A Reasonable Evil-Doer Versus an Unreasonable Good Person

Now let’s forget about 2007 for the moment and look at what’s happening today.

What are the banks that are still handing out zero-downpayment loans thinking? That no matter what happens, they will be bailed out on the public dime and get huge bonuses as a result. And they are right because that’s exactly what happened in 2008 and what will happen again. It’s extremely cynical, totally disgusting and just vile on their part. But it’s reasonable in the sense that they know they’ll make out like bandits and suffer no consequences. They are bad people but they are reasonable.

Now can anybody explain to me what those folks who keep taking out those mortgages right now are thinking? There has got to be some reasoning going on. They’ve been around for the past few years, have watched TV, probably even seen a couple of newspaper reports. So how do they justify this to themselves? They have got to know that nobody will bail them out, that if they sink nobody will care, that no politician will care about them and champion their interests. I’m sure they are all good people but what they are doing is not reasonable. And this complete lack of reason terrifies me a lot more than any purposeful badness.

When you are dealing with horrible people who are still being guided by reason, you can at least figure out what reasonable principles guide them and adjust your behavior to minimize being damaged by them. But people whose logic I cannot grasp scare me even if their intentions are good, kind and wonderful.

13 thoughts on “A Reasonable Evil-Doer Versus an Unreasonable Good Person

  1. Many households that purchased homes in and early noughties did so without putting down any deposit. They hoped to make out on rising house prices, selling at a profit before their inability to finance the mortgage caught up with them. The bursting bubble frustrated that expectation. But if you have put nothing down and then are removed you lose nothing – if you do not care about self-respect. Bad credit is no obstacle to future borrowing in the US if you do not care about who you borrow from or at what price, Because you have no intention of ever paying up.

    Now that the cycle is about to repeat itself, one would think that few households expect rising house prices to float all ships. That is the puzzle. But it is not as difficult to understand as the one that you worry about. Nothing in. Nothing out. No problem! In the meantime we squat in a nice environment, rent free!

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  2. What are the banks that are still handing out zero-downpayment loans thinking?

    Most banks in America bundle their loans into CDOs and sell them to investors around the world so after they take their up front service fees and transfer fees the banks are out of the game and don’t have to worry whether the borrowers can pay. I think most people in the states still haven’t accepted that the world has changed, think the current situation is a momentary bump and believe happy days will be here again soon. Optimism and risk taking are American traits which have been around for a long time and aren’t going anywhere soon.

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  3. Bertrand Russell delivered a speech entitled “What Desires Are Politically Important?” when in 1950 he accepted a Nobel Prize for literature. It concluded as follows:

    I do not wish to seem to end upon a note of cynicism. I do not deny that there are better things than selfishness, and that some people achieve these things. I maintain, however, on the one hand, that there are few occasions upon which large bodies of men, such as politics is concerned with, can rise above selfishness, while, on the other hand, there are a very great many circumstances in which populations will fall below selfishness, if selfishness is interpreted as enlightened self-interest.

    And among those occasions on which people fall below self-interest are most of the occasions on which they are convinced that they are acting from idealistic motives. Much that passes as idealism is disguised hatred or disguised love of power. When you see large masses of men swayed by what appear to be noble motives, it is as well to look below the surface and ask yourself what it is that makes these motives effective. It is partly because it is so easy to be taken in by a facade of nobility that a psychological inquiry, such as I have been attempting, is worth making. I would say, in conclusion, that if what I have said is right, the main thing needed to make the world happy is intelligence. And this, after all, is an optimistic conclusion, because intelligence is a thing that can be fostered by known methods of education.

    It strikes me that the banks may well be acting in their enlightened self interest. Wouldn’t it be great if their clients and potential clients were to do so as well? Reference to a simple amortization table, coupled with a bit of arithmetic taught in elementary school, might well suffice.

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  4. I don’t understand what’s wrong with zero down. I put down zero on a house in 1998, took out mortgage for $71K, payment was $423 or something then, i.e. noticeably less than I could have rented for; refinanced later to still lower interest and shorter term, am almost done now and when I am will live rent free. Meanwhile it’s been costing about the same as renting, considering that there is also maintenance. How a deposit would have made a difference except in terms of paying it off slightly sooner, I don’t really understand.

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  5. Actually, I think there are quite a few people who don’t follow the news enough to know about the housing crisis and all that. Many of them really probably don’t know all the facts.

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  6. I am presently reading a book called “The Creature from Jeckyll Island”, talk about an eye opener in regards to the banks. Shocking for sure, surprising, not so much.

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  7. Its funny because there are people out there who call the author(Edward Griffin) a conspiracy nut. The more I read though and he has lots of bibliography notes, the more I get the feeling the guy knows what he is talking about. Though it is not information that most people would want to know. So far I am completely intrigued and very entertained by the information present. I would recommend it……….

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  8. Had it not been for a 0 down payment loan, I’d have never been able to buy my first house. I’d just finished nursing school and was moving to another city where I’d have family close by to help with the kids. Wherever we moved in, we’d be staying in that school district because my poor kids had already been moved around too much. I wanted to buy instead of rent, and I’d be making double my old salary.

    No brainer for the bank, no brainer for me. I was a good risk, got a great house at a great price and a mortgage payment I could well afford. Sold it after the kids graduated high school, for enough for a down payment on a much smaller house close to my job. If we’d started out renting, though, we’d have stayed in a rental until the kids graduated high school. And when I bought, at least in the area we bought in, the cost to rent was slightly higher than a mortgage payment.

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  9. I once heard economics prof. mention the Greek Culture of not paying taxes, not because they are worse people than citizens of tax paying countries or criminals, but… culture. How and why it developed is another interesting question, of course.

    I guess, US has a culture of Being in (perpetual) Debt, for many reasons. Not all of them the fault of citizens only, imo. F.e.
    From this post:
    http://fabiusmaximus.wordpress.com/2012/01/14/32799/#comments
    There are links to articles, like (bold mine)

    1.“Student loans outstanding will exceed $1 trillion this year“, USA Today, 25 October 2011 — “The amount of student loans taken out last year crossed the $100 billion mark for the first time. Americans now owe more on student loans than on credit cards.”

    2.“A Dysfunctional Education System That Bankrupts A Generation“, Wolf Richter, The Testosterone Pit, 26 October 2011

    Why does education cost significantly less in Israel? Surely, government could do something about it?

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    1. Do you have a tradition of paying millions of dollars in salaries to football team coaches on campus? Where do you think that money comes from? Canning this huge drain on college resources would already be of enormous help.

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