The DOW plunges nearly 800 points in one day, the biggest drop in history

[georgerussia 0]

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I just can't stand to hear the term predatory lending. It's the new buzz word. It's an excuse for how your instant gratification loving american can point the finger at someone else.

It is just a yet another instance of modern "this is not my fault, and therefore I should not be held responsible for that".

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If these morons weren't greedy and did read what they were signing they wouldn't have gotten themselves in the situation to begin with.

I think at least some of them did read it, as some people went as far as faking a paycheck. And at least some of those who got stated income loans provided false income information to get a larger loan they could otherwise afford. This means they did not intend to actually pay off the loan from their income, but rather from proceeds of selling the property. I have never heard about any predatory lender who forced the applicants to lie about their income.

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(time for an overgeneralization) No one can admit they're wrong and accept the consequences of their actions anymore. We've become a society of whiners that sue people over coffee being too hot.

I agree. This is always someone else fault. Personal responsibility is thing in the past.

* Don't pray for me if you wanna help - just send me a check. *

[kelpdiver 2]

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I just can't stand to hear the term predatory lending. It's the new buzz word. It's an excuse for how your instant gratification loving american can point the finger at someone else.

It is just a yet another instance of modern "this is not my fault, and therefore I should not be held responsible for that".

There are some pretty clear cut examples of predatory lending. The lender knows its going to end poorly for the borrower, but will come out fine.

And then there is opportunist lending, which is probably closer to what you two are thinking about, with shared blame.

[georgerussia 0]

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There are some pretty clear cut examples of predatory lending. The lender knows its going to end poorly for the borrower, but will come out fine.

Not necessary. In fact it ended up good for those borrowers who sold the property before the price started collapsing. They made money, the lender made money, and everyone was happy.

Of course the lender was aware that the borrower might not be able to pay off his mortgage from a stated income loan. As I said before, the main purpose of stated income loan was to provide a way for the people who will borrow more than their documented income could afford. It was obvious that significant part of them will not be able to pay it back from their income, but they were expected to pay it back when they sell the property. It worked when the property prices grow up every year. It will probably not work anymore in nearest decade.

* Don't pray for me if you wanna help - just send me a check. *

[rushmc 23]

I agree. This is always someone else fault. Personal responsibility is thing in the past.

The same reason religion is demonized

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[nerdgirl 0]

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Concur with underlying idea suggested by the quoted anonymous author: the economic crisis is global and systemic. As that bard of transparent financial verse noted last March: regulation will never keep up with innovation and new methods of hiding and manipulation in financial schemes: "risk models and econometric models – as complex as they have become, are still too simple to capture the full array of governing variables that drive global economic reality." Add globalization and interconnected/interdependent international markets into the mix and the situations becomes even more complicated.

The words also suggest a challenge to some of the causal explanations put forth regarding the US financial turmoil: anyone want to posit that Putin has implemented or allowed a program of affordable housing for poor people?

So if regulation will never keep up with innovation, what do regulatory bodies do to keep tabs? Is there anything they can do but focus on more effectively enforcing current regs?

You ask a really good question. There is a fundamental challenge to creating and implementing policy to regulate something that doesn't exist.

Government is conservative by nature and ours somewhat by design. (Conservative in that it does not change fast, not GOP v DEM partisanship.) Government typically can't keep up and there are strong reasons that it may not be for the best to be reactionary to each & every individual incident.

How do they do it now? In a manner not unlike how the legal system tries to create law about new phenomena – via extending basic, established principles and through precedent setting cases. (Economic risk models are related and much larger subject about which books have been published, dissertations written, and cutting-edge research is ongoing.)

How might it me done in the future? There are multiple policy approaches (as opposed to economic models) to the regulation of new financial market schemes, a few include:

Do nothing … always an option, effectiveness varies.

Apply the precautionary principle or some variant of it. The precautionary principle requires that something has to be demonstrated to not cause harm before being introduced. The responsibility for demonstrating that falls on the individual or entity proposing introduction into the commercial or financial marketplace. It’s very low-risk on a first level. Very anti-risk w/r/t new ways of doing things & therefore does not address well opportunity costs. It has some favor in Europe, particularly w/r/t things that may have potential health consequences and new technology. It’s not a policy option I endorse.

Apply an economic version of the Proactionary Principle:

“People’s freedom to innovate technologically is highly valuable, even critical, to humanity. This implies a range of responsibilities for those considering whether and how to develop, deploy, or restrict new technologies. Assess risks and opportunities using an objective, open, and comprehensive, yet simple decision process based on science rather than collective emotional reactions. Account for the costs of restrictions and lost opportunities as fully as direct effects. Favor measures that are proportionate to the probability and magnitude of impacts, and that have the highest payoff relative to their costs.”

It’s a risk-embracing approach that provides for high pay-offs for those who innovate (in whatever market) but also places an onus of responsibility on the who may stand to gain the most.

Apply what I’m calling the “melamine” model, i.e., have varying degrees of regulation but have limited oversight, sophist oversight, or limited to no enforcement. Until one gets caught, it’s very profitable. On a practical level, it doesn’t matter whether the regulations are strict or liberal. Not a model I would apply.

Apply a policy of incentives (rewards) for self-regulation and 'good' corporate behavior and dis-incentives (meaningful, progressively larger $ fines) for malfeasance. The latter has to be provable in court of law.

Currently the USG, through DHHS (as charged by White House Homeland Security Council) is currently drafting proposed policy (a draft rule) on regulation of synthetic nucleic acids (SNA), aka synthetic genomics. That's a real-world example of trying to do that. Frankly, it's a mess and not for lack of very smart, very hard-working, independent people trying to figure it out.

VR/Marg

Act as if everything you do matters, while laughing at yourself for thinking anything you do matters.
Tibetan Buddhist saying

[NoShitThereIWas 0]

Well Bush signed it and the DOW still fell another 157 points today; that sure instills a lot of confidence in me... Next week should be an interesting time in the markets... I just hope this is a repeat of history and we are going to just have to sit tight and hold onto our pants for a while until we recover... I hope that isn't wishful thinking.

Roy Bacon: "Elvises, light your fires."

Sting: "Be yourself no matter what they say."

[FallingOsh 0]

Thanks Marg. I always enjoy your posts.

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Well Bush signed it and the DOW still fell another 157 points today; that sure instills a lot of confidence in me... Next week should be an interesting time in the markets... I just hope this is a repeat of history and we are going to just have to sit tight and hold onto our pants for a while until we recover... I hope that isn't wishful thinking.

I think the announcement of his signature was after the market close. Either way, it's not supposed to be a quick fix. The market will recover but it's going to take some patience. I think the freeing up of credit will get the gears turning and the new administration taking office will have a general boost to the economy.

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Stay positive and love your life.

[SuFantasma 0]

So the bill gets passed and the President signs it into Law... not even 12 hours pass before the President addresses the Nation and tells us that it will take time for the effects of this Law to be felt on the economy.

Hello DUMBO, we knew that (when did he find out?). The problem is that the FULL effect of the stupid action will be felt as we sink deeper into an economic vortex.

Y yo, pa' vivir con miedo, prefiero morir sonriendo, con el recuerdo vivo".
- Ruben Blades, "Adan Garcia"

[livendive 8]

Today it shed another 675. One year ago today, the Dow and S&P 500 hit their highest marks of all time, with the Dow at 14,165 and the S&P at 1,565. Today they closed at 8,579 and 910, putting their one-year losses at 39.4 and 41.9 percent respectively. Any predictions for where the bottom is?

Blues,
Dave

"I AM A PROFESSIONAL EXTREME ATHLETE!"
(drink Mountain Dew)

[NoShitThereIWas 0]

I was predicting 8 ish about a month ago... Thinking Jesus, it could get down to eight before it starts to turn around. Let's just say 8 got here a bit quicker than I had planned!

Starting to get a little nervous. I know I am not buying anything until it hits at least 8 or even lower now...

Roy Bacon: "Elvises, light your fires."

Sting: "Be yourself no matter what they say."