[ExI] Was it just greed?

[Stathis Papaioannou]

2009/6/4 Dan <dan_ust at yahoo.com>:
>
> --- On Wed, 6/3/09, Dave Sill <sparge at gmail.com> wrote:
>> On Mon, Jun 1, 2009 at 11:59 AM, Dan
>> <dan_ust at yahoo.com>
>> wrote:
>> >
>> > That said, yes, there are lenders out there -- or
>> were, as a lot of that's drying up now --
>> > who will lend with no money down.  One has to ask,
>> though, why they appeared on
>> > the scene.  What makes them possible in the first
>> place -- as people generally don't
>> > want to make loans to people who can't repay them?
>>
>> Here's an explanation, courtesy of James McMurtry's song
>> "Choctaw Bingo":
>>
>> "Uncle Slayton's got his Texan pride
>> Back in the thickets with his Asian bride
>> He's cut that corner pasture into acre lots
>> He sells 'em owner financed
>> Strictly to them that's got no kind of credit
>> 'Cause he knows they're slackers
>> And they'll miss that payment
>> Then he takes it back"
>
> But in this case, how would anyone make much money off that -- once market interest rates rose and prices fell?  We are seeing a lot of these lenders go out of business, so I don't think "Choctaw Bingo" exactly applies across the board.
>
> Also, that kind of behavior would happen all the time.  One would expect this kind of cheating to be at a, more or less, constant level.  One needs to explain why it was worse recently -- which is why a pure* greed explanation (and this is just a species of that sort of explanation) fails.  This is where Austrian Business Cycle Theory fares much better: it explains specifically why people would take more such risks during the boom.

A new factor was the existence of Credit Default Swaps, by which
financial institutions believed they could insure against losses. It
didn't work out that way.


-- 
Stathis Papaioannou