Bullshit Billionaires, Market Bubbles, Bankrupting Business and the Middle & Working Class. Central Banks wholesale, economy-wide manipulations of market and debt have destroyed real value.
Thanks Dougald, it's a good topic and I enjoyed your article. A question that came to me as I read it was about individual responsibility. If the central banks and thus the retail bankers lower rates, yes I can afford to take on more debt, but that doesn't make it a right decision. I can choose to stay in my current house and pay off my mortgage sooner.
I'm not here to crap on people, we are all just trying to improve our situations, but I do sometimes wonder that we as individuals have to also make good choices, even when we are being incentivized by bank rates. Better education on financial decision making would help, and so would some leadership from our elected officials to give more messages around not extending oneself financially at every opportunity.
None of that speaks to the reckless bailouts of banks, which I've never really totally understood why there were bailouts and not more loans, or why governments or the public didn't get more equity in exchange for the bailouts.
I listen to the Capitalisnt podcast and their intro always plays the sound bite from Bernie about socialism for the rich and rugged individualism for the poor, and every time I hear it, I think, damn, that's right.
Of course, you want people to be responsible, the issue is whether people treat this as a moral lesson to be learned, where people are basically saying that borrowers should be punished for bad decisions, but that lenders should not be; or, there is a concern that people are being treated better or are not having to follow rules that apply to the rest of us.
It's always blamed on financial literacy - but the presumption is it's the borrower who has done something wrong, when the real expert in financial literacy - the bank - has no problem extending credit. In bars where I live, there's a rule against overserving people.
The issue is that when central banks change interest rates, it changes the risk and lending profile for the entire economy, and drives up prices of housing, which is a necessity of life. Lenders have set themselves up as gatekeepers you have to go through in order to get access to a roof over your head, or a degree so you can get a good job, and so on.
One of the reasons people had less debt in the past is because there was much stricter legislation and regulations on lenders about credit, interest, fees, and mortgage sizes based on income.
The other is that we are all being told that "a house is an investment" when houses are not productive investments. They're not a business that keeps making money. They are non-productive assets, and individual borrow hundreds of thousands of dollars to pay for them. The investment is not the house: the mortgage is.
That loan is an investment by the bank. The borrower is the investment, and even though they used the money to buy a house that does not generate ongoing revenue, they need to find the money to pay back the loan, which with interest requires paying back twice what was loaned in the first place.
But at least since 1987, when these deals started going wrong, it is the investor who made the bad bet in the first place - the lender - who gets bailed out.
If people suddenly can't pay their mortgages, the central bank will step in and give money to the investor and take the mortgages off their hands (so-called toxic assets) while the borrower gets nothing and loses their house, and this happens millions of times over.
The question of personal responsibility and accountability is correct, however it is never applied to reckless lenders.
Finally, a lot of debt now is used to cover necessities of life, including medication, shelter and food. That is true for a lot of seniors for example. The idea that borrowers have to face the consequences of their actions doesn't engage either with predatory lending practices, or the fact that the consequences can be life-destroying, and can't be recovered from. It's considered misfortune or falling on hard times, when they are policy decisions.
Thanks Dougald, it's a good topic and I enjoyed your article. A question that came to me as I read it was about individual responsibility. If the central banks and thus the retail bankers lower rates, yes I can afford to take on more debt, but that doesn't make it a right decision. I can choose to stay in my current house and pay off my mortgage sooner.
I'm not here to crap on people, we are all just trying to improve our situations, but I do sometimes wonder that we as individuals have to also make good choices, even when we are being incentivized by bank rates. Better education on financial decision making would help, and so would some leadership from our elected officials to give more messages around not extending oneself financially at every opportunity.
None of that speaks to the reckless bailouts of banks, which I've never really totally understood why there were bailouts and not more loans, or why governments or the public didn't get more equity in exchange for the bailouts.
I listen to the Capitalisnt podcast and their intro always plays the sound bite from Bernie about socialism for the rich and rugged individualism for the poor, and every time I hear it, I think, damn, that's right.
Of course, you want people to be responsible, the issue is whether people treat this as a moral lesson to be learned, where people are basically saying that borrowers should be punished for bad decisions, but that lenders should not be; or, there is a concern that people are being treated better or are not having to follow rules that apply to the rest of us.
It's always blamed on financial literacy - but the presumption is it's the borrower who has done something wrong, when the real expert in financial literacy - the bank - has no problem extending credit. In bars where I live, there's a rule against overserving people.
The issue is that when central banks change interest rates, it changes the risk and lending profile for the entire economy, and drives up prices of housing, which is a necessity of life. Lenders have set themselves up as gatekeepers you have to go through in order to get access to a roof over your head, or a degree so you can get a good job, and so on.
One of the reasons people had less debt in the past is because there was much stricter legislation and regulations on lenders about credit, interest, fees, and mortgage sizes based on income.
The other is that we are all being told that "a house is an investment" when houses are not productive investments. They're not a business that keeps making money. They are non-productive assets, and individual borrow hundreds of thousands of dollars to pay for them. The investment is not the house: the mortgage is.
That loan is an investment by the bank. The borrower is the investment, and even though they used the money to buy a house that does not generate ongoing revenue, they need to find the money to pay back the loan, which with interest requires paying back twice what was loaned in the first place.
But at least since 1987, when these deals started going wrong, it is the investor who made the bad bet in the first place - the lender - who gets bailed out.
If people suddenly can't pay their mortgages, the central bank will step in and give money to the investor and take the mortgages off their hands (so-called toxic assets) while the borrower gets nothing and loses their house, and this happens millions of times over.
The question of personal responsibility and accountability is correct, however it is never applied to reckless lenders.
Finally, a lot of debt now is used to cover necessities of life, including medication, shelter and food. That is true for a lot of seniors for example. The idea that borrowers have to face the consequences of their actions doesn't engage either with predatory lending practices, or the fact that the consequences can be life-destroying, and can't be recovered from. It's considered misfortune or falling on hard times, when they are policy decisions.
Excellent explainer article! Great reference to Heather Cox Richardson as well, adding relatable context. I'm strongly recommending this read to many.
Thank you.