How much handholding do you want?
Oct. 28th, 2008 03:32 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
andrewduckerThere 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.
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no subject
Date: 2008-10-28 04:07 pm (UTC)That is to say in an ideal world the focus would be less on selling mortgages and more on ensuring that the person taking the loan is able to meet/understands the risks involved.
As I understand the current situation this was not the case.
Also social responsibility and financial responisibility are not in the slightest comparable. We have had social responsibility since we evolved these lovely big brains and have to life with the consequences and results of our actions day in and day out. Financial responsibility requires an understanding of concepts and maths alien to our everyday life, or at least our everyday intuitive understanding of life.