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Comment by chadbaud | Hacker News Reader

In a functioning market, a buyer would not have received a loan, no matter how much they wanted to over extend themselves. But, because fraud was being committed from the rating agencies, investment banks and mortgage originators, they got the loan.

I understand what you saying, but I think you underestimate the lack of accountability that allowed people to get loans they were not in the best interest of anyone.

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I guess my thing is more of a reaction against paternalism and the infantilization of the public. I do think there need to be much more in the way of bank regulations. I don't think the public ought to absolve itself of all responsibility because of the absence of some regulations. I just don't think it's healthy or necessarily leads to better decisions being made in the future. I want an informed public, not a deluded one.

Statistically, you can't have that. No matter what you want, a sufficiently motivated conman will be able to find the dumbest person, for instance by the methodology used by Nigerian-prince scammers: put out bait that's bad, to pre-screen for people dumb enough to be that kind of deluded.

Then you can say 'oh, that scam was so obvious that people ought to have seen through it!' but it was explicitly designed to be obvious because, statistically, THERE WILL be someone (perhaps a nice but foolish someone!) who does fall for it.

Therefore, you can't have an informed public. Ever. It's a matter of how you handle the edge cases. We don't have rules making things like murder, etc. bad just because MOST people don't deserve to be straight-up murdered. We have them because it needs not to be too tempting to murder in those cases where the guy REALLY deserved it… it's inhibiting the potential murderer on general principles, not making value judgements on why to protect extremely deserving victims.

This is not the case in the financial industry, and the consequences we pay for that might be pretty dire. In the financial industry they think they can say things like 'I want an informed public', and they think they can make entire business models on screwing deserving victims, and it's not really about the victims, it's about social pressure stopping people from being monstrous on general principles. And again, nothing at all stops bankers from being monstrous. Indeed, it's a survival characteristic: we select for that.

If people are stupid enough to enter into mortgages with payments they can't afford then they shouldn't be allowed to enter into any kind of legal contract. No credit cards, no payment plans, no cell phone plans, no insurance, nothing. Honestly, they shouldn't even be allowed to choose what they eat since they aren't certified nutritionists.

Your comparison to Nigerian scammers is irrelevant because there is nothing legitimate about a Nigerian prince scam, it's just stealing money. Millions of people have mortgages they can afford and pay for them just fine.

I agree with you about protecting the public, no one needs to be coddled.

But when parties enter into a transaction, there should be repercussion in the case of fraud. That never happened. One party in a transaction was lied to and there was no repercussion to the other party.

Also, thanks for taking the time to respond, really enjoy debating this topic. Wish it could be in more real time.

Individual loan applicants weren't defrauded though (in most cases). They knew what the monthly payments were and what would happen during possible interest rate adjustments.

It shouldn't have been a shocker to anyone making 2k a month that a 1.9k/mo mortgage was pretty risky.

Functioning markets also do not have the Federal Government backing hundreds of billions in loans every single year either (Fannie and Freddie then, and Ginnie now). It's pretty convenient to blame lenders while the government itself was pumping insane and irresponsible amounts of money directly into this market and telling lenders to find people to allow them to do this with. It's practically inevitable for lenders to get greedy when there's no oversight and trillions of dollars at stake. The truly bad actors in this are not the people doing what we know people end up doing when a system is designed like shit. It's the people who designed the shitty system.

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