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03/16/2008

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Jim

Re:Suicide

Fascinating analysis. Thank you.

Perhaps we should do the analog. Wouldn't it make economic sense to remove the artificial checks, both physical and social, on evolutionary forces? Why treat diabetes? That entire gene pool would disappear in several generations. Why discourage foolish risky behaviors? Accidents would take care of most of those in a few years. Who knows; if we stop propping up genetic and social weaknesses, the value of life might increase and suicides would disappear.

Malthus was right. He just didn't have the right analytic tools.

Fred Press

Gary,

That was a great piece you did in the Journal this weekend. I address many similar issues in my recently published What Greenspan Can't Tell You: The Inner Workings of the Investment Markets. I strongly recommend that you and readers of your blog take a look at my work.

Best,
Fred Press

Greg

I just read an excerpt of this post in The Wall Street Journal. Unfortunately, they left out the part where Mr. Becker questions the merits of the Fed's Bear Sterns bailout. The journal stressed the "moral" arguments, and not the practical ones.

As a taxpayer, I think the Fed should've bought bear Sterns itself, then sold its assets and at least made the American people some money, instead of helping JPM Chase and making Jamie Dimon look like a "genius" and letting the taxpayer take the risk. Some genius...I almost took out a home equity line and tried to buy Bear myself at that price!

As for moral hazard, a Bear bankruptcy would've been a much better lesson. Alas, the uniqueness of the banking industry makes it unlike others in that a large failure affects all citizens and all industries because of the nature of its assets as a medium of exchange..it's not like a car company going bust.

So, all banks that want to recieve help from the Fed should be subject to capital reserve requirements and Fed inspection. Otherwise they should get no help. And Americans with good credit should then be able to borrow directly from the Fed and let the banks be damned...I'd rather borrow fellow taxpayer money anyway.

One of the tennants of our time is the mistake in believing that "slicing" and spreading risk is a reduction in risk....actually, spreading risk to many parties that may all default is worse than having a handful of institutions bearing a large majority of risk.

But I have to say I don't buy the argument that individuals are "shifting responsibility to others." This is basically a media myth. Becker is right to criticize it but he shouldn't believe people actually think it. I have a hard time believing that subprime borrowers were suckered into loans and are trying to throw the blame now. This is just a news story to make people feel good.

In fact, as many have observed, they bought "mortgage options" that mostly ended up out of the money, as options usually do...they also did it with no money down...they were perfect arbitraguers! Take a free gamble on a house..if the price goes up I win, if the price goes down i walk away and the bank loses...No, we shouldn't waste our time thinking that we are facing a society where individuals are shifting responsibility to others....in fact, they were being smart- they knew they had little to lose and that the government would probably bail them out since so many people were doing it. I give them more credit than Becker seems to.

We live in a time when leverage equals success...how else could hedge funds charge two and twenty and people still think them good investments? Individual homeowners were just following the same trend...lever up and be somebody!

So now we're faced with the options of mass bankruptcy or inflating our way out of the situation...Looks like the Fed has chosen the latter. I just feel bad for all those "moral suckers" who actually saved their money to wait for a time when house prices would fall so they could get a good bargain. They might be very responsible individuals, but now they'll miss out on the government bail out while prices will remain inflated.

Greg

I guess a quick way to some up my rant above about moral hazard is to say that we should not lose sight of the difference between morality and rationality.

Over-leveraged subprime borrowers with no money down were acting rationally, not morally.

Rationality is for the field of economics, while morality is for the field of religion. In fact, I'm wondering how often it is the case that acting morally is a rational decision. I guess I should consult Adam Smith.

LCSusan

As a person who lost my home to foreclosure several years ago, I can certainly empathize with those who may now be facing foreclosure. However, despite the horrendous pain, shame and guilt, I can truly say that no lesson was ever better learned than the one taught to me and my blameless son when we had to leave our home. As mean spirited as it may sound, there are very, very, very few home owners who deserve help from the government, the rest should just have to learn that hard lesson.

http://strictlyanecdotal.com/2008/03/22/the-american-public-deserves-some-straight-talk.aspx

Jack

Jim....... it's important to remember that evolution is not the 'survival of the fittest' but the survival of those fit enough to attract a mate and pass on their DNA.

What sort of "social weaknesses" do you think "we" are enabling prior to mating season?

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Why treat diabetes? That entire gene pool would disappear in several generations. Why discourage foolish risky behaviors? Accidents would take care of most of those in a few years. Who knows; if we stop propping up genetic and social weaknesses, the value of life might increase and suicides would disappear.

Jack

Jim....... it's important to remember that evolution is not the 'survival of the fittest' but the survival of those fit enough to attract a mate and pass on their DNA.

What sort of "social weaknesses" do you think "we" are enabling prior to mating season?

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Why treat diabetes? That entire gene pool would disappear in several generations. Why discourage foolish risky behaviors? Accidents would take care of most of those in a few years. Who knows; if we stop propping up genetic and social weaknesses, the value of life might increase and suicides would disappear.

Jack

As the thread winds down, it still appears that more calls for "responsibility" are being hurled at those doing the borrowing, than those doing the lending.

Considering that those doing the lending are lending the money of others, have we forgotten that they used to have prudent standards? and in the quest for commissions have they also forgotten prudence in lending?

noname

Removing freedom/autonomy from smokers is problematic. See

http://medicine.plosjournals.org/perlserv/?request=get-document&doi=10.1371%2Fjournal.pmed.0040185

Also, comitting suicide may be beneficial for very unhappy suicide attempters.

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