andrewducker (![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png)
andrewducker) wrote2008-10-28 03:32 pm
andrewducker) wrote2008-10-28 03:32 pm
How much handholding do you want?
There was a discussion recently on my journal that started with my usual divisive poll (Who is to blame - banks or borrowers?) and ended up with two definite camps - one that held that people were responsible for the contracts they had made the choice to sign, and one that held that most people were incapable of understanding these contracts and therefore there had to be strict regulation and a duty of care.
The problem is that _some_ people are incapable of making an informed choice about anything involving a percentage sign*, and other people are perfectly capable of making an informed choice about hedged derivatives. Offering the same range of choices to both of these groups of people is either going to lead the former group to unwittingly walk off a financial cliff or punitively restrict the options of the latter group.
Most of my friends are social liberals and economic authoritarians - assuming that people are capable of making social choices but not financial ones.** Most people would agree that _some_ protection was needed to prevent people from signing up to things they don't understand - but there would clearly be large areas of disagreement over where that line should be drawn. One could argue that we'd be safer if everyone on the planet was wrapped in cotton wool, but that would make it awfully hard for mountain-climbers. And studies have consistently shown that the people most likely to overestimate their competence are those who lack it.
One thought I had was that you could mandate fixed-rate mortgages as the standard for everyone - that way people can't sign up for discount rates that land them in trouble two years later, or be left in trouble when rates rise. People would then become eligible for variable-rate mortgages only if they could show a rudimentary grasp of percentages and interest rates, and then further products being unlocked to people that could prove they understood statistics, economics, etc.. Eventually you end up at the level where people people with PhDs in maths have fully self-invest pensions and properties leveraged against derivatives on the international debt markets. It's not likely to happen, but frankly that kind of shading is the only thing that can both protect the ignorant and allow freedom for the educated.
Someone want to offer me a better suggestion?
[Poll #1286669]
*I can't find the data now, but some startling proportion of the population don't actually understand percentages.
**Of course, one can argue that most people are capable of making their own social choices. But even that assumes all sorts of things about people's ability to weigh up short and long-term costs, and most people's lack of understanding of the way that society reacts to their actions. A quick survey of my friends regarding some of _my_ social choices would show that they hadn't always been as well-reasoned as I might like.
The problem is that _some_ people are incapable of making an informed choice about anything involving a percentage sign*, and other people are perfectly capable of making an informed choice about hedged derivatives. Offering the same range of choices to both of these groups of people is either going to lead the former group to unwittingly walk off a financial cliff or punitively restrict the options of the latter group.
Most of my friends are social liberals and economic authoritarians - assuming that people are capable of making social choices but not financial ones.** Most people would agree that _some_ protection was needed to prevent people from signing up to things they don't understand - but there would clearly be large areas of disagreement over where that line should be drawn. One could argue that we'd be safer if everyone on the planet was wrapped in cotton wool, but that would make it awfully hard for mountain-climbers. And studies have consistently shown that the people most likely to overestimate their competence are those who lack it.
One thought I had was that you could mandate fixed-rate mortgages as the standard for everyone - that way people can't sign up for discount rates that land them in trouble two years later, or be left in trouble when rates rise. People would then become eligible for variable-rate mortgages only if they could show a rudimentary grasp of percentages and interest rates, and then further products being unlocked to people that could prove they understood statistics, economics, etc.. Eventually you end up at the level where people people with PhDs in maths have fully self-invest pensions and properties leveraged against derivatives on the international debt markets. It's not likely to happen, but frankly that kind of shading is the only thing that can both protect the ignorant and allow freedom for the educated.
Someone want to offer me a better suggestion?
[Poll #1286669]
*I can't find the data now, but some startling proportion of the population don't actually understand percentages.
**Of course, one can argue that most people are capable of making their own social choices. But even that assumes all sorts of things about people's ability to weigh up short and long-term costs, and most people's lack of understanding of the way that society reacts to their actions. A quick survey of my friends regarding some of _my_ social choices would show that they hadn't always been as well-reasoned as I might like.
no subject
The question is not a moral one, it's a practical one. Empirically if people are offered loans that they can't pay back they will take them. This will mess up the economy a few years down the line as people default. Therefore you have to stop people from borrowing too much. Similarly, if banks have liquidity to lend they'll lend it, therefore you need to stop them from lending too much.
no subject
no subject
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In a different parallel universe, if the mortgages that banks bought up that were dodgy and knew that the buyer wouldn't be able to keep up repayments were still with those banks when the house market collasped then only those banks who made bad decisions would have been affected.
In reality, the banks made bad decisions, the house market started to decline and they had been screwing one another over with CDOs (Bad mortgages wrapped up to look like AAA investments) so everyone got a piece of it in the ass when confidence hit the financial markets and they collasped, banks stopped lending to one another *deep breath*... and we find ourselves in this unfortunate situation with a worldwide recession.
Just as long as people don't ask me to feel sorry for those who gambled on the Buy-To-Let market during a housing shortage and live off the rent generated. They took a chance and are paying the price... boo fucking hoo. Maybe if they weren't paying 86% above the asking price in Edinburgh for instance then they wouldn't be in negative equity now.