Radix malorum cupiditas est

[unixronin]

By way of randwolf, another good (and very clear) analysis of the mortgage bubble problem.  (Now with real link!  Doh!)

Like author Mark Chu-Carroll, I find it difficult to believe that supposedly skilled investors did anything this stupid.  It's as though someone from space aimed a giant Stupid Ray at Wall Street.

I suppose it comes down to just another example of the incredible power of sheer unrestrained greed.  Radix malorum cupiditas est.¹

[1]  Word order in Latin sentences is flexible, because every word in the sentence gets declined to unambiguously show which part of the sentence it is.  Thus in Latin, the three sentences 'Radix malorum est cupiditas', 'Radix malorum cupiditas est', and 'Cupiditas radix malorum est' are equivalent (though the first two forms are the most common).

Comments

[smandal.livejournal.com]

Well, one aim of free markets is to harness greed for the common profit. Assuming this, it means there were perverse incentives in place. I can point to a few:

* Low prime interest rates set by the Fed that did not reflect the real value of the currency given the health of competing commodities. If other commodities are weak, the price of the dollar should be higher. If the dollar is cheap, why not borrow it?

* Irrational consumers, esp. people buying subprime mortgages. They were on the illusory gravy train right alongside Wall St. and did not scrutinize their lenders or consider the risks. In particular, if your fortune is $100k, you cannot afford to lose 90% of, whereas a billionare can.

* Certainly the powerbrokers on Wall St. knew in the back of their minds that they could be bailed out if things went to pot. If you can't lose your shirt, that's the ultimate disincentive to play things smart.

[unixronin.livejournal.com]

Irrational consumers, esp. people buying subprime mortgages. They were on the illusory gravy train right alongside Wall St. and did not scrutinize their lenders or consider the risks.

To be fair, a lot of those subprime mortgage buyers were low-income first buyers who didn't know enough not to trust what their mortgage broker told them. After all, the broker is the expert, right...?

We got shafted ourselves by a dishonest mortgage broker who, unknown to us, falsified our loan application after we had signed it. Fortunately, when the lender who ended up with the loan (GMAC) learned that the application had been falsified, they also figured out before even contacting us about it that it was the mortgage broker, not us, who had falsified the documents.


(Then again, they also forced us into declaring bankruptcy after I lost my job in the tech crash and couldn't get another, because they scheduled a foreclosure for 24 hours BEFORE the closure of the short sale we'd managed to set up and which they had already approved. The short sale would pay off the loan in full, but they'd have lost at least $100K, maybe $150K, on a foreclosure auction in that market at that time. Bankruptcy was the only way we could stall foreclosure long enough for the sale to complete. So GMAC did get all of their money;¹ but they got it thanks to us, in spite of themselves, and six months later than they would have if they'd just let us complete the sale on schedule in the first place.)

[1] We, on the other hand, lost about $28,000 if you use our numbers, or $58,000 if you use GMAC's.

[ossuarian.livejournal.com]

I've been posting some pretty aggressive criticism of late, so I thought I'd say thank you for the link. The explanation is clear and expands what elegantelbow (who only sees this from a realtor's perspective) told me. It matches my personal experience (my mortgages have always been sold in seconds), and it feels right.

I think this comes down to the prisoner's dilemma. It seems to me if most of the people were sticking to safe loans, then a few people could work selling off these risky ones and make out like bandits. However, if enough people do it for long enough, the whole thing collapses.

[unixronin.livejournal.com]

I've been posting some pretty aggressive criticism of late,

No worries.

While I have you "on the line", so to speak, how's Zane doing? We've been wondering, and worrying....