food (with the time sink of shopping/shorter-prep/cleanup or driving/ordering/waiting at restaurants still intact).
Besides, if I may rant a bit: If you have no money, then time, effort, knowledge, and social currency is what you have to spend to get by. Either you're going to spend those things, or spend money you don't have which will make your immediate future immediately worse. This is a situation that sucks to be in, and the only way to have any sense of even partially managing this is discipline. Many of us have grown up in and/or lived through these sorts of situations as adults, and you simply do what you have to and try to be smart about it. Obviously you need to put in time and effort, and do the dishes. But you can buffer things a bit to match your schedule, or establish specific routines, and any little lessening or organization of crunch is a huge affirming step. If you step back for a bit you also see that maintaining your health (including having mental and physical energy) is super important when you have no money and are working hard, and so making food at home hits multiple critically important facets. It does not matter that it takes effort, what matters is that you put forth effort commensurate to what you're facing.
And to position this back to the initial contentious point, it reaffirms my position that it is not an issue of healthy groceries being somehow priced higher, but rather that of stressful life situations that people turn to convenience food (with the time sink of shopping/shorter-prep/cleanup or driving/ordering/waiting at restaurants still intact).
I think this is a bit out of touch. People in the situation you're describing are generally coming from a place of desperation, not of careful contemplation. And yes, it would behoove them to plan meals and pinch pennies, but when you and your spouse are working 50+ hours a week each to make ends meet, the type of self-reflection it takes to make those decisions is in very limited supply.
I've not been in a working-poor situation since my late teens, but I can say that there are times when I was working 60+ hours a week, and I did not have any energy to think about meal planning or healthy eating or investing in my future besides dumping some extra money in a savings account. Luckily, I did have the money to eat healthy, and luckily my wife was (sometimes) in a position where she could meal plan for the both of us, but oh man...if I was in the same situation and making < $30K/year, I would NOT have been able to even think of these things.
It's not about being intelligent or even about resource management, it's about having the energy to think about it, and if you're working your fingers to the bone, you don't have the energy. So it's easy for us to sit around on a forum while there's a lull in our cushy jobs ranting about how poor people should manage their time better, but I can tell you that it's not easy.
I've not been in a working-poor situation since my late teens, but I can say that there are times when I was working 60+ hours a week, and I did not have any energy to think about meal planning or healthy eating or investing in my future besides dumping some extra money in a savings account. Luckily, I did have the money to eat healthy, and luckily my wife was (sometimes) in a position where she could meal plan for the both of us, but oh man...if I was in the same situation and making < $30K/year, I would NOT have been able to even think of these things.
It's not about being intelligent or even about resource management, it's about having the energy to think about it, and if you're working your fingers to the bone, you don't have the energy. So it's easy for us to sit around on a forum while there's a lull in our cushy jobs ranting about how poor people should manage their time better, but I can tell you that it's not easy.
Let me state this absolutely directly, for all other responses as well:
I'm talking about me and my life, and my family, and my friends. In various desperate situations, without money or time or car, working multiple jobs, and things in life going bad on top. Some made reasonable decisions about life, others not thinking and just muddling through, and others just checking out. Nobody's "meal planning", you grab whatever's cheap at the store (and that'll be grains, vegetables, and some meat) and make a pile of it at home to feed from or take along to work, so you don't have to cook often or go out much.
I don't know why everybody jumps to "You don't understand the people you're talking about!" Lots of people (even here on HN) have been there, or know people who have been there. There are tons of ways that life plays out, and having horrible situations is not some guarantee that your life is cemented into a perpetual downhill and that any other thinking is "out of touch".
It's just a lot harder, and sucks a lot more. But it becomes the new normal in your life. You do what you need to do, and you'd better figure out what you need to do, because tomorrow is staked on it. Plus, any little progress is still progress; even if you're not a millionaire at the end, at least it's not as bad as it was last year, and work to continue that at any scale for the next.
I'm talking about me and my life, and my family, and my friends. In various desperate situations, without money or time or car, working multiple jobs, and things in life going bad on top. Some made reasonable decisions about life, others not thinking and just muddling through, and others just checking out. Nobody's "meal planning", you grab whatever's cheap at the store (and that'll be grains, vegetables, and some meat) and make a pile of it at home to feed from or take along to work, so you don't have to cook often or go out much.
I don't know why everybody jumps to "You don't understand the people you're talking about!" Lots of people (even here on HN) have been there, or know people who have been there. There are tons of ways that life plays out, and having horrible situations is not some guarantee that your life is cemented into a perpetual downhill and that any other thinking is "out of touch".
It's just a lot harder, and sucks a lot more. But it becomes the new normal in your life. You do what you need to do, and you'd better figure out what you need to do, because tomorrow is staked on it. Plus, any little progress is still progress; even if you're not a millionaire at the end, at least it's not as bad as it was last year, and work to continue that at any scale for the next.
"They're ready to grab if you sensibly prepare a bunch of food ahead of time"
Families with parents who work multiple jobs are laughing their asses off at this idea of having time to do that.
"Besides, if I may rant a bit:"
Only if you want to show how out of touch you are.
Families with parents who work multiple jobs are laughing their asses off at this idea of having time to do that.
"Besides, if I may rant a bit:"
Only if you want to show how out of touch you are.
Then I truly and seriously feel sorry for them if they consider managing their situation to be a laughable absurdity.
But be careful not to project that as the expected case, and ignore the reality of others' lives (yes, like mine and family & friends around me, if it's even necessary to state). That's dangerous tribalism that normalizes failure.
But be careful not to project that as the expected case, and ignore the reality of others' lives (yes, like mine and family & friends around me, if it's even necessary to state). That's dangerous tribalism that normalizes failure.
"I truly and seriously feel sorry for them if they consider managing their situation to be a laughable absurdity."
No, they just have to laugh at people like you telling them that all they have to do is "manage their situation", because otherwise they would have to cry at exactly how out of touch everyone else is with what they're going through.
"That's dangerous tribalism that normalizes failure."
Do you remember what website you're on? This is the community that praises and lauds failure, but apparently only when it happens to certain people.
No, they just have to laugh at people like you telling them that all they have to do is "manage their situation", because otherwise they would have to cry at exactly how out of touch everyone else is with what they're going through.
"That's dangerous tribalism that normalizes failure."
Do you remember what website you're on? This is the community that praises and lauds failure, but apparently only when it happens to certain people.
I don't think you read my rant at all. Times like that suck, and you have to work hard. Stating "I have to work hard!" is just a tautology in that situation. "Managing their situation" is even in the little baby steps, not some silver bullet to turn it into a cakewalk.
I don't know what exactly you're projecting on me (or how I'm somehow different than "them", giving "them" more of a voice), but I was certainly talking about being in the miserable times, with no available money or time, not casting down edicts from an ivory tower of disconnected comfort.
I don't know what exactly you're projecting on me (or how I'm somehow different than "them", giving "them" more of a voice), but I was certainly talking about being in the miserable times, with no available money or time, not casting down edicts from an ivory tower of disconnected comfort.
You can eat shitty food and still be healthy. It won't be optimal, but just because you're eating burger king does not mean you have to eat to excess.
You aren't accounting for the time and focus investment required to turn raw groceries into a meal that your children will actually eat. In a family where all adults are working (perhaps even several jobs) out of necessity, time and focus are awfully scarce.
I intended all that be lumped under "high stress".
As others have said, obesity is not a symptom of wealth, as much as it's a symptom of poverty, as the two conditions are highly correlated. There are things such as food deserts, for instance on the south side of Chicago, there is plenty of healthy eating near UChicago where the rich people live. Head West or South into the "war zone" neighborhoods, and you'll see convenient stores everywhere selling mostly processed junk food that is addicting to those nearby, and also may be the cheapest/closest choice.
Furthermore, there has been some research to indicate that those in poverty may be less able to save money, psychologically speaking, and may have spending patterns that are not useful in alleviating poverty. For instance, if you have very little wealth but a decent income, say $25-35k as an individual, you may be able to afford an iPhone or nicer car or jewelry, however your spending on those items is now a confounder of the overall wealth gap. Some of those who are poor may be so because they do not exercise the set of behaviors that leads to wealth aggregation.
Overall, globally speaking, I do agree we are in a period where vast numbers of asians and africans are being lifted out of poverty, even as those poor in some developed nations are still in poverty within their own countries. If we look at a multi-national level, however, the trend is towards more middle class individuals world-wide.
Furthermore, there has been some research to indicate that those in poverty may be less able to save money, psychologically speaking, and may have spending patterns that are not useful in alleviating poverty. For instance, if you have very little wealth but a decent income, say $25-35k as an individual, you may be able to afford an iPhone or nicer car or jewelry, however your spending on those items is now a confounder of the overall wealth gap. Some of those who are poor may be so because they do not exercise the set of behaviors that leads to wealth aggregation.
Overall, globally speaking, I do agree we are in a period where vast numbers of asians and africans are being lifted out of poverty, even as those poor in some developed nations are still in poverty within their own countries. If we look at a multi-national level, however, the trend is towards more middle class individuals world-wide.
"Serious question, what is the issue with inequality when low income people are overweight and have iphones?"
This is a dog whistle that indicates that you are not conversing in good faith.
This is a dog whistle that indicates that you are not conversing in good faith.
Why can't people just improve their credit rating by doing credit worthy things?
It is really hard for some people to get out of poverty. I recommend you read this article from a few days ago posted her on Hacker News: https://news.ycombinator.com/item?id=17230047
"As the country becomes more unequal, there are fewer middle class customers. That means middle class bank products become unprofitable, and banks follow the money. And banking regulations make it worse because the capital requirements imposed after the banking crisis make it a lot more expensive for banks to do a startup small-business loan than go into wealth management. Startup loans are riskier than wealth management, of course, but the capital costs have become prohibitive, and banks don’t lose money on purpose."
Wait, what? I doubt this is the main or even a top-three cause of income and wealth inequality in the US.
Other factors strike me as potentially far more important causes of inequality, including increasing automation of labor, winner-take-all markets, concentration of corporate and market power, minimal antitrust regulation... to name a few.
The banking industry wants fewer regulations and lower capital requirements, as usual. This seems to be its latest rationalization for them.