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Credit Conundrum

From Becker and Posner:

the most sophisticated banks and investment companies, including Merrill Lynch, Citibank, and Morgan Stanley, have written down their housing investments by billions of dollars. No one can reasonably claim that these banks lacked the skills and knowledge to evaluate all the terms of, or the likelihood of repayment, on the subprime and other mortgages that they originated or held as assets.


…it is ironic that only a few years ago, banks were being investigated for “redlining”; that is, for avoiding lending to blacks and other residents of poor neighborhoods. The Fair Housing Act of 1968 prohibits discrimination in lending, and The Community Reinvestment Act of 1977 requires banks to use the same lending criteria in all communities, regardless of the living standards of residents. As a result of the present crisis, however, banks and other lenders are being criticized for equal

In other words, the big bad greedy rich New York banks are railed for not extending easy credit to people with questionable financial credentials, and they are railed even harder when they do extend credit to these same people. Reminds me of how the socialist movement has evolved. In the 19th century, socialists argued in favor of central planning because they accused capitalism of being unable to “deliver the goods” so to speak. Now that this myth has been remarkably trashed, the socialist argument du jour is not that capitalism (sorry for anthorpormorphising this term) cannot supply people with goods and services, rather that it supplies too much of these goods and services, leaving an avaricious society devoid of personal relationships, community and moral sensibility.

What will they argue next?

One Response to “Credit Conundrum”

  1. Katy says:

    The incentives for Wall Street financiers may be a little skewed towards ignoring reality, even when they perceive it. Their compensation structure functions, whether the company profits or loses. Heck, even when the CEOs are fired, they receive huge severance packages; and some just change employers. Lastly, the government and Fed are ready to bail them out if things really get bad, so what’s the carrot motiving them to keep it clean?

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