Vivid Curiosity

‘Predatory lending’ is an ignorant phrase. ((People should study up on capitalism before commenting on it. Please at least read enough of Adam Smith to get to ‘the benefice of the butcher’ before you talk about the free market)) It is used with much anger and resentment, and while it is seductively gratifying, it leads us to a woefully incorrect and incomplete conclusion. It crosses the line from being a useful and explanatory metaphor to merely finger pointing. 

Now I have no problem with issuing fault to subprime lenders. I hope they all lose their jobs, learn a tough lesson and change careers. Perhaps there are some instances where caning wouldn’t be a cruel and unusual punishment. 

But the idea that buyers were coerced into a subprime mortgage is repulsive. The economist in me wants to shake people into realization of what they’ve just suggested. (Ironically the ecnomist in me seems rather impulsive.) But the point is, transactions in our free market economy are voluntary. Correct me if I’m wrong, but no one was forced to sign a subprime loan. Lenders weren’t hunting down home buyers and forcing them to sign at spear point. There weren’t mafia-like threats against family or loved ones. Barring something like the aforementioned, there were two bad decisions each subprime loans gone south. One to lend and the other to accept. It is a price we pay in a free market. People are given choice and that includes bad choices. 

Predatory lending is a seductive term to use, but by merely using it, we are proposing an incorrect and incomplete solution. The solution to predatory lending is fair lending, that somehow if only lending practices were fixed that would be the end of the issue. The most natural solution is a set of lending regulations. A solution, however, that would only address some of our symptoms, it may even prevent numerous future bad loans. But, it would ignore what I consider to be a major underlying problem. 

Americans have become too casual with their mortgages.

A house, for the vast majority, is the single most expensive purchase in their lifetime, and takes a good portion of their lifetime to pay off. I fear many over the past decade took that decision too lightly. They assumed too strongly that home prices would continue to inflate, and believed refinancing would be easy and obvious. I believe mortgage is a serious and somber decision. The whole pop culture idea of “well it’s time to take out a second mortgage” has always bothered me.

That casual attitude is at least half of the issue of the mortgage crisis. I understand that refinancing is complex, that mortgages involve a lot of numbers, interest rates, paperwork and other headaches. But that is scarcely an excuse. If buyers are unwilling to crunch some numbers, ask (and possibly re-ask) questions and pose a few what-if questions, they I submit they are not ready to buy a house. If we can’t do this for the most expensive purchase of our lives, are we just going to fly blind on everything else as well? 

On Friday night I was in my car, on my way to a friend’s party. Yes I have NPR as one of my six preset stations, and yes I decided I should start off my Friday evening with some NPR in a pre-party of sorts. 

I happened to tune into two guys talking about corporate culture and management styles. They were discussing the ‘knowledge worker’ and how management styles have fundamentally shifted over the past decades and how we are in the midsts of one of those shifts. 

In particular they discussed how geography still matters greatly in our very much globalized economy. How places like the Bay Area, Boston, London, etc are hubs of economic activity and culture. I think it’s a very good point, these hubs work because of their concentration of educational institutions, infrastructure, companies/organizations and cultures. It is an ecosystem that produces smart, skilled and hardworking people that add value not only to each other’s lives, but to the rest of the world. I think it’s something I sometimes take for granted. Too often I forget how much of our lives and our opportunities are shaped by the surroundings we place ourselves in.

However, during one of their (what I think was rather naive) stories about how ‘Google gets it right,’ they looked at where Google employees lived in both the Mountain View (Silicon Valley) office and New York office. They found that most of Google’s employees live in urban areas, places like San Francisco or Brooklyn. They took this as proof that urban areas are key factors in fostering the proper atmosphere for companies like Google. And that is just a terrible statement.

There is a correlation yes, but I really don’t think that the causation works that way. I believe Google employees are urbanites not because of anything to do with a new economic paradigm. I believe it works out that way because Google hires very young, and young people tend to be urbanites. That’s it. 

I bet if we looked at how many people became urbanites after being hired at Google would further prove my point. I think we would find that young people from all over go move to urban areas because their job allows it and not that urban areas produce the lion’s share of new aged super-employees.

I tried to tell this to the guy on the radio, but sadly he couldn’t hear me repeating ‘correlation doesn’t equal causation’ over and over again in my car. How can this be one of the more ‘intellectual’ sources of information in our day and age? *sigh*

Good night and good luck to all those starting school tomorrow. Please be smarter than the radio guy.