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Anon., 9:09 pm

I am so glad that you are so intelligent, capable, dynamic, and forceful that you have no need what so ever of any type of advice, professional or otherwise or economic/legal protection either. Such as, "Truth in Lending", "Consumer Financial Protection", assorted property protection rights, etc., etc. Unlike the approx. 280 million other Americans.

Ever heard of a "pig in a poke" "ponzi schemes", "cooking the books", Bernie Madoff, Enron, Worldcom, subprime mortgages, etc., etc., etc.? Ah..., the joys of Anarchy and unrestrained "Free" Enterprise.


In response to the post of September 2, 2009 1:19 PM:

Yes, simplicity and clarity “should be” the order of the day. I couldn’t agree more with your normative assessment that we should all just do the right thing and get along. But that isn’t nature—and so, it isn’t possible, except where it can be shown to be in the interests of someone who can freely opt to do otherwise. The result of this pervasive lack of clarity is that every one of us is rendered an unfair exploiter of the weak. No one of us behaves, or could rationally be expected to behave as if “God was watching.” That may be a harsh assessment of our human condition. But it is reality. We withhold information and resources from each other with the intention of using the advantages gained by so doing.

When you eat a chicken sandwich, a chicken is made to suffer and die through no fault of its own, (as if “fault” mattered). That chicken sandwich is processed by a number of people that, (it could be argued) do not make a “living wage.” (They do not make that living wage because they lack the information and the resources to obtain those skills. Hell, they often don’t even know of the importance of obtaining better skills or which skills to obtain.) If you don’t eat the chicken sandwich, you have exploited these workers even more by having deprived them of a job—at least that part of a job required to fill your gut.

So, how do we morally deal with this cannibal’s banquet? We must take personal responsibility to see to it that the world becomes a better place: first for ourselves as individuals, lest we lose the advantage necessary to assert our choice, and then; for our fellow beings (people, animals, nature, etc.). But we must never lose sight of the martial nature of nature--and in our helping others, we must never allow them to be lulled into a false sense of serenity and security, lest we leave them worse off than before we attempted to “help.”

As we live by principle, we need to be aware of our context. We need to look at the whole picture. Yes, sometimes we reel from what we see. But we must see it and reconcile it—not recoil from it and embrace the fairy tales of normative utopias and the brotherhood of man. People who offer such utopias are usually exploiters of a much more thorough sort. Such people are what we call despots.

The fact of exploitation--even its necessity--should be an acknowledged reality. Nevertheless, we should mitigate it through an agreed system of checks and balances—which include the "clarity" you speak of. But as I said before, such systems need to be put in place by, and for, people to whom it can be shown that it is in their interests to do so—and who are still free to opt to do otherwise. After all, we are all choosers—and we must all be able consent, or not consent, or withdraw our consent—or we will find ways to evade. After all "compliance works only when it is in harmony with the will.

John Galt



And so, we have socially acceptable Conventions and Law built up around the Socio-Politico-Economic structure that we all call Civilization and State. All for the betterment and greatest good for the greatest number.

"Freedom is Anarchy-Liberty is Civilisation"


If I did need advice I sure as hell wouldn't get it from the government which is broke, overstuffed, self interested, inefficient and motivated by partisan political considerations which largely revolve around getting and staying elected, dumbing down the populace, control of all resources and power.


Oh, and by the way, you don't have to be a genius to know that in ordinary times of low to moderate inflation, the best long term ROI for individuals is aboutb 8 to 10%. The 20% Madoff and his minions were promising was not possible and should not have been believed by a normally intelligent and non-greedy person. I can hear it now at the country club or the cocktail party; "I got a guy who can make you 20%". Right. So I need the government to protect me not only from Madoff's greed and but also from my own. After all, it isn't my fault that I am greedy and stupid.


Compliance is the key. Without compliance, you get cheaters and evaders. People must be willing to comply with normative “principles” if they are to work. Thus, the principles themselves must be attractive enough to inspire compliance. Anything short of this encourages defection. Anything short of this fails to bring about lasting change. If we have not figured out the principles of a good society that also inspires willing and private compliance, we have not truly figured out the principles of a good society: We have only mixed up a new pitcher of Cool-aide for some despot to impose upon us “for our own good.”

If we fail to honor another’s (any other’s) individual will, we sow the seeds of inevitable social breakdown. That is a fact. It is a fact whether we violate the rich by taxing them more than the poor, or if we violate the poor by stunting their aspirations. Life cannot be successfully opposed.

If we dumb people down enough to silence them, we can fool ourselves into thinking we have their compliance--But we don’t. Most of the thinking minds of this planet are on strike as their wills have been overridden by arrogant asses that fancy themselves “deciders.” Little do “the deciders” know how little about even their own lives they actually decide. They may appear to decide much, but unless they actually posses the virtues of wisdom and knowledge, their deciding will be channeled by anything from unexamined cultural norms and prejudices to manipulative sycophants. No one escapes the rules of nature, and decadence does eventually take its toll. That is why the nation is in trouble today--we have reached a critical mass (proportion) of trust fund babies that is running things into the ground.

Just landing in a certain place in life does not confer virtue. It may grant the fruits of virtue—but it does not confer virtue. Sure it’s good to be rich—but it’s better to know what’s actually going on—only then is the world yours.’

Anarchy is not the way—it’s an unreasonable extreme. Coercive law based on shortsighted normative principles is not the way—it too is an unreasonable extreme. I think it was Aristotle that proposed the idea of moderation in all things. He was a wise dude. So were Montesquieu and Locke, who both went a long way in explaining what good societies were all about far better than I can.

John Galt.


Amen to John. WE know from history what works and what doesn't but like children we have to learn the hard way. A moral society is one based on conscience and the absence of the seven vices and the presence of the seven virtues. We need leaders who advance that concept not the political hacks we have now and not academic ethicists who cmpete to develop a universal theory of ethics and justice of which there is none.



Ah yes ..., the "Categorical Imperative" at work. I wish I could view the World through such Rose tinted glases. Unfortunately, Experience and the reality of life and the World is such that there are those who if not beaten down with a large stick will only be at the throats of all others. That's why there are such institutions as the CIA, FBI, Armed Forces, the Police, Justice Dep't. and all the Courts both Civil and Criminal at the Federal, State and Local levels along with the Prisons. Not too mention the Churches and Synagogues.

It's all about Sociological Behaivorism through the use of both positive and negative sanctions. It's the only tried and true method of Social Organization and Control.



I have to disagree with Posner here.

Just because you say it is merely a difference in personality, does not mean it is merely a difference in personality. In particular, we SHOULD judge irresponsibility to be, well, irresponsible.

I am a big fan of optimism. But, optimism must be rationally tempered with realism. If it is not, then it is no longer merely a personality difference but rather a character flaw. A very common one. (Pyramid schemes would be doomed if a subset of the population was not susceptible to this character flaw.)

Unless one is unusually lucky in a way that the typical person will not be and cannot rationally and realistically expect to be, one cannot expect to have good outcomes in the future without planning and a realistic outlook regarding the future.

Furthermore, there are certainly rational differences in discount rates between current and future consumption. But neither extreme is rational. If all one does is work (and they do not enjoy their work, like Posner enjoys his) for the future without any enjoyment of the present and they continue like this throughout a lifetime or most of a lifetime, that does not make sense. The advice to "stop and smell the flowers" can actually make people better off.

Similarly, someone who is not thinking of the future at all (all the are thinking about is where they are going to get their next hit of their favorite illegal drug) is not behaving rationally either. These people will not only find themselves in a very uncomfortable position in the distant future, they will find themselves in that situation in the near future. Not only will their future not be as pleasant, it will probably actually be very unpleasant and full of suffering.

Combine these flaws and you have a recipe for disaster. Someone who focuses excessively on present pleasure and who is irrationally optimistic about the future. That person is what is rightly called irresponsible. Hopefully, the damage they do to others in their madness is limited, but experience suggest that in most cases such people will do harm to those around them in some way with their irresponsible behavior.

So, what has Posner established? He has established that optimism is not a bad thing, in fact it is usually a good thing. He has established that differences in discount rates should be respected. He has established that we should not take our own personality, and insist that others fall on the same place on the pessimist-optimist scale and have the same discount rate. I agree with these points.

A lot of things are like this. If someone is sad, you probably should just let them be sad. It is normal and healthy to be sad sometimes. But if this goes on and on and is very intense, then it is not mere sadness, but depression.

I think that Posner's argument, if we were to transport it into this context, would go something like this. Because sadness is not a strange thing and not something we should normally interfere with, depression is not a problem either.

And that is where he is wrong.

Just because optimism is a good thing, that does not mean that a total lack of realism in financial affairs is a good thing. This is not just a personality preference - that tendency is dangerous - and it has large negative externalities.

Just because it is reasonable to have a lower discount rate between present and future consumption, that does not mean that it is reasonable to put too much focus on current consumption. There is a reasonable range, and then there are extremes which are problematic.

Anyway, it is perfectly fair to say that people with discount rates that are too low or too high are irrational. It is perfectly fair to say that people whose optimism in financial affairs exceed all bounds of what is even close to reasonably likely are irrational.

I should point out that "unrealistic" optimism should be viewed differently in different contexts. Consumers of mortgages are not innovators in their consumption. Their unrealistic optimism is not likely to have positive externalities. In contrast, the "unrealistic" optimism of the Wright Brothers had huge positive externalities.

We should not generally curtail optimism, even unreasonable optimism, where technological innovation could result. Especially since there is a huge risk that what we view as "unreasonable" optimism could be due to our own lack of insight. But, it makes complete sense to curtail unreasonable optimism by consumers in the financial sector.

A final point. A large part of the regulation here is not about optimism or discount rates. It is about people not really fully comprehending what they are getting themselves into. We are not talking about "perfect information" here. We are talking about having a reasonable enough understanding of consequences to evaluate the wisdom of action or inaction. Mortgages and financial documents are complex. This understanding is often lacking.


Life is complicated. Life is about risk. Optimism motivates, and depression leads to apathy. All of humanity lives beyond its means and on borrowed time.

If someone is getting into something they don't understand, I suggest that he gets an understanding or takes another course of action.

We already have sufficient regulatory disclosure. What does adding any more disclosure accomplish for someone who doesn't seem to want to understand.

Pudn' Head


In response to the comment made on Sept. 3, 2009 @ 3:22 pm, and more broadly proponents of additionally regulating disclosure:

Had such legislation been passed in 2006 or earlier would the supporters of this action be more at ease with the current state of the economy? Granted, I realize that my question is loaded and assumes that even with additional disclosure agents would have made the same decision. However, I see it difficult to rationalize that such individuals would choose anything different in light of the actions those more educated in finance. For example, once these mortgages were divided up and put up for sale on the market were not experienced brokers and other experts on the market part of the group buying up these sub-prime mortgages? Some may contend that these individuals were acting rational with self interest in mind. Yet is not the assumption, and hope, of this bill that with a clearer understanding of the risks the individual would choose what this blog classifies as a "pessimistic" option? Clearly even those who are experts in the field do not choose pessimism in every instance, even when understanding more fully the risks in the marketplace.

Therefore, it appears this bill hopes to establish a bizarre double standard. One in which we expect what proponents refer to as the financially ignorant and ill-equip to make a more "rational" decision after a few moments of counseling with a loan officer than a well read professional. At the heart of this bill seems not to be a matter of presenting information in a positive way, but rather imposing a specific normative view on what this forum has concluded to be a financially unaware person's personal decision. As the person who posted at 3:22 put it such people are not "sad" but "depressed". That being the case it seems unlikely that presenting the facts more clearly would sway someone with such a chronic economic illiteracy, as that post assumes such people have, to choose any different. If these people do lack the ability to make a rational decision on their own then it would be only by persuasion that they would reach a rational decision. Thus, the assumptions about people who defaulted defeat the need to disclose information any plainer. And any legislation that sets a president of regulating the thought and decision making abilities of someone who is merely uninformed is unethical.

At the root of this problem though seems not to be whether or not a person can rationally pick between an adjustable rate or fixed rate mortgage, but whether or not a bank can rationally decide if a person should be approved for a mortgage. So if anything is to be regulated in this debate sub prime lending seems to be a logical choice. However, for the moment it would appear the banks have learned their lesson.


In life, you gotta mark your territory. You have to take the reponsabilitry of deciding what's what, and what to do in life, and what life itself is about.

If someone tries to hornswoggle you into a transaction you do not understand, it is up to you to not transact with that person. If you are in a situation that you don't like, change the situation, or change yourself, or change your understanding, or simply walk away, (And if others don't like it, remember that you are not living to be loved by others--you are living for yourself, for without yourself, there are no others.) Some times you have to get angry enough not to participate in what you know, or suspect, to be wrong. This is what being an individual actor is all about.

There is no avoiding this ontological reality. Reliance on regulations, benevolent dictatorships, the welfare nanny-state, and other such evasive maneuvers will not protect you from it.

You have to be severe with yourself on this. Only the warrior who fights his inner inertia can overcome his circumstance. Its not a comfortable understanding of reality, but it is a necessary one, sufficient the strength to work through one's mistakes as he presses on.

John Galt


Glass Steagall, while clumsy, stood for something important. The need for the separation between commercial and investment banking, that is, between debt and equity—more importantly, between bankers' ethics and traders' ethics. Every real banker and loan origination clerk on the ground saw the quality of lending dropping into the toilet. Securities trading can't be allowed to vertically subsidize and thus industrialize a manufactory of debt like so many hamburgers. Those selling repackaged debt didn't care to see, much less warn, that the quality of this brand-new, so-called debt was now equivalent to Bernie Madoff-ville. Those who saw it unfolding announced the impending disaster and traded against crash for years, which is why $62 trillion in credit default bets got sold prior to autumn 2008, a market clue, or bullhorn, readable by any idiot. Yet the unsophisticated continued to be herded into taking on far more debt ("just refinance tomorrow!!") than was wise for them. The question is simply, what responsibility does a decent society owe to the unsophisticated? Just a little, perhaps? Everyone in the know knew that "diversification" by slicing and dicing had strict limits beyond which lay ruin. They just weren't saying, whilst their money picking party was on. And therein's the rub. It's not about economics, stupid. It is about law, meaning, basic common decency and ethics.


I am sorry but I just don't get it. I can wax eloquently in high sounding language, but in the end we are talking about borrowing money. The housing bubble did not burst because of the arcane details of subparagraph b or paragraph 27, page 3 of the 3rd codicil or the mortgage documents.
This resulted either from a failure to understand very basic aspects of borrowing - that you will owe interest, that you have to pay back what you borrowed, or from the possibly wise financial decision to walking away. Short term changes in the value of the home are meaningless - unless you are speculating.
The biggest flaw I see is that restricting lenders ability to filter risky borrows caused the entire industry to try to find ways to avoid being caught holding the old maid. The ways in which the mortgage industry changed are reflections of each facets efforts to pass the risk on to somebody else.


Hooray for the last three comments. Finally some consistency in recognizing the place of common sense and experience. If you don't have it, you can't spend it. If you borrow it, you have to pay it back. And I suspect that "the sins of the fathers........" means that if one generation is stupid and greedy, succeeding generations will pay the price. Doesn't anyone read anything or are we so arrogant that we believe that no one before us knew anything.


Anon., 7:08 am,

You may have hit the nail on the head, "... are we so arrogant that we believe that no one before us knew anything"? This current Economic Crisis has been developing since the Reagan years (remember "Voodoo Econ.). This all started with the Deregualtion mania under Reagan and accelerated throughout subsequent Administrations. In essence, wiping out and destroying the Financial and Investment Regulatory Environment that was developed and instituted during and after the Great Depression -in response to these self-same similiar problems.

As someone once commented when the "Deregulation" Mania took hold in the 80's, "Well ..., looks like we're about to rediscover the reasons why these Economic/Financial Regulations were passed and placed into operation/Law in the first place." Talk about a prophetic vision and statement.


Regulations or No Regulations. That is NOT the question. The question is: what is the proper attitude for the individual to take?

The proper attitude he should take is one of a bias for his private individuality--his identity. Identity distinguishes men from one another. Identity is the thing in itself as distinguished from other things. Individuals who make choices can maintain their identity only so long as they those things in the environment that support him and shun those that don't. This is the beginning of an understanding of how to approach the regulation question.

Some regulations support personal choices and some do not. Some laws acknowledge individual judgment, and grant room for individual movement, and some do not. Some social attitudes attribute the power and wisdom of choice to individuals and some do not. When choosing among regulations, governments must always keep this individualist perspective foremost in mind.

The advantage of a "Public Option" in health care is that it introduces a wider flexibility to individuals to change jobs without risking deep financial loss. Also, what we call "work" itself would be opened to a wider definition as the issue of medical insurance will have finally been laid to rest, as the weighting of market forces would cease to include the distortions of a bloated health care system.

What we have now affords far less financial protection than in the rest of the industrialized world. It makes us third world dependent on the good graces of self styled "deciders" who, like their counterparts in mid-evil Europe, can dismiss anyone at will on a mere imperious whim, consigning them to a financial oblivion. Further, as the government has already caused the shape and price of health care to become distorted beyond even the possibility of the reach of "market discipline," it behooves us to support a public option as an offset to this grossly unaccountable system. At least with the government involved, we can at least a hope for a little more than the pretense of a true "market" that does not, and likely cannot exist, given the accumulated distortions created in the industry as it now stands.



Galt, You may remember that we had a market system until the government intervened.


God ..., I wish I was a Canadian! At least I'd have a workable and affordalbe Health Care/Insurance.


I'd like to echo sentiments above: We need to recover some lost wisdom from the not-so-distant past. We need to do some WORK and start ACTUALLY READING the geniuses of the problems of economy and society.

True, it probably won't advance your career as an academic economist or financial analyst... only your understanding of real issues.

A 15-word caricature of a worldview does not suffice, whether it be of Neoliberalism or the German Historical School.

I personally advocate for a much broader canon. ["Read not to believe or disbelieve, but to weigh and consider."] I strongly recommend against basing your economic worldview solely on Ayn Rand.

-Matthew M.


In response to "Galt, You may remember...(September 8, 2009 5:15 PM)"

Before the 1870s there was a market health care system in some parts of the world, including parts of the US. Then, "professionals" sought to protect their turf by limiting the the practice of medicine--not through market forces, nor certification among consenting peers--but by using government to outlaw everyone but themselves and their chosen treatment methods. Now, midwives are scarce, medicine men no longer exist except in such remote locations as the highlands of Borneo, and the arts practiced by other traditional healers are all but lost. The government has effectively leveled the playing field in favor of what has become a very narrowly defined, but over-reaching medical-industrial complex.

The governments of the world have made the practice of medicine into a tight, and inaccessible and indivisible capital structure on a par with the military. As the military can't be effectively divvied up and "privatized" for the benefit of the citizens of a nation--so too, the medical-industrial complex cannot be. In its primitive (pre-1870s) state, it could have been left alone to develop along market lines. But it has been so misshapen by a long history of government intervention that it has now effectively become an indivisible public good. For an indivisible public good to be equitably accessible to all, it is necessary that it be mediated by the government.

The honest question is how government should now be involved in health care--not whether it should be.



A cautionary tale on regulation.

In 1984 I bought a townhouse. I made the offer on the then standard, printed form used by RE brokers. It was one page long, legal-size.

In 1987 I bought a larger townhouse nearby. This time the offer was on a legally prescribed, densely printed form that took about five pages, each longer than legal size. This growth in volume was caused by the enactment of several laws designed to protect the consumer (purchaser). So did it prevent consumers from acting improvidently or foolishly?

I still don't understand what good it did, and I am certain that the vast majorityy of home buyers didn't understand all that dense legal prose and therefore didn't read it.




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Epistemology refers to the grounds of knowledge and touches on everything that has to to with what can be known as such. So, when I refer to Epistemological Granularity, I am speaking of a quest for a broad understanding of matters in both a larger and smaller context in a manner that can be known.

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