155 comments on DrumBeat: August 11, 2007
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155 comments on DrumBeat: August 11, 2007
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Cid,
What struck me when I read this was the expectation the average American has that "government daddy" should protect us and hold us from harm caused by our own stupidity, and if we do get harmed, he should make it right and punish the evil perpetrator".
What happened to the idea that in a free country you are free to make your choices, and if you choose badly, then you are free to suffer the consequences?
You can not have it both ways.
Francois.
Fraud is illegal no matter how stupid your mark is.
Commerce comprises the trading of something of ECONOMIC VALUE such as goods, services, information or money between two or more entities.
For commerce to exist, a reasonable expectation of recieving fair value in the trade is a requisite. Laws against Fraud exist to protect commerce.
Sorry, Cid, but these people took a gamble on greed and lost. That's not fraud. What if interest rates had stayed low? They did in Japan for just about long enough to pay a 20 year mortgage.
Move on, nothing to see, no fraud here. It says 'Adjustable Rate Mortgage' and even has an acronym, ARM, to make it official. You weren't forced to buy dotcom stocks either, any more than the crap for only $19.95 on late night TV. These mortgage 'instruments' were not misrepresented, and anyone not capable or willing to read the fine print should take said fine print to someone who can.
As for institutions, they should know better.
It doesn't matter how 'greedy' you mark is either.
Predatory practices in the marketplace, with the intention of not delivering fair value, but rather to 'fleece' the other party in the transaction, IS fraud and damaging to the marketplace. As I said, Commerce is DEPENDENT on the reasonable expectation of recieving fair value in a transaction. Without Trade, there is only TAKING, by deception or force.
But herein lies another issue. Perhaps those that gambled on greed lost get what they deserve, but here I am, one with good credit and sound finances living in a community where X # of people are now defaulting on loans of various kinds.
My neighborhood will suffer (houses remain empty - property values decline, attract crime; less property taxes are paid - schools and cities become cash-strapped; desperate people start committing random acts of thievery from families that have their houses).
So to say that this will only hurt those that deserve it is naive.
It is a whole societal spirit, the idea of growing value in the free market (how exactly that works people don’t question), poor mathematical education (ARMS should scare low income ppl to death), and a kind of peculiar subservience to ‘experts’ - experts know a ‘good deal’ when they see it and are honest (err..the good deal is for them..), etc. Still, if that is the way the world works, you have to go with the flow...if many are doing the same thing...etc. That is also tied to a feeling of entitlement or immunity, not personal I guess (“The Gvmt. will bail me out”, obviously in the US it will not, see Katrina, or its perception in the public) but to belief that the society works, is fundamentally sane and fair, built on proper principles, laws, regulations, interactions. Its Amerika (or another country, or my powerful bank...), it can’t be bad, or: its OK with me. Say.
It is fraud in a way. Not actionable: contracts signed. After, many others are hit.
The US, contrary to some other countries, does not enact laws or follow principles that might protect the poor or lower middle from screwing themselves over. That is part of its attraction.
In my mind, it is not fraud that can be tried in court. It is piss-poor governance that can be tried at the hands of the populace.
except that the populace was complicit every step of the way. In my mind, the huge decade long run-up in real-estate values corrupted further an industry already accustomed to the nudge and the wink. "We need to have this appraisal come in around..." "what we'd like to see in this home-inspection is..." "what the mortgage company is looking for on your statement of net worth is..." ALL Americans who have gone through process of buying real estate know that process is abetted by an army of smarmy, oily, materialistic operators for whom every regulation has a 'work-around'. 'Creative financing' was just the logical next step for a public intent on keeping the carousel spinning around. A majority of us have benefited from it, willingly or not.
sldulin, I agree that much of the real estate biz is based on getting away with something. I personally know people here in Miami who "bought" several properties no money down and interest only because they never intended to keep the property; they fully intended to turn around and sell it to "the greater fool". They would yack at me about "leverage" and how they could make a ton of money for a few hours work and derided me for saying the situation scared me. Now that they turned out to be the greater fool they are crying "foul"! These "flippers" knew what they were getting into but they let emotion (greed) cloud their reason. They sure as hell had no intention of sharing their easy profit with me, so I sure as hell have no intention of subsidising their loss.
The last time I bought a house, the lender was obligated to provide me with a one page disclosure in plain English, I seem to recall it was called "the HUD disclosure" although my lender was a regular bank. My point is there is already dislosure; people need to read it and heed it.
Who said the famous saw: "You can't cheat an honest man"?
Cid, regarding fraud in a capitalist marketplace: the whole economic system is a con. Selling a plasma TV to anyone on credit this deep into peak oil is a fraud. Selling treasury bonds to pension funds is a fraud. "Hedonic adjustments" and excluding food and energy from the CPI to hold down Soc Sec cost-of-living increases is fraud. Welcome to Earth.
PLAN, PLANt, PLANet
Errol in Miami
Notintodenial,
You focus on the important point. Those that wish to take on a lot of risk in investing should be able to in a free market. Those of us who are uncomfortable with investments in essentially pyramid schemes should have the assurance that if risky investments are proven wrong those people lose their assets. This is a true free market - rewards for risk but also rewards for conservative behavior.
The problem I see now is that those that pushed the envelope on risk want to be protected from the fallout. They want to change the rules in the middle of the game - now that the game is punishing their behavior. They want a safety net to protect their risky behavior. If the market was truly a free market than it would be self correcting - early on- for extreme risk. Only a very few would "beat the odds" in risky investments. The rest would lose money and it would be a warning to others to be very careful in investing.
My gripe is those of us who have been financial prudent - one might say conservative (laughable for someone often labeled a liberal) - will end up paying those who should learn a lesson about over extending ones self. A FREE market should come with consequences proportional to risk exposure.
The large money players socialize the risk associated with their "investments" and privatize the gain. This is the result of money being more important to an officials election than the overall well being of most voters.
The risk is socialized because when loss is incurred the government steps in to help the market with tax dollars. The gain is not shared during times of plenty.
Hedge fund managers have paid a lower percentage of their income in taxes than their secretarys do and when the investment blows up the government uses the secretaries taxes to cover the bet.
All actions that are immoral are not fraud in the eyes of the court. Sometimes actions that are immoral make people more angry than actions that are against the law. I believe that the only time that Jesus lost his temper was when he started throwing the tables of the 'money changers' on the floor of the temple. Just goes to show how little things have changed.
Noizzette -- good points.
Ithink that we live in an economy, not in a society. Someone posted on this recently.
So people make money. We do not sell each other what we need so that we can be happy. We seduce each other into buying things that will make us more money in terms of a system that only measures success in terms of maximized immediate profits.
The whole system is a scam set up to benefit those at the top at the expense of thoise at the bottom.
Why are so many people unhappy in a world where so much money is sloshing around?
Why do we need so many antidepressants and sleeping pills and booze and cocaine and the like?
Why do we "need" so much stuff?
Cid brought up a superb question, and the answers are complex.
The whole economi/political system has become fraudulent in my opinion. It will be very tough to see any kind of integrity restored.
It is hard to give up addictions. But it can be done. No one needs all that stuff, but the market economy needs people to think they need it, and most people have a low threshold for addiction -- so obviously if you want to make the market economy work you addict people. To oil, to war, to horror of body odor, to grease, to sugar, to salt, to (the idea of) sex, etc.
One by one people can give it up if they want to. At critical mass, when there are more straights than addicts, the world will change. No one will have done it.
Francois,
"You cannot have it both ways."
You've set up a false dichotomy. "Free country" does not mean that there is no such thing as fraud.
Perhaps you intend to imply that too many people are not responsible or well-educated enough to make economic choices regarding their own lives.
I agree with that, but also believe that this is exactly the way that we've set things up to work. Our country seems to me to be not so free, and inducements are in place to fatten common folk like sheep for the slaughter.
That is my impression: wage-slavery and debt-slavery is the lot in life for the masses, as long as they are useful in keeping the Military-Industrial Complex going for a bit longer.
My kids in school can stumble around with a variety of topics, but I would think that personal finance and business math courses would be available in high school.
I know high school students who are interested in such topics, but they cannot get such curriculum at all.
One also has to work hard to find curriculum related to energy topics.
Sure, there are some corporatized options out there for science teachers that basically teach students to trust the megacorporations to deal with problems of pollution and resource depletion, but what I've seen is pretty thin and shallow.
Much of the public school curriculum is designed to churn out compliant consumers, not well-informed, critiallly-thinking citizens.
I do know teachers who inject their classes with good stuff. Our high school's chemistry teacher made the students write papers on energy and peak oil just to get them thinking about the real world. The geography teacher also assigned reports on mapping where energy comes from and that sort of thing. But these were individual initiatives from teachers who care enough to go far above and beyond the usual curriculum.
Back to "economic fraud" -- many of the kids graduating from high school or college believe it when the guy in the corporate suit tells them that they can handle the credit card debt or the wretched ARM Mortgage terms: "just refinance it with a different debt instrument later if it seems to get out of hand. Get a new credit card, a different mortgage, and rest assured that you will get a better job in no time at all."
Sheep being fattened for the slaughter -- see what I mean?
I have said for a long time that when we became 'consumers' and stopped being 'citizens' in the eyes of 'our government' that we were in real trouble...and, here we are. When I was in Jr.HS we had a course titled 'civics' that covered some common economic situations that normal people would face in life as well as government structure, voting, enacting and repealing laws, etc. I know that my daughters were not taught 'civics' in HS. One can only guess why our government wants an ill informed citizenry...lol.
You said it better than I did. Totally agree.