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03/16/2008

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Jack

Jake and others: Once upon a time there were Banks and Savings and Loan company's that took deposits and made loans under ratios strictly regulated by governing agencies.

In those olden days of several decades ago, typically naive and financially illiterate prospective home buyers went, with confidence, to their banker and asked, in essence, whether they were loan-worthy. The postive reply was for a given loan limit, and but for VA loans some amount of a down payment that covered the bank's potential losses.

S&L's prior to the $100 billion S&L meltdown that came on the heels of their deregulation and forays into loan biz they did not understand at the time were party to the loans they made.

Today, the "loan officer" is most often nothing but a broker and more like a salesman living entirely on commissions, fees, and yield spread premiums derived from finding SOME way of stuffing a client into SOME sort of loan. It is only recently that SOME states are even licensing these loan salesmen who are as likely to have come from car sales as from any experience in a financial institution. THE payday derives from making a loan, and......... once it's approved and funded there exists NO downside for the salesman or his brokerage.

As for "disclosure" there is not one in 100 who can spot a the yield spread premium that pays thousands to the mortgage broker for adding 1/4 point to the interest rate. And it is easy for a slick salesman to assure the client that there is little danger of a variable rate going up rapidly? and, of course, it may have been the only way to make the numbers work, anyway. Cool eh?

That loan is then quickly packaged with a pile of other loans of similarly suspect "quality" to be "sold" to investors.

Now does everyong here? or anyone in the nation? understand "derivatives?" In short that means stripping off the risky part (say the most vulnerable 10% of a no-down loan)as a "derivative" of the underlying security and selling it to "investors" who enjoy high returns at the risk of possible losses. The safer 90% is then packaged as something of a Triple A bond with lower yields and in theory, low risk.

Trouble is the packet with the Triple AAA stamp too is of unknown quality and as we ARE seeing today a quality FAR lower than AAA. There are trillions worth of these things out there in the "ownership" of investors who have NO idea what they are worth, even the "brightest guys in the room" at the top of Bear Stearns and JPMorgan who just "bought" them for a dime on the dollar plus some massive help from the FRB (ie taxpayers)

Now stir in a decade or more of rapidly rising housing prices, and hordes of realtors chanting the truism: "Well you better grab it now before it goes higher and you've completely missed the market" working closely with mortgage salesmen who can "work magic" to get the buyers "qualified" and you've the outline of the problem.

Some, as Becker-Posner, want to hold the consumers who buy only a few homes in a lifetime more "accountable". But, leaving out aggressive "house flippers" and speculators for a moment, what exactly is a growing family to do in the rapidly rising markets such as So Cal etc? Simple, a young couple, say a pair of teachers? at first buy whatever level of "first time buyer" shack they can, and as their family grows does there best to leverage it into something more suitable.

In fact, as in LA county where median prices were half a million and a LOT of the housing stock is worn out post WWII stucco bungalows of 1200' how does a pair of teachers, a cop and a nurse manage to house their family at all? How do those of yet lower pay manage? Greed at the root? Or necessity for all including the mortgage salesman and the realtor?

Now somewhere near the top of the heap are graduates of Wharton and Harvard MBA's with 20 years in the game, and some regulators, who SHOULD have known better and been able to play the role of a grown-up, yet they are testifying before Congress that:
\
"Well with rising home prices, we found we had few losses even with 100% loans..... why not go to 105%? and roll in the very closing costs divvied up by the industry? after all they'll soon be absorbed by.......... rising home prices and all of us can continue to be fat dumb and happy. At least until housing prices plateau or begin to decline.

Does Wharton and Harvard still bother to teach anything about history? business cycles? tulip, stock, and housing bubbles? Played a round of Monopoly to see what happens when one player has hotels on Boardwalk and Park Place?

Barry

According to Professor Becker, “moral hazards”--shielding people from the consequences of their actions--threaten “free society” by eroding our ability to make sound decisions. Bailing out reckless borrowers and lenders will only beget more bad decisions in the future, so we should avoid doing so without good cause.

This concept is familiar. Abortion on demand creates a “moral hazard” by shielding promiscuous (or careless) persons from the social and economic consequences of an unplanned pregnancy. Welfare creates a “moral hazard” by shielding the indolent from poverty.

In the credit crisis, there seems to be plenty of “moral hazard” to go around. Professor Mankiw writes on the Bear-Stearns bailout:

“Here is another off-the-wall idea that someone proposed to me: Why not make senior management personally guarantee the loans made in any such bailout? (I presume they have significant assets beyond their equity stake in the firm.) Given the sums involved, that won't offer the taxpayer a lot of protection. But at least it will make some of the guys responsible for the mess squirm just a little bit more.” http://gregmankiw.blogspot.com

So: Shielding individuals from the consequences of their actions erodes the decision-making faculties and thus threatens free society (Becker). And, modern corporations shield their investors and management from the consequences of their actions through limiting shareholder liability and by vesting culpability for wrong doing in the corporation as a legal person.

Therefore, the modern corporation threatens free society. Q.E.D.

This is fun. Let’s play “moral hazard.”

Shielding telecommunications firms from liability for participation in unlawful domestic wiretaps erodes our privacy rights and makes future abuses by the executive more likely.

Shielding the administration from congressional investigation of its decision-making in the U.S. Attorney firings by evoking a broad claim of executive privilege and by refusing to act on congressional contempt warrants erodes our system of checks and balances, weakening our government generally, and encouraging the further politicization of federal prosecutions.

Shielding the people from the human cost of war by relying on a volunteer army instead of a general draft reduces the perceived cost of the war and makes future wars more likely.

Shielding the people from the economic costs of policies—such as the war in Iraq--through deficit spending distorts the public’s awareness of and response to policy.

Shielding one’s descendants from having to earn a living through making intergenerational transfers of wealth erodes their incentive to become useful participants in civil society (think Paris Hilton rather than Bill Gates).

Shielding ourselves from the consequences of environmental degradation by dying before the effects of our activity are realized and leaving the problem to future generations to confront commits ‘waste’ and violates our responsibility of good stewardship.

What a useful concept! It's like playing Whac-a-mole! But with so many “moral hazards” threatening our free society, why focus in on reckless borrowing? Well, if you are predisposed to blame society’s woes on the erosion of personal responsibility and to blame people who fail for their own lot, Professor Becker’s argument probably resonates with you in a way that my examples do not.

But I think to take Becker’s concern for “moral hazards” at face value opens my Pandora’s box. Isn’t Professor Becker using the concept of “moral hazard” here as a 'rationalization' rather than a rationale?

(BTW, for those readers dismissing me as a communist or a socialist about now: Lincoln considered corporations a threat to personal and economic liberty; Jefferson considered the heritability of property inconsistent with democracy and wrote one of the first laws limiting entailments; the Federalist warns against professional armies and points to the citizen army as a natural check on executive adventurism. Just saying.)

Judge Posner gets it right, I think: “Moral hazard is . . . not a defect of the will, but a rational response to one's opportunity set.”

This opportunity set for private economic activity is largely determined by the market, but determining the scope of permissible private economic activity is an essential government function; when private economic activities threaten the public safety or other public goods, one or the other must give way.

The policy questions to ask in the present crisis are whether intervention is in the general interest and whether we can or should alter the opportunity set in the future to encourage people to act more appropriately, to place risk on the decision makers, without causing further economic harm. Doing little or nothing may well be the best course, but intervention should be carefully considered.

Many free market advocates fail to recognize that they rely on state intervention on their behalf to create opportunities for the market to function, so much so that they fail to see it as intervention. Lenders are apt to see obligations of disclosure, limitations on interest, and moratoriums on foreclosures as unwarranted government meddling in the free market. But they welcome the court's help in foreclosing and the sheriff's help in enforcing eviction. Ask them why the state has any interest in enforcing their private contract. Why should the courts not simply say that a dispute between a borrower and a lender is a private affair? 'Be more careful to whom you lend in the future. Hire your own security force to reclaim your property (but be careful not to commit an assault).'

Shouldn’t the state be able to say which contracts are enforceable and which are not? Shouldn’t a city be able to say what standards a building must meet to merit fire protection? Shouldn’t the state be permitted to specify the terms under which it is willing to grant a corporation the rights and privileges of personhood and limited liability.

No! No! No! Freedom of contract! Property rights!

I believe the zeal of some free market advocates—those whose commitment is based more in belief in inviolable individual rights than in the utility of free markets--can be—has been--an impediment to good decision making—intelligent decision making in the interest of the public good.

I also believe that many who have voted for free market advocates have been sold a pack of simplistic lies about government intervention: regulations are bad, taxes are bad, social services are bad, estate taxes are really bad.

So who is to blame for selling free market economic theory at this level of bumper-sticker slogans and convincing a lot of simple folks to vote for huge tax give-aways and deficit spending against their own economic self-interest, convincing them to mortgage their economic security for an unfulfilled promise of a fair share of the phenomenal wealth their work creates?

Who has been shielding the wealthy from having to bear a fairer share of the burden for the protections and privileges they enjoy through participation in our free society?

Will either the politicians who managed to sell us this mess or their owners ever have to face the consequences of their actions? My money is on no.


john

The god of markets is efficiency. As market participants, every tool that we acquire to raise our own productivity in the market, to that extent also reduces our self sufficiency.

Compare the abililty our ancestors had to provide for themselves, crossing the plains in their covered wagons in the 1850's, with ourselves, deeply grooved to our work, and hopelessly dependent upon that market in the provision of all of our needs.

john

The god of markets is efficiency. As market participants, every tool that we acquire to raise our own productivity in the market, to that extent also reduces our self sufficiency.

Compare the abililty our ancestors had to provide for themselves, crossing the plains in their covered wagons in the 1850's, with ourselves, deeply grooved to our work, and hopelessly dependent upon that market in the provision of all of our needs.

Brophy

I thought the guarantee to JP Morgan was only for 60 days and was given so that the illiquidity of BSC assets would not quickly overtake the value of JPM.
It seems like on all sides of this credit crisis, there was a preference for ignorance. To paraphrase my psychiatry chief, 'If you set out to purchase ignorance, there is an inexhaustible supply of it.'

corwin

Hopefully,it will act as a "firewall".

human

Who has strong counterexamples for Becker's "use-it-or-lose-it" argument? This is also an important part of his "moral" principle.

neilehat

Just too shed a little light on the subject, the following is an aphorism borrowed from the "American Gospel of Success", "there's a sucker born every minute" (and no it wasn't P.T. Barnum), why do you think it's called speculation. Now, I can understand why God created so many "rubes". Someone has to be taken advantage of. Otherwise the system just won't work.

Doug

"An important foundation of the philosophy behind the arguments for private enterprise, free economies, and free societies more generally, is that these societies rely on and require individual decision-making and responsibility."
Great, but you have already blown it with old fogey moaning about people claiming abusive childhoods.

As a comment points out, this - "Abusive treatment is awful, but still the vast majority of children abused do become law-abiding and responsible adults." is very bad use of statistics. It can objectively be shown, I think, that adults abused as children make up far more of the incarcerated population than they should.

If this is true, then a case can be made that trauma (and I mean clinical trauma) can rob an adult of the ability to take responsible decisions.

How this might or might not be dealt with by courts is up to them, but I would argue that if child abuse is able to rob in some way the later adult of the ability to make responsible decisions, then to make free societies societies we should target child abuse as a priority, hard and unflinchingly.

Tucker

Two things: first Richard- much of Europe still hasn't had their housing bubble burst. Spain in particular has a housing bubble that is actually more significant in their economy than the bubble here. England will also be in a lot of trouble, but these are just delayed 6-18 months for their problems. Germany on the other hand aggressively deflated their housing bubble and shouldn't have problems in that sector. The problem wasn't subprime, subprime was the pin that burst the bubble.

Second- a part of the moral hazard was market experts and economists. Are any of the economists who wrote op-eds or went on cable news to tell the world that the housing market was going to keep going up going to lose their tenure? Are they going to get ignored by the media and have their books flop? Are the TV hosts who claimed there wasn't a housing bubble going to get fired and be prosecuted for fraud because of the poor advice they gave? According to economic theory these guys should all be fired and consumers should know that they were totally and utterly wrong, but instead major newspapers and networks keep bringing them out. At least Dean Baker points them out.

human

Please visit:

http://online.wsj.com/article/SB120485275086518279.html?mod=opinion_main_commentaries

"Freedom Means Responsibility" from WSJ.

human

Please visit:

http://online.wsj.com/article/SB120485275086518279.html?mod=opinion_main_commentaries

"Freedom Means Responsibility" from WSJ.

Jack

"Human" I did go to the WSJ expecting to find the pathetic whack-right mutterings we've come to expect from the Opinion side of the WSJ. It's particularly puzzling that the WSJ is fairly good on their news side but can have such a band of faith-based ideologues in the same building. Sadder yet was that of seeing Senator McGovern's name on the byline followed by a batch of vague and wandering paragraphs that look as if they were written to conform to an assignment from one of WSJ's top political operatives.

Saddest of all is to see Mcgovern "standing tall" for payday loan sharks and the "pawn" shops that dot our landscape these days. Wait! no! Saddest of all is to see a former man of the people's conclusion that dumps ALL of the responsibility for the current financial mess on the people he once worked to protect. Sad indeed.

"The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else."

Freedom Means Responsibility
By GEORGE MCGOVERN
March 7, 2008; Page A15

Nearly 16 years ago in these very pages, I wrote that "'one-size-fits all' rules for business ignore the reality of the market place." Today I'm watching some broad rules evolve on individual decisions that are even worse.

Under the guise of protecting us from ourselves, the right and the left are becoming ever more aggressive in regulating behavior. Much paternalist scrutiny has recently centered on personal economics, including calls to regulate subprime mortgages.

With liberalized credit rules, many people with limited income could access a mortgage and choose, for the first time, if they wanted to own a home. And most of those who chose to do so are hanging on to their mortgages. According to the national delinquency survey released yesterday, the vast majority of subprime, adjustable-rate mortgages are in good condition,their holders neither delinquent nor in default.

There's no question, however, that delinquency and default rates are far too high. But some of this is due to bad investment decisions by real-estate speculators. These losses are not unlike the risks taken every day in the stock market.

The real question for policy makers is how to protect those worthy borrowers who are struggling, without throwing out a system that works fine for the majority of its users (all of whom have freely chosen to use it). If the tub is more baby than bathwater, we should think twice about dumping everything out.

Health-care paternalism creates another problem that's rarely mentioned: Many people can't afford the gold-plated health plans that are the only options available in their states.

Buying health insurance on the Internet and across state lines, where less expensive plans may be available, is prohibited by many state insurance commissions. Despite being able to buy car or home insurance with a mouse click, some state governments require their approved plans for purchase or none at all. It's as if states dictated that you had to buy a Mercedes or no car at all.

Economic paternalism takes its newest form with the campaign against short-term small loans, commonly known as "payday lending."

With payday lending, people in need of immediate money can borrow against their future paychecks, allowing emergency purchases or bill payments they could not otherwise make. The service comes at the cost of a significant fee -- usually $15 for every $100 borrowed for two weeks. But the cost seems reasonable when all your other options, such as bounced checks or skipped credit-card payments, are obviously more expensive and play havoc with your credit rating.

Anguished at the fact that payday lending isn't perfect, some people would outlaw the service entirely, or cap fees at such low levels that no lender will provide the service. Anyone who's familiar with the law of unintended consequences should be able to guess what happens next.

Researchers from the Federal Reserve Bank of New York went one step further and laid the data out: Payday lending bans simply push low-income borrowers into less pleasant options, including increased rates of bankruptcy. Net result: After a lending ban, the consumer has the same amount of debt but fewer ways to manage it.

Since leaving office I've written about public policy from a new perspective: outside looking in. I've come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society.

Why do we think we are helping adult consumers by taking away their options? We don't take away cars because we don't like some people speeding. We allow state lotteries despite knowing some people are betting their grocery money. Everyone is exposed to economic risks of some kind. But we don't operate mindlessly in trying to smooth out every theoretical wrinkle in life.

The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.

Jack

"Human" I did go to the WSJ expecting to find the pathetic whack-right mutterings we've come to expect from the Opinion side of the WSJ. It's particularly puzzling that the WSJ is fairly good on their news side but can have such a band of faith-based ideologues in the same building. Sadder yet was that of seeing Senator McGovern's name on the byline followed by a batch of vague and wandering paragraphs that look as if they were written to conform to an assignment from one of WSJ's top political operatives.

Saddest of all is to see Mcgovern "standing tall" for payday loan sharks and the "pawn" shops that dot our landscape these days. Wait! no! Saddest of all is to see a former man of the people's conclusion that dumps ALL of the responsibility for the current financial mess on the people he once worked to protect. Sad indeed.

"The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else."

Freedom Means Responsibility
By GEORGE MCGOVERN
March 7, 2008; Page A15

Nearly 16 years ago in these very pages, I wrote that "'one-size-fits all' rules for business ignore the reality of the market place." Today I'm watching some broad rules evolve on individual decisions that are even worse.

Under the guise of protecting us from ourselves, the right and the left are becoming ever more aggressive in regulating behavior. Much paternalist scrutiny has recently centered on personal economics, including calls to regulate subprime mortgages.

With liberalized credit rules, many people with limited income could access a mortgage and choose, for the first time, if they wanted to own a home. And most of those who chose to do so are hanging on to their mortgages. According to the national delinquency survey released yesterday, the vast majority of subprime, adjustable-rate mortgages are in good condition,their holders neither delinquent nor in default.

There's no question, however, that delinquency and default rates are far too high. But some of this is due to bad investment decisions by real-estate speculators. These losses are not unlike the risks taken every day in the stock market.

The real question for policy makers is how to protect those worthy borrowers who are struggling, without throwing out a system that works fine for the majority of its users (all of whom have freely chosen to use it). If the tub is more baby than bathwater, we should think twice about dumping everything out.

Health-care paternalism creates another problem that's rarely mentioned: Many people can't afford the gold-plated health plans that are the only options available in their states.

Buying health insurance on the Internet and across state lines, where less expensive plans may be available, is prohibited by many state insurance commissions. Despite being able to buy car or home insurance with a mouse click, some state governments require their approved plans for purchase or none at all. It's as if states dictated that you had to buy a Mercedes or no car at all.

Economic paternalism takes its newest form with the campaign against short-term small loans, commonly known as "payday lending."

With payday lending, people in need of immediate money can borrow against their future paychecks, allowing emergency purchases or bill payments they could not otherwise make. The service comes at the cost of a significant fee -- usually $15 for every $100 borrowed for two weeks. But the cost seems reasonable when all your other options, such as bounced checks or skipped credit-card payments, are obviously more expensive and play havoc with your credit rating.

Anguished at the fact that payday lending isn't perfect, some people would outlaw the service entirely, or cap fees at such low levels that no lender will provide the service. Anyone who's familiar with the law of unintended consequences should be able to guess what happens next.

Researchers from the Federal Reserve Bank of New York went one step further and laid the data out: Payday lending bans simply push low-income borrowers into less pleasant options, including increased rates of bankruptcy. Net result: After a lending ban, the consumer has the same amount of debt but fewer ways to manage it.

Since leaving office I've written about public policy from a new perspective: outside looking in. I've come to realize that protecting freedom of choice in our everyday lives is essential to maintaining a healthy civil society.

Why do we think we are helping adult consumers by taking away their options? We don't take away cars because we don't like some people speeding. We allow state lotteries despite knowing some people are betting their grocery money. Everyone is exposed to economic risks of some kind. But we don't operate mindlessly in trying to smooth out every theoretical wrinkle in life.

The nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.

James Chambliss

Cultures have never been "led" to destruction. They are "pushed" by the characteristics of the worst impulses within them. Hence the whimper at the end.Truisms are called that because many of them are true. Power corrupts is probably more true now than ever. The worst among us seek it and misuse it. Your average idiot knows that any power is diminished by its use and that the only effective power to lead is moral authority, a concept mostly lost on our current crop. Perhaps we need a completely new approach to social and political leadership. Something like, "alright, Gary or Richard, you are bright and articulate, apparently accomplished and honest and are admired widely. It is your turn to be a member of Congress. Please go, don't steal too much, use common sense and we will have your homes, job and assets here for you when your turn is up." In other words, send only those who don't want the job. Sort of a national service.

The other major problem pushing the internal rot of our society is the media, populated by inaccurate intellectual midgets who in many instances create their own fodder in a society already looking for the lazy way of getting information and incapable of synthesizing it into knowledge.

Personally, I have developed a set of rules to maintain some sense of well being while existing in The United States but they are a bit spartanesque and not many would accept then since there is a fair amount of self discipline and awareness contained within them. Don't worry. The list is just for me.

Jim

Cultures have never been "led" to destruction. They are "pushed" by the characteristics of the worst impulses within them. Hence the whimper at the end.Truisms are called that because many of them are true. Power corrupts is probably more true now than ever. The worst among us seek it and misuse it. Your average idiot knows that any power is diminished by its use and that the only effective power to lead is moral authority, a concept mostly lost on our current crop. Perhaps we need a completely new approach to social and political leadership. Something like, "alright, Gary or Richard, you are bright and articulate, apparently accomplished and honest and are admired widely. It is your turn to be a member of Congress. Please go, don't steal too much, use common sense and we will have your homes, job and assets here for you when your turn is up." In other words, send only those who don't want the job. Sort of a national service.

The other major problem pushing the internal rot of our society is the media, populated by inaccurate intellectual midgets who in many instances create their own fodder in a society already looking for the lazy way of getting information and incapable of synthesizing it into knowledge.

Personally, I have developed a set of rules to maintain some sense of well being while existing in The United States but they are a bit spartanesque and not many would accept then since there is a fair amount of self discipline and awareness contained within them. Don't worry. The list is just for me.

neilehat

"Freedom", "Freedom", "FREEDOM"! The cry of the scroundel and scalliwag. The only individual responsibility I'm aware of, is not too get caught playing the sucker. Welcome to the wonderful world of "Free" Enterprise.

Jim

Freedom and free enterprise are great when there is self restraint. Otherwise it is just the freedom to destroy yourself and others. Even the scriptures recognize that the sins(Dante's seven)and the consequences will have unpleasant effects for generations not to mention that we have turned the ten commanments from don'ts to do's. Is it that we have no philosophical and moral leaders or are we too ignorant and selfish to follow?

Bryan W.

Oskar Sigvardsson - I don't really see any evidence that a hands-off policy of the Federal Reserve does make investors more cautious. The last bubble was the dot-com bubble, and that burst spectacularly, without the Federal Reserve stepping in to rescue failing companies (at least, not to my recollection). That didn't slow down the sub-prime bubble one bit;

Companies which go bankrupt or are bought out by more profitable companies at the least do not perpetuate their bad policies.

We keep hearing from the conservatives how top management is only compensated so richly because they deserve it.

I haven't heard that. Many in top management don't deserve their compensation and I've heard many conservatives say so. Michael Eisner, who has presided over huge losses at Disney, probably doesn't What I keep hearing from liberals is an attempt to paint all management with the same brush. In some cases, there's an argument to be made re: collusion with the board against shareholder interests. Some managers are worthy of exhorbinant salaries, though, because they deliver proportional value.

The financial institutions committed fraud on a massive scale. For example, houses were appraised at above what they were worth in order to get a more favorable loan-to-value ratio. There's been some suggestion that people who got loans for, say, $300,000 on a house only worth $200,000 (because it was appraised for far more than it was worth) accounted for many of those who walked away from their homes in the first few months, or ditched them when the market tanked (thus writing off the hope of 'flipping' the home if the value increased without suffering any risk due to the market drop.)

These loopholes need to be closed, and without serious disincentives, they will not be. Too many people have been rewarded in the firm's heyday and then bailed. Lazio, formerly of Countrywide, is just one example.

wayward

Sometimes a bailout is the least bad decision.

For example, had Bear Stearns been allowed to fail, its assets would have been frozen. This could have caused a run on the banks, which would have been far more costly than the bailout. As it was, Bear Stearns investors got pennies on the dollar, while their customers are now JP Morgan customers.

Likewise, it may be better for society to bail out some distressed homeowners than to allow their houses to be emptied. Empty houses have social costs of their own. They become magnets for crime and vandalism. Perhaps it will cost society less to allow renegotiation of the mortgages than dealing with the empty houses?

c frey

Aside from not indulging all of the wit above, I believe that Becker's WSJ comments are dead-on. Should one disagree is admitting their own irrelevance. Conscience dictates most of what transpires in any market, free or controlled. The larger argument suggests that an undefined portion of the population is inherently lazy, unmotivated, and simply willing to free-ride. I have no sympathy for any of this. Neither should anyone that attends school outside of the indoctrinating K-12 years. Government is becoming the voice of the useless, while at the same time removing the person from the body.
Economic theory would require a movement from the public to "taboo" this free-riding behavior. Where's the beef? At the moment, the incentive to be a slack is far greater than the incentive to innovate. (yes, there are people making changes everyday- that's not what the allusion is) So, what are your ideas? Longtime follower.

c frey

BTW- the correct idea used by a few above is "IMmoral hazard" rather than "moral hazard." Where is the hazard if/when one acts morally? oh, and Bear Stearns should have been left to die loudly. This situation should have been the 5-alarm fire bell for wall street. Those who lost life savings should have been diversified. Seriously, why would someone at an investment bank do otherwise? Any argument that ignorant people did what they knew is just as ignorant, if not worse. Again, no sympathy. Happy Easter, if Catholic.

neilehat

c frey, We're "Prot's", and follow the dictates of own concience as revealed by God, not slavishly following the dictates of the Papacy as revealed to some cranky old Pope. Happy Easter anyway.

Re: Jim

"Otherwise it is just the freedom to destroy yourself and others."

Freedom to destroy oneself makes an economic sense.

http://economics.uchicago.edu/download/Suicide_An_Economic_Approach_4.pdf

avoicein

I did not notice if any of the other comments discussed Bowen's theory of societal regression, but I think it is pertinent to your post:
http://www.thebowencenter.org/pages/conceptsep.html

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