Oh, fun interactive tool in the New York Times today. Subprime mortgage percentages by census tract. It also gives whiteness -- apparently Darien, CT, is 6 % - 8 % non-white, which is a different town than I grew up in.
I'm not super-clear about the focus on sub-prime. Isn't it the interest-only loans that create the huge default rate? Maybe they were securitized together, but the problem wasn't pricing risk properly, it was tricking poor people into taking on the poor investment decisions of wealthier people. Maybe interest-only loans were largely subprime -- and liar loans, which are also a problem, definitely were -- but I fear that if we start talking about the housing bubble collapse as coming from a problem in the subprime markets, the solution will be to stop extending credit to the poor, which will reinforce economic stratification.
Also in the Times today, another Krugman cultural reference, now to an FDR quote (from his second inaugural address,) which I wanted to capture as I thought it was cool: “We have always known that heedless self-interest was bad morals. We know now that it is bad economics.”
Monday, October 15, 2007
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Lending sometimes seems to fall into this moral gray world. Even quite educated people seem to have low numeracy when it comes to interest rates. So lenders can be totally upfront yet still prey - immorally it would seem - on other's ignorance. And in a way with quite dramatic consequences.
Unfortunately, the ultimate payback probably doesn't fall on the CEO's that orchestrate these systems, but rather the middle-class employees, who end up getting laid off.
Is there a way of maintaining the integrity of the capitalist system while constraining lender's ability to coerce people into doing things that are really not a good idea?
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