We Wanted Safer Banks, We Got More Inequality
bloomberg.com
bloomberg.com
"As the country becomes more unequal, there are fewer middle class customers. That means middle class bank products become unprofitable, and banks follow the money. And banking regulations make it worse because the capital requirements imposed after the banking crisis make it a lot more expensive for banks to do a startup small-business loan than go into wealth management. Startup loans are riskier than wealth management, of course, but the capital costs have become prohibitive, and banks don’t lose money on purpose."
Wait, what? I doubt this is the main or even a top-three cause of income and wealth inequality in the US.
Other factors strike me as potentially far more important causes of inequality, including increasing automation of labor, winner-take-all markets, concentration of corporate and market power, minimal antitrust regulation... to name a few.
The banking industry wants fewer regulations and lower capital requirements, as usual. This seems to be its latest rationalization for them.
To oversimplify, easy access to capital can allow a poor person to turn a great idea that solves real problems and a strong work ethic into a sustainable business that pulls him out into the middle class or higher. Without access to capital, the poor man is beholden to whichever employers are in his area, and whatever is on offer from them - odds are, it won't be enough to allow the poor man to send his children to private school.
Now, sure, the economic decision to finance this person should not be based on the idea that you could make subprime loans and repackage them to unwitting buyers. But there are perhaps middle grounds from a regulatory perspective. And there are also opportunities to address non-regulatory aspects that discourage capital sources from lending/investing; my company Belstone builds software to allow lower-middle-market investment bankers, the advocates for medium-sized businesses in the capital markets (who have the same dynamics described above), to close deals on behalf of their clients more efficiently, to support more businesses and more job growth. None of these efforts on its own is a panacea, but we have to try everything we can to move the needle.
That's true but I think that winner-take-all markets exist in a large part because of the centralization of capital and how new capital enters the economy.
New money from the Fed flows into the system through massive institutions first; the money trickles down from the government to a few big corporations and then it trickles down to a few big private capital and VC firms and then it trickles down to a select few startups... VC firms collectively run an oligopoly; their main customers are big corporations so they don't have much interest in funding too many competing startups. The corporations which are funding the VCs don't want to acqui-hire too many of the same startups otherwise it gets difficult to justify their M&A strategy to shareholders.
What is an equality-enhancing mortgage? My guess is that it's akin to an equal opportunity / affirmative action campaign. The thing is, actuarial tables aren't oppressive - they're merely reflective of reality. If a particular group presents a higher risk profile than another, the only sane course of action is to be more restrictive when lending to members of that group.
The alternative is for banks to give out easy money again like in the leadup to 2008 and that didn't work out well. I'm sorry that some people can't get mortgages but the answer is not to aggregate out their financial problems onto those of us who do, in fact, pay our bills.
oh man, here we go again! I wonder if Y Combinator will fund my Collateralized Equality Enhanced Swap
...but didn't push banks to lever the loans 10x, securitize, sell and repeat over and over again. Fault for those days lied in a lot of places, and sub-prime mortgages aren't inherently a bad thing.
They didn't.
The banks levered up so much that 7% of delinquencies was enough to crash the global economy.
The delinquencies ended up being less of a problem than the uncertainty around them. 7% delinquencies didn't kill anyone. Investors' fears that 7 would become 20 did.
https://www.chicagofed.org/~/media/publications/profitwise-n... quotes average default rates in the 30+% range on subprime mortgages.
The Collateralized Debt Objects reduced this risk down by being bundled with better credit worthy debt servicing.
The way that securitization works is that you take many thin streams of cash from individual loans, and bundle them into a giant river of money. That river will dry up at some point, and what point depends on how much defaulting there is. You then take horizontal chunks out of that river and sell them off. The first few slices are low risk - they will pay off even if lots of people default. The last one is very high risk indeed and are only worth pennies on the dollar, if that.
The principle is that it is safe not because it is bundled with better debt, but because those bonds still pay even if lots of people default. They may pay late, but they should pay.
However the models quantifying the risk assumed that there was a lot less correlation in defaults than there actually was. So when the housing market moved against the loans at the same time as people lost jobs in the financial crisis, investments that were supposed to be safe suddenly weren't.
I could believe 7% as the losses in bonds that originated as AAA bonds. But not as the losses in AAA bonds.
An RMBS is a portfolio of mortgages financed by multiple bonds, with an order of subordination between them. When a loss occurs on a mortgage, it is allocated to the most junior bond first, until it is fully written down, then the next junior bond, etc. So if you own the most senior bond (often rated AAA), you are really exposed to high default rates and high correlation. Ie if the portfolio of mortgages is diversified (low correlation) some mortages will default but not all at the same time, and there will always be enough mortgages that do not default to avoid a loss on the most senior bonds.
The big fuck up in the financial crisis is that the correlation was misestimated. There had never been a large, US wide, real estate crisis since 1929 and therefore everyone assumed a US wide portfolio was well diversified. That turned out to be wrong in 2006-2007, and delinquencies (ie balances of loans not paying interest or principal) shot up. This led to losses (not 100% of a defaulted loan, the house still had some residual value) that ultimately hit the AAA bonds.
A CDO is the same structure but using bonds in the portfolio instead of residential mortgages. But when people refer to large losses on CDOs in the financial crisis they usually refer to CDO of ABS, which basically uses junior RMBS bonds in the portfolio, so effectively you leverage the mortgages twice, first through an RMBS, and then another time through a CDO.
In those you are even more exposed to correlation. The portfolio is made up of junior RMBS bonds from multiple RMBS transactions originated by multiple subprime lenders across the country, so these structures were playing on not all of these RMBS going bad simultaneously, which is exactly what happened.
So the TL DR is that these portfolio of subprime mortgages and RMBS bonds were of a similar credit quality, but correlation is what got really badly mispriced, they were assumed to be diversified but what we got is a large US wide real estate crisis that hit everybody,
There's enormous competition for people with capabilities of repaying a loan but no thin credit files/scores. Those are credit scores between 575 and 650. There are government programs that target these people administered via Freddie, Fannie and FHA for automatic underwriting. Those are done? No matter, USDA(!) would guarantee loans in rural areas! Banks themselves do manual underwriting for people who barely qualify or on a cusp of qualifying at prime + rates. Those were not the subprime loan customers.
Subprime loans were originated with the same rationality as the loans covering Buy Here, Pay Here car loans: they were originated with a total knowledge that the buyer will fail to make payments and will be foreclosed on - no matter! Buyer would make payments for first 6-7 months, default, get foreclosed on and the house would be sold to someone else for higher amount than the defaulted loan. Housing was an appreciating asset when these loans worked fine on depreciating assets ( cars ).
Structural inequality or not, people who have shitty jobs and shitty financial position typically make shitty financial decisions over the long term. 30 year mortgage is a very long term financial play.
If you are lending money with the unspoken understanding that the note is likely doomed to be a loss unless the real estate market continues to go up, then you are not really in the loan business anymore. You are putting letting your capital ride on the real estate roulette wheel, while enjoying the fat fees in the short term. The fact their were enough greater fools around to move your capital from new bad loans to newer bad loans may let you bank a few more fees, but it still means the originator is choosing to screw up while hoping to be rescued by real estate market forces completely beyond his control.
Correct.
> ...but didn't push banks to lever the loans 10x, securitize, sell and repeat over and over again.
Yeah, but I'm not going to pretend like I wouldn't. Worst case scenario is that my failed bets get paid out by the future productivity of the entire working population, and the distressed assets get transferred to the balance sheets of special purpose vehicles also funded by taxpayers.
And I get to keep all the performance fees.
The only way to avoid immoral behavior is to fix the incentives so that it doesn't pay off. In this situation, that means either make it uneconomical to sell (perhaps by penalties like jail time), or to not allow the sellers to socialize the risks (perhaps by not bailing them out when they failed). The former means that low-income borrowers can't buy homes; the latter means that the financial system would've imploded. Personally I think Obama would've been better off taking the latter course and letting the banks fail, but the point is TANSTAAFL and whichever course you to take will require some sacrifices, whether in equality, stability, or trust.
How? Doesn't buying a house (at market price) have an approximately zero effect on your net worth?
As of the closing date, sure. However, closing on a home allows a renter to become an owner for about the same monthly cost (plus produces some significant tax benefits typically only available to the wealthy). After 30 years of paying a mortgage, if holding all else constant, one probably owns the property. After 30 years of paying rent, holding all else constant, one still owns nothing.
Our calculated repayment on a 20 year mortgage with a 300k down payment on the estimated CV of this house: $1370 NZD pw
Yep!
Beijing is a good example of a place where rents are way lower than sale prices, so you can totally wind up paying $1000/month to rent something that is on the market for $1 million.
I have a fixed 15 year loan at 2.75%, which seems like a pretty good deal to me. Know where I can borrow a few hundred thou at 1%?
Yes, sometimes buying makes sense, but sometimes renting makes sense as well.
Assuming we pay the same for mortgage and rent, who wouldn't want to pay rather mortgage?
But remember, to pay the same, there was a huge downpayment. If you were to invest that rationally, long term returns could be worth it, even while paying rent.
OTOH, rational investing (in a balanced fund portfolio) is hard, and mortgage forces you to save.
YMMV, do your math.
And then I definitely want to own my house before brexit, as an immigrant I will not risk not being able to rent if things go tits up.
Nothing except all the money saved on property taxes, maintenance and repairs, home insurance, etc. And, as another poster noted, this assumes mortgage payments similar to rental prices. The math on home ownership is not a slam dunk in favor of owning in every region and should be considered carefully.
Leverage to the hilt, get a million-dollar home, keep it for three years, pocket a cool 500k.
Obviously this time it's different, and housing shall continue it's spectacular bull run forever.
Populations are migrating to cities en masse, which creates huge demand for city housing. And most cities haven't really been keeping up with the supply side since the 1930s or so.
How so? Subprime mortgages were largely not sold to government entities, but to private investors as CDOs. And government banking regulations about investing in low income communities never required making subprime loans.
I think the best that can be hoped for is rigorous justification of lending criteria in non pure correlative ways. As opposed to discrimination laundering bullshit like sentencing based on the size of their yard. Judge them via their neighborhood foreclosure rates as opposed to ethnic make up. There are antidiscrimination in real estate laws on the books but I don't know enough to comment upon the current implementation and its pros and cons.
OP's point is government has better tools for enacting social policy than lending regulations. Improving low-income borrowers' finances, instead of pushing banks to stretch to them, seems saner. Unfortunately, we have a broad segment of the population that enjoys "sticking it" to the banks, thereby perpetuating the cycle.
if you're worried about feedback loops, maybe don't lend based on any criteria other than the best possible estimate of ability to pay the loan back.
if you loan somebody money for a house that they can't pay back, they're going to 1) end up with even worse credit and 2) lose the house, which they made other emotional and financial investments in.
The assumption of 3) was what drove 2008.
For a crude example, pick health history. The leading cause of bankruptcy in the US is medical bills due to a health crisis. This of course spills over into mortgage foreclosure. But someone might have excellent credit, and a high cancer risk. They get cancer, byebye loan. Are you accounting for that?
Someone has excellent credit, but works in a dying industry and has no skills to move to an equal-paying job in another industry. Their job goes away in five years, byebye mortgage. I can go on with these. But my point is, I don't know if you realize just what a difficult point you're making with your simple answer.
I think the problem with using money lending as a tool for social justice and equality was laid bare during the crisis. The downsides - lack of mobility for workers, pushing the risk from wealthy people (investors) to poorer people and the fact to function the system needs loans to be paid back at some percentage approaching 100 - all conspire to make this a really poor tool for change.
I think that something like the Australian approach - with enforced retirement savings set at 9% of income (where you earn $50K, and your employer pays $4.5K into super) - is a saner approach to wealth creation for the poorer groups than lumbering them with mortgages.
There's a big difference between a community bank using community ties as a source of superior intelligence, and a big company acting as a mortgage mill trying to maximize throughput "countrywide" until the bubble bursts. Before the community banks existed, Asian community groups would arrange private lending within the community.
I think that something like the Australian approach - with enforced retirement savings set at 9% of income (where you earn $50K, and your employer pays $4.5K into super) - is a saner approach to wealth creation for the poorer groups than lumbering them with mortgages.
It sounds good on the surface. I'd let people opt-in on that, though.
That’s not what happened. It wasn’t poor people who caused most of the defaults - it was investors working with mortgage brokers, real estate agents, and appraisers who were all part of the take. Poor people weren’t doing most of the no doc/negative interest or other types of “non conforming mortgages”. The investors walked away, did strategic defaults, and were free and clear within 3 years - ask me how I know....
That is itself the tightest of feedback loops, because the best estimator is either current wealth, or past performance of loans. It is massively exclusionary so I don't think your point is very well made.
If you study immigrant minorities across history, around the world and going back 1000's of years, certain patterns emerge. Immigrant minority groups who can pool their resources and become participants in the economic life of the host country find a way to prosper, somehow. Before the 20th century, this pattern of prosperity could result in confiscation. With the widespread ideas of Human Rights, this has become less of a problem. (Though it can still be a problem.) Likewise, minority groups who remain in isolation tend to remain poor. Often, this is by the machinations of the elites of those groups, who use this isolation to remain in a position of relative power.
The only reason that happens it that you're using exactly 100%.
If it's 98% then the top 2% in that group get approved, which gives you new data on that group that tells you your old numbers are inaccurate and a lower percentage of the group defected than predicted, so in the next generation you approve the top 10% in that group and so on.
This is the exact opposite of a feedback loop. As time passes it amplifies the signal, not the noise.
All it takes is a cursory glance at almost any mass migration in the US to show why that amplifying effect doesn't exist: when the [x]% finally get the money to move in, everyone else usually moves because of prejudice, driving the value of the neighborhood down and the [x]% into bankruptcy or financial destitution. I can even name a few towns in California where this has happened in my lifetime.
That's the kind of feedback loop we're talking about. No one bases their prejudices on actuarial tables.
Jim Crow laws were enforced until 1965. They existed in the lifetimes of part of the current generation of would-be homeowners, and that is one thing you can't lay at the feet of the banks.
> All it takes is a cursory glance at almost any mass migration in the US to show why that amplifying effect doesn't exist: when the [x]% finally get the money to move in, everyone else usually moves because of prejudice, driving the value of the neighborhood down and the [x]% into bankruptcy or financial destitution. I can even name a few towns in California where this has happened in my lifetime.
The events you're describing should have the opposite effect. The first family to move in is obviously screwed, but screwed in a long-term sense where they lose the value they paid for their home which only happens in some decades when they want to sell it. Until then their mortgage payment is the same one they budgeted for to begin with. And all the racist white people who are leaving are in the same boat, but right away -- they want to leave but no one will buy their house for what it was worth last year.
Meanwhile there is suddenly a whole neighborhood where housing prices have plummeted and a bunch of white people who would otherwise come in and bid the prices back up are opting out. Doesn't that just make it easier for other black people to buy those homes for a discounted price?
This leads to a segment of the population (usually lower income, but not always) without broad access to credit or leverage.
Edit: https://www.cnbc.com/2018/08/08/gop-congressman-chris-collin...
I’m sure things like this are isolated incidents given that members of Congress have a level of immunity from such laws.
Let’s keep discussing market solutions in a market that has been and always will be rigged and rerigged as needed coughpanamapaperscough
This is coming from someone who was able to get a less than 4% FHA $340K mortgage three years after having two foreclosures a short sale, and three additional loans that were settled for less than full value.
Unless you live in an high priced area where rent is going up more than inflation a mortgage isn't really worth it. It ties you to a location and makes it harder to move to where the jobs are.
This sentiment gets expressed frequently in these discussions. There is a hell of a lot anchoring me to a particular place than whether or not I own the place I live. If I had to move, selling my residence would be a relatively minor consideration in the grand scheme.
It wouldn’t be easy, but if I had a choice between staying where I am where I couldn’t find any jobs and moving. I would move. But in my case, if I can’t find any company that’s looking for a software developer with an up to date skill in my entire metro area and I couldn’t find any type of remote job or contract, I’ve got bigger issues.
My responsibilities are only to my spouse, minor children, and some day maybe my parents. My parents already live in a different town than I do, but they would have to move to wherever I move to.
As far as abandoning a metro area, it took quite a bit for my wife and I to finally uproot. That we owned our house was relatively low on the friction list. Hell, my wife wants to delay buying again (we rent) because she finds the act of moving so stressful.
My mortgage is less than 25% of our net pay, but if it fell in value to a point where it was worth less than $50K what we owed on it and we had to move, we would be in trouble.
It could have worked out well if the Obama administration had just allowed the financial system to collapse instead of bailing it out. The collapse of the financial system would have meant that many poorly run companies would have disappeared and they would have been replaced by newer, smaller and more efficient companies. Europe recovered from WW2 relatively quickly; surely the US could also recover from a partial market collapse.
Before 2008, there were a lot of talented, ambitious people desperately waiting for an opportunity to compete on the marketplace but the government bailouts took away that opportunity and allowed corporations to keep running their inefficient oligopolies uninterrupted. Today, most of these talented, ambitious people have become losers; they're poor and paralyzed by self-doubt. The reality is that they might actually have succeeded if the government had simply allowed capitalism to take its natural course. The carpet was pulled from under them.
Rich people would have learned humility and everyone else would have learned that the system actually works.
Instead, rich people learned complacency and everyone else learned that the system is rigged.
Well, part of that is because of countries like ours which weren't completely destroyed were able to assist financially, help rebuild essential infrastructure, and -- perhaps most importantly -- provide political stability to the region (which they desperately needed in 1945).
I'm not sure who would have played that role if we had let the entire global financial system melt down in 2008.
What is an equality-enhancing mortgage?
My wife works at a community bank which has been cited as an important institution for social justice on the west coast. Equality enhancing mortgages could well be mortgages accessible to under-served populations who have the financial means to pay them back, but who face cultural barriers or ethnic discrimination.
Community banks have been railroaded out of the home mortgage business. There are now a lot of timing-dependent requirements and really stiff penalties in the banking regulations. It was sold to the public as a curb on the big banks, but what really it means, is that only banks large enough to write their own software or wealthy enough to license custom software can stay in the home mortgage business. Basically, we the public were sold flowery rhetoric by politicians on the wave of sentiment following the banking crisis, while big banks lobbied to write into law an even bigger advantage.
Do you have any evidence of that - the discrimination part? Is there evidence that lending institutions choose to lend based on criteria other than ability to repay? Also, do/did smaller lenders fare as well or better than the big lenders during the financial crisis? Or were their loans more risky? I think that would be the strongest evidence either way.
Your second paragraph is really interesting, and creating an expensive barrier to entry is always a tactic big business implements to stifle competition. I just wonder what the way out of that is?
The various Chinatown community banks wouldn't even exist (and have greatly succeeded for awhile) if some form of cultural barrier didn't exist. The barrier isn't all the fault of one side or another. However, it's simply historical fact that big banks left a lot of money on the table -- in a way which could be characterized with gross demographics -- which smaller banks made their bread and butter for a few decades.
Is there evidence that lending institutions choose to lend based on criteria other than ability to repay?
Of course community banks choose to lend based on criteria other than ability to repay. Basically, community banks must use their advantage in local intelligence to distinguish between prospects who look a bit marginal but who are really strong, versus prospects who might look a bit marginal to normal but who constitute a risk. Basically, the big banks swoop up almost all of the "normal" customers and leave the smaller banks scrambling for the best of the odd ones left over.
Your second paragraph is really interesting, and creating an expensive barrier to entry is always a tactic big business implements to stifle competition. I just wonder what the way out of that is?
An informed electorate.
Now it is almost tough for self-employed, small business owners, to get mortgage through normal channels. When one doesn't get mortgage through normal channels, one goes to a FI(financial institution) that keeps these mortgages on their books. Such FIs charge extra interest rates, demand more downpayment like 30%, etc.
This is a characteristic of nearly all federal regulations since approximately the Nixon administration, across all industries with incumbents large enough to fund lobbying at that level.
The industry does something outrageous, or whips up a media storm about some non-issue, so that calls to regulate come. Then the industry itself pulls a thousand page bill out of a drawer whose title sounds like it's going to do something good but whose details are all written by the industry's lawyers.
The average voter doesn't have the time or domain expertise to understand a thousand pages of dry legal text, so the bill passes and nobody figures out what's actually in it until a decade later when the evidence of what it allowed the industry to do starts to surface. Then we get a renewed call for laws to fix the "unexpected" disaster and the cycle repeats.
Hopefully at some point people are going to figure out that the answer is to remove federal regulations and pass local laws that purposely favor small local businesses with local ownership and ties to the community.
Hypothesis: Basic market theory suggests that the need for housing is probably inelastic (everyone needs it, can't do without it), therefore if housing is to become more affordable an increase in supply must happen.
Prediction: If additional housing were encouraged (near where jobs are actually located) prices would eventually stabilize at sustainable levels.
Prediction 2: non-inflated housing prices will also lower the cost of living in those areas, creating a net benefit for members of society (which are not of the rent-seeking classes).
Testing: Please vote according to the above logic.
Results: To be determined.
People voting themselves higher house prices through using local zoning laws to create housing shortages is a national crisis. We need something pretty dramatic, like congress using the interstate commerce clause to ensure the free movement of labor via banning states and local municipalities from enacting their own zoning. Or a national land-value tax.
It seems we have achieved a self-reinforcing civic virtue "anti-pattern", where middle class anxiety about high housing prices ends up squeezing the future housing supply. In other words, the negative feedback via anxiety caused by high demand may be greater than the usual positive correcting effect we expect from the "invisible hand", to add supply in the face of high demand.
IMHO it is a matter of homeowners acting on incomplete information. Sure, your house price going up seems nice, but it is only a significant benefit if you sell and move elsewhere for your retirement days. Those who actually like where they live and want to set roots have the practical problem of how affordable the place they live is now and when they retire. That is a death by a thousand cuts.
Regarding the future, I do hope to make the world a better place through my job. But in the practical world of the now, we need mechanics, teachers, grocers, plumbers, nurses, handymen, construction workers/contractors, waiters, etc. etc. or the SF Bay becomes an expensive hellhole.
Having enough people around who keep the community livable requires more affordable housing.
The consequence of which is that there becomes a plurality of growing urban centers rather than one megapolis, and the citizens get to live in houses larger than sardine cans.
[0]I say "we", but I am not a resident of the bay.
[1]by "environment" I mean not just air, water, physical space etc., but also infrastructure, good govenance, and other public goods.
While there are many arguments for #2, I believe most of those arguments are more emotional than real. In fact, in the world of many young dual income families on the SF peninsula specifically, lots of families spend approximately zero time in their yards.
While I recognize that individual families should, of course, have the freedom to splurge their resources on dwellings that are underutilized, as a matter of social policy, it is foolish to promote a suburban lifestyle as some kind of ideal when it turns out the reality is very different.
(Due to a family health issue, I once had a year where I needed to be available at home, but I did have MUCH time to garden. It was shocking how extremely rarely most of my neighbors' yards were used. Even the majority of yards of families with children were unused, both weekdays and weekends.)
Richard Werner points out that the mortgage lending, with associated house price inflation, caught fire in the UK after Thatcher eliminated "corset" credit controls. That may be key to sorting the whole mess out.
Edit: I guess the idea is to increase supply and reduce demand?
A low interest rate is not a federally mandated cap on interest it is an increase in supply which drives down the cost. Which should increase ROI.
Easy access to low-cost loans creates the illusion of affordability and exacerbates over-consumption (over-consumption: a general malady afflicting most humans)
>In fact, higher interest rates would mean that the cost of liquid capital, a bank's main equipment for making money, were suddenly more productive, right?
Banks basically just borrow money at x then lend it out at x+y. With y being expenses, defaults, and profits. Now if x grows that doesn't grow y, if anything it shrinks it because there are less individuals looking for a loan at the increases price.
Basically if banks were toy makers, the interest rate would.be the price of plastic. Sure if the price of plastic went up toy makers would charge more for toys. But they wouldn't be making more money, if anything they'd me making less.
The article pointed out the gulf widened at the 1980s. That should be more than enough hints as to how to fix it.
There's no political will though.
But agree, there are probably other reasons, starting with outsourcing to china, automation, under supply of highly skilled workforce, etc.
(1) Bankers (rich people) lobby to have Glass–Steagall taken out back and shot in the head.
(2) Banks go nuts with financial wizardry leading to a housing bubble.
(3) Bubble bursts which ends up ruining the lives of millions, mostly lower and middle class folk. Nation enters into the worst recession since the Great One.
(4) Banks are bailed out with taxpayer money because banks have somehow become "too big to fail".
(5) Some regulations placed belatedly and half-heartedly on banks because of (1-4)
(6) Hardly anyone rich loses their shirt and hardly anyone is locked up† and some make out like bandits.
(7) Wall Street salaries and bonuses through the roof.
(8) Gov Regulations (along with Fed quantitative easing – the Fed is kind of a collection of banks, no?) exacerbate income and wealth inequality. Where did the Secretary of the Treasury at the time of the crisis, Hank Paulson, work beforehand?‡
(9) Banking policy "expert" Karen Petrou says “I’m not blaming the banks”
(0) In the words of Ace Ventura, “Allllrighty then!”
† https://www.bloomberg.com/view/articles/2017-07-26/why-no-on...
‡ “Before becoming Treasury Secretary, he was required to liquidate all of his stock holdings in Goldman Sachs, valued at over $600 million in 2006, in order to comply with conflict-of-interest regulations. Because of a tax provision passed under President George H.W. Bush, Paulson was not subject to capital gains tax. This saved him between $36 and $50 million in taxes.”
From first principles it makes sense that reducing the price of capital would help workers, and hurt capital owners.
And all the research I've seen backs up this intuition and show that a loose monetary policy helps inequality.
[1] https://www.nytimes.com/2015/03/14/upshot/wall-street-bonuse...
“For all of these uncertainties, the broad picture doesn’t change. My judgment is that we can be pretty confident that Ms. Anderson’s estimate that the sum of Wall Street bonuses is roughly twice the total amount paid to all full-time workers paid minimum wage seems like a fair characterization.”
Thanks for the article. It is shocking. Where is the moral outrage? There are huge media-storms over all sorts of identity politics hoo-hah and a whimper every now and again over the Inequality Question.
I've often wondered just what people are talking about when they use that term.
OP appeared to be talking about trying to take advantage of predatory lenders, and my point is that the borrower would usually be harmed more by attempting to do so than the lender, whose business model can typically accommodate a fairly high default rate.
Consider balloon mortgages, which are structured to encourage the borrower to pay all the interest, then, if they default on the final payment, the lender repossesses the property. In the lead-up to 2008, when prices all around were rising rapidly, repossession could look almost as attractive a proposition as getting the principal back, or possibly more so, and it made it easy to sell the risk in the secondary market.
There is no advantage to the lender in repossessing the house in a rising housing market.
I suppose someone intending to flip a property might prefer a balloon mortgage if it has lower payments - financing flips is not something I know anything about - but that would seem to be a win-win situation, at least up to questions of risk. The important question with regard to so-called predatory lending is how things usually work out in practice.
They got slapped by OCC (Office of the Comptroller of the Currency) for offering a card with a $300 limit, that upon issuance, already had $300 in fees billed to it (offering a credit product with no usable credit, or something like that), and settled with them by lowering the fees to $250, and paying a million dollar "fine" — which, IIRC, they were able to both write off, and "earn back" with "good behavior".
I don't think that's exhaustive of "predatory lending", but it's damned well exemplary. And the "punishment" was, too.
Being on a very small governmental body, I witnessed first-hand the tendency to want to "do something" when confronted with a potential problem - And it did come to pass several times that we enacted policy that later seemed to have made the original situation worse or caused another flare-up in issues that had not existed before.
My experience is it can be very difficult to enact good public policy... And frequently an efficient (unfettered) capitalist market will come up with a solution more elegant than what we could contemplate.
I am left thinking this is a basic truism...
For instance a good long-term solution for climate change might be the movement to renewable energy.
A market solution to climate change might be opening condos on Antarctica.
in most cases, we need more innovative approaches to policy development rather than defaulting to a market as the only alternative.
as an example off the top of my head: using a faster, instrumented, and iterative approach to policy design, as startups are encouraged to do. or, cultivate new methods for finding better, more effective policies quickly (like design sprints, for example).
the resulting regulatory uncertainty would probably be worse than bad regulations.
so if citizens & businesses knew that regulations were generally going to trend toward more fairness, the regulatory environment would be less uncertain (the cone of future possibilities narrows, even if the path was entirely a random walk).
Serious question, what is the issue with inequality when low income people are overweight and have iphones?
This is obviously a simplification, but in 1 sentence I think I got my point across.
Standard of living is undisputed the best in human history, not even some 1960s era fantasy has overweight humans. This has nothing to do with 'unhealthy' food, this is abundance.
So back to the serious question, what makes inequality bad? Some ideas
>Political inequality
>multi-generational oppression(which doesnt line up with the whole "First generation makes it. 2nd generation maintains it, 3rd generation blows it")
I'm trying to understand the issue with inequality when everyone is living a fantastic by organic life standards.
People is overweight because they can not afford healthy food. Fruits and other healthier food is more expensive than junk food.
Poor people does not have iPhones. They have cheap Android devices that they need to work, keep in contact with family, etc.
> Standard of living is undisputed the best in human history
In the USA you can see a difference of life expectancy based on their economically status. So, people is dying earlier and this can be avoided.
> I'm trying to understand the issue with inequality when everyone is living a fantastic by organic life standards.
So this is the end of all progress? We are good now, lets stop improving health care, education, etc.? Let people die at 70 even when they could have a more healthy live to be 80? Let a cancer patient die because "on average" society is better and his suffering is just statistics?
Your argument is based in the misconception that things can not improve anymore. That people does not deserve better that what they have now.
You will probably get support in the Amish community, for example. But most of the world moved past that point.
This is wrong. I study food as my expertise, and junk food is always less than 200 calories per dollar. Fresh fruit is similar while home cooked food is a significantly better value.
I wont address the other points until you revise this one. Its factually incorrect. Google Calories Per Dollar or Nutrient Per Dollar, or Mcdonalds Calories Per Dollar.
The data exists and you need to get up to speed.
Calories squared/(dollar*second).
The article was studied literally yesterday and the conclusion for under 3 minute (prep) meals was that Ramen was number 1. However, I'm considering putting this recipe on the list since its a slow cooker http://www.kidsinkitchens.org/
Healthy diet costs three times that of junk food https://www.telegraph.co.uk/news/11149644/Healthy-diet-costs...
I hope that his answers your question and we can talk about the rest of the points. :)
Remember that the telegraph posted this advertisement
https://www.telegraph.co.uk/foodanddrink/10210327/McDouble-i...
Google Efficiency Is Everything.
Thats actually data and not some tabloid click bait.
While I agree with the sentiment of your post, the meme quoted above needs to stop. Two bags of Doritos cost as much as a package of raw chicken that can feed a family, not to mention mass quantities of rice, beans, or even potatoes. Fruits and vegetables are very often <1 USD per pound. A single fast food combo meal can hit $10 USD, which can be groceries for one person for a week.
The problem with bad diets emerge from high stress, transportation issues, and lack of food education; not price tags.
Also, I grew up in the midwest, and often fruits and veggies look like they were picked up off the side of a freeway.
Not saying that you're entirely wrong, but neither is the "it's cheaper to eat shitty food" camp. There's probably a happy medium: less sugar, less meat, less stress, better education, better prices...all things that would help.
Certainly convenience & taste is a factor in these decisions as well, but if the primary pain point is raw cost for your baseline consumption because you have no money to spare, you really should be kitchen-based.
Of course, all of this assumes that one is being financially sensitive, and not just impulse spending without realizing how much is trickling out. Too many people I know who struggle with their meager finances (even if they make similar or more than I do) are entirely too flippant and just go for the $10 combo meal, not realizing how often they're "treating themselves" and how it's adding up against their monthly balance.
They're never "ready to grab". They take time and effort, and do require knowledge to prepare. They also require you to then do the dishes after. For someone who's working multiple jobs, that may be time they just plain don't have.
Besides, if I may rant a bit: If you have no money, then time, effort, knowledge, and social currency is what you have to spend to get by. Either you're going to spend those things, or spend money you don't have which will make your immediate future immediately worse. This is a situation that sucks to be in, and the only way to have any sense of even partially managing this is discipline. Many of us have grown up in and/or lived through these sorts of situations as adults, and you simply do what you have to and try to be smart about it. Obviously you need to put in time and effort, and do the dishes. But you can buffer things a bit to match your schedule, or establish specific routines, and any little lessening or organization of crunch is a huge affirming step. If you step back for a bit you also see that maintaining your health (including having mental and physical energy) is super important when you have no money and are working hard, and so making food at home hits multiple critically important facets. It does not matter that it takes effort, what matters is that you put forth effort commensurate to what you're facing.
And to position this back to the initial contentious point, it reaffirms my position that it is not an issue of healthy groceries being somehow priced higher, but rather that of stressful life situations that people turn to convenience food (with the time sink of shopping/shorter-prep/cleanup or driving/ordering/waiting at restaurants still intact).
Families with parents who work multiple jobs are laughing their asses off at this idea of having time to do that.
"Besides, if I may rant a bit:"
Only if you want to show how out of touch you are.
But be careful not to project that as the expected case, and ignore the reality of others' lives (yes, like mine and family & friends around me, if it's even necessary to state). That's dangerous tribalism that normalizes failure.
No, they just have to laugh at people like you telling them that all they have to do is "manage their situation", because otherwise they would have to cry at exactly how out of touch everyone else is with what they're going through.
"That's dangerous tribalism that normalizes failure."
Do you remember what website you're on? This is the community that praises and lauds failure, but apparently only when it happens to certain people.
I don't know what exactly you're projecting on me (or how I'm somehow different than "them", giving "them" more of a voice), but I was certainly talking about being in the miserable times, with no available money or time, not casting down edicts from an ivory tower of disconnected comfort.
I've not been in a working-poor situation since my late teens, but I can say that there are times when I was working 60+ hours a week, and I did not have any energy to think about meal planning or healthy eating or investing in my future besides dumping some extra money in a savings account. Luckily, I did have the money to eat healthy, and luckily my wife was (sometimes) in a position where she could meal plan for the both of us, but oh man...if I was in the same situation and making < $30K/year, I would NOT have been able to even think of these things.
It's not about being intelligent or even about resource management, it's about having the energy to think about it, and if you're working your fingers to the bone, you don't have the energy. So it's easy for us to sit around on a forum while there's a lull in our cushy jobs ranting about how poor people should manage their time better, but I can tell you that it's not easy.
I'm talking about me and my life, and my family, and my friends. In various desperate situations, without money or time or car, working multiple jobs, and things in life going bad on top. Some made reasonable decisions about life, others not thinking and just muddling through, and others just checking out. Nobody's "meal planning", you grab whatever's cheap at the store (and that'll be grains, vegetables, and some meat) and make a pile of it at home to feed from or take along to work, so you don't have to cook often or go out much.
I don't know why everybody jumps to "You don't understand the people you're talking about!" Lots of people (even here on HN) have been there, or know people who have been there. There are tons of ways that life plays out, and having horrible situations is not some guarantee that your life is cemented into a perpetual downhill and that any other thinking is "out of touch".
It's just a lot harder, and sucks a lot more. But it becomes the new normal in your life. You do what you need to do, and you'd better figure out what you need to do, because tomorrow is staked on it. Plus, any little progress is still progress; even if you're not a millionaire at the end, at least it's not as bad as it was last year, and work to continue that at any scale for the next.
Furthermore, there has been some research to indicate that those in poverty may be less able to save money, psychologically speaking, and may have spending patterns that are not useful in alleviating poverty. For instance, if you have very little wealth but a decent income, say $25-35k as an individual, you may be able to afford an iPhone or nicer car or jewelry, however your spending on those items is now a confounder of the overall wealth gap. Some of those who are poor may be so because they do not exercise the set of behaviors that leads to wealth aggregation.
Overall, globally speaking, I do agree we are in a period where vast numbers of asians and africans are being lifted out of poverty, even as those poor in some developed nations are still in poverty within their own countries. If we look at a multi-national level, however, the trend is towards more middle class individuals world-wide.
This is a dog whistle that indicates that you are not conversing in good faith.