Predatory borrowing

I have pulled two quotes from comments from a reader that state a view that might not occur to us. They are out of context, but I think might have some discussion value about perspectives. The first appears to stem from some of Greenspan’s ideas in a post on OCC regulation and state regulation. The thought was the risk was not recognized by anyone important enough to sound a real warning.

There are tons of regulation and oversight of the financial industry. There were no warnings, new regs, nothing, zero, zip from them regarding the mortgage crises except deer-in-the-headlights until it was too late. They were as oblivious as the bankers and the homebuyers were.

On the OCC post, an interesting view about responsibility was also stated.

The states’ original beef with subprime was that it was unfair to the consumer or “predatory lending.” Since subprime mortgage providers are almost all bankrupt, it was really the subprime customer that fleeced the mortgage investors.

Implications then are that policies of banks red lining were a spur to de-regulation? Or that predatory borrowers caused the crash?

Rdan here. Many of us have little snippets of thought that are basic to points of view and are not ‘rational’ in long thought out treatises, but gut level reaction sometimes too quick for examination. I myself have to be careful of “authority and abuse of power” situations, private or public.

But then the last comment was lost in the shuffle I believe. The key at least for this blog: The basic perception that markets invariably create optimized results over time was shaken. It was a small statement, and simple, but I came back to it later and was struck how powerful it actually was for the reader.

Markets and trade involves mutual benefit and mutual aid as a fundamental driver of behavior in the big picture of why we trade. Why else would we trade? Personal and cohort gain is part of the story, but so is mutual benefit and aid. This notion is fundamental to society.

If one takes the notion that a market has no morality but somehow is truth, then that market self-destructs. Our notions of fairness probably are quite wide, but I suspect if we let ourselves be involved in the process of markets with a sense of some sort of fairness and mutual benefit, the pie would be more willingly shared. But the first step often is not an economic decision as we define economics today.

Update: Minor edits to syntax and punctuation.