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How did we get in this mess?
Sep. 19th, 2008 08:47 amOkay, I've been thinking about this for a couple of days, mostly while listening to the news, for obvious reasons. I'm obviously not an expert, but here's what it looks like to me.
This economic mess (aside from the recession--I mean the more immediate and corrosive mess) seems to result from several factors:
1) Predatory lending practices. This is widespread, from credit card companies that claim they still own your ass after you've paid back what you borrowed 2 and a half times over, on down to payday loans and refund loans with interest rates in the hundreds of percent per year. The edge of predatory lending that I'm thinking of, though is the part where lenders gave out loans/suckered victims into signing loans they didn't understand/ that started with payments the borrower could make and "reset" in three years to payments they couldn't possibly make. And "interest-only" loans--what the hell was up with that? You would think that any human being with a scrap of honesty would balk at offering such a cheat. Both loans use one of the "sways"--in this case the tendency to weigh current conditions much more heavily than future conditions when making a decision--for evil.
Okay, so predatory lending practices, in addition to all the other harm they do to the poorest and most vulnerable parts of the population, also set up a bunch of mortgages that were certain to default.
2) Complex collateralized debt obligations that even the cream of Wall Street didn't understand. I think it's pretty clear that a lot of companies ended up buying things whose risks they couldn't accurately gauge, and couldn't even evaluate to the point where they realized they couldn't accurately gauge them.
3) Companies that were so big that their failure would drag down the entire system. Deregulation has allowed merging of companies to the point where one company owns so much of a market that the failure of that company destroys the market.
A modest proposal----
1) Outlaw predatory lending.
2) Require that financial instruments be simple enough to understand.
3) Break big companies down into companies small enough to fail without hurting anything.
And I still think something is wrong when the CEO of a failing, bailed-out company is making 19 times as much in a year as the rest of us make in our lifetimes. Obviously I believe that people who make big contributions to the good of society should be rewarded commensurately, but I don't understand how he contributes more in a year, even a good year, let alone *this* year, than 19 average people contribute in their lifetimes. I just don't get it.
Just some thoughts.
This economic mess (aside from the recession--I mean the more immediate and corrosive mess) seems to result from several factors:
1) Predatory lending practices. This is widespread, from credit card companies that claim they still own your ass after you've paid back what you borrowed 2 and a half times over, on down to payday loans and refund loans with interest rates in the hundreds of percent per year. The edge of predatory lending that I'm thinking of, though is the part where lenders gave out loans/suckered victims into signing loans they didn't understand/ that started with payments the borrower could make and "reset" in three years to payments they couldn't possibly make. And "interest-only" loans--what the hell was up with that? You would think that any human being with a scrap of honesty would balk at offering such a cheat. Both loans use one of the "sways"--in this case the tendency to weigh current conditions much more heavily than future conditions when making a decision--for evil.
Okay, so predatory lending practices, in addition to all the other harm they do to the poorest and most vulnerable parts of the population, also set up a bunch of mortgages that were certain to default.
2) Complex collateralized debt obligations that even the cream of Wall Street didn't understand. I think it's pretty clear that a lot of companies ended up buying things whose risks they couldn't accurately gauge, and couldn't even evaluate to the point where they realized they couldn't accurately gauge them.
3) Companies that were so big that their failure would drag down the entire system. Deregulation has allowed merging of companies to the point where one company owns so much of a market that the failure of that company destroys the market.
A modest proposal----
1) Outlaw predatory lending.
2) Require that financial instruments be simple enough to understand.
3) Break big companies down into companies small enough to fail without hurting anything.
And I still think something is wrong when the CEO of a failing, bailed-out company is making 19 times as much in a year as the rest of us make in our lifetimes. Obviously I believe that people who make big contributions to the good of society should be rewarded commensurately, but I don't understand how he contributes more in a year, even a good year, let alone *this* year, than 19 average people contribute in their lifetimes. I just don't get it.
Just some thoughts.
