Predatory Dating

Now that he has helped plunge the country into a financial abyss through ObamaCare, Paul Krugman of the NY Times has devoted his attention to strangulating financial markets.   On Wednesday he repeated a common theme of the Left—that we need more protection from “predatory lending.”

This idea of predatory lending is sort of weird, isn’t it?  It means that if I apply for a loan that is over my budget, whoever gives it to me is a predator.  What if we extended this idea to other realms of life?

What about predatory dating? Some people mistakenly assume that Tiger Woods is a sexual predator.  But predatory dating would say that women involved were the predators, since they gave him the sexual services he wanted.  He was just unfortunate enough to be victimized over and over again.  In fact, any woman who accepts a date from a man she shouldn’t be with (even if she doesn’t know he is a creep) is a predator.

Then we could have predatory charity. If I give money to a charitable organization that ends up mismanaging its funds and going under, that makes me a predator, since I gave them the money.

Or how about predatory complements?  If I tell a friend that he is actually a better basketball player than he is to make him feel good and he goes out and gets schooled in the local pickup game, then I am predator.

There are lots of ways I’m probably a predatory consumer.  Any time I let someone make me a sales pitch that I turn down, I’m a predator.  Or if someone offers a bid to do home repair work for me and he doesn’t make sufficient profit, I’m a predator.

Dang.   I used to think if someone making $40K a year buys a $300K house that something funny is going on, that the mortgage company must be defrauding its underwriter or that the applicant must be misrepresenting something important.   Didn’t almost all such people taking out these kinds of loans know, deep down, that something was very fishy and that they were in over their heads?  But, no, getting in over your head just makes you a victim.

Now, this is not to say there hasn’t been serious fraud in this industry—by borrowers, lenders, underwriters, and the financial institutions that securitized these bad loans and foisted them on a market where people were too greedy to carefully assess their risk.

Punishing fraud is good.  But is the role of government to protect the greedy from themselves?

I guess I’ll buy that new Porsche after all.   I’m such a victim.

8 thoughts on “Predatory Dating

  1. Love the new blog. Been perusing the posts, and I guess I’ll comment here. Frankly, I think your post is short-sighted. It assumes, as most economic theories do, perfect information and perfectly rational actors. Predatory lending implies the opposite—there were lenders that were specifically targeting a narrow set of borrowers that didn’t have access to the same information or understand the risks they were committing themselves to. Many of these loans targeted low income communities precisely because those communities were easy marks.

    For example, negative amoritization loans—who in their right mind would agree to such terms? And yet, if economic conditions held according to conditions from 2003’ish to 2006’ish, those loans would have been viable and the borrowers would have been able to even turn a profit by refinancing at the right time. Of course they didn’t and we know the rest of the story. But don’t you think that the financial institutions marketed those loans knowing that it was economically impossible for the loans to pay off for everyone. Of course they did.

    Was it always the case that people were victims—hardly. Is it difficult to peel away those that were truly victims of fraud and those that were trying to game the system—absolutely. I took a huge loss on selling my house and feel like it is unfair to bail out others when I was left to hold the bag myself.

    But phrasing things in generalities—predatory lending can’t be anything other than ridiculous—ignores the harsher complexities of systems that were set up to target specific communities. Ask former Countrywide or WaMu execs which communities were the most profitiable; they knew, as I suspect you and I do, that it was the least educated ones. Is it really all that surprising that first-time home buyers that were teased with easy-to-make initial payments would think that maybe, just maybe, the American dream of owning a home was available to them too? If that person making $40K bought a $300K house with promises that in a year or two, the equity would make up for increased payments, is it that difficult to see them agreeing?

    Finally, I’d suggest a final category you left out: predatory investing. I, like I suspect you did, lost a lot of money out of my retirement funds because of what went on in the market. Should I lick my wounds and say “darnnit, that’s just how the cookie crumbles” as you suggest and look to my own personal responsibility. Maybe. But I have to admit that I’m a little more than miffed looking at how the market was manipulated by those with information that I didn’t have to so take advantage of the rest of us. One need only look as far as today’s announcement regarding the Goldman Sachs SEC investigation to see that we have more than a little justification to feel shorted (pun intended).

    Keep up the blogging. Looking forward to the topics.

    Dave

    1. Can smarter, better-informed people take advantage of dumber, poorly-informed people in market transactions? All the time. I’m sure we could identify thousands of unscrupulous mortgage brokers who take advantage of people who are naive, poorly-educated, and inexperienced. I can understand the logic of calling these lenders predators.

      But I’m extremely wary of characterizing the problems that have occurred in the sub-prime market as primarily due to predatory lending for the following reasons:

      1. In a large number of causes, borrows provided inaccurate or fraudulent information. In my perception, the borrowers and lenders were often jointly complicit (there is some research on that I can’t find at the moment). The same could surely be said of Tiger and has women.

      2. My guess is that a lot predatory activity was simply old-fashioned illegal activity–not disclosing things that have to be disclosed for instance. Fraudulent and otherwise illegal activity should be punished. But that is a matter for state regulators and law enforcement agencies, as well as civil action.

      3. I don’t have “proof” for this, but I still believe, as I said, that deep down almost all borrowers knew these loans were too good to be true. But that jetted tub and those vaulted ceilings in the kitchen were just too much to pass up. This doesn’t mean that the mortgage industry is a paragon of virtue, by any means, only that I don’t see a clear role for government to play here aside from states better enforcing their existing laws.

      4. In general, any “consumer protection” that results from government action will be greatly outweighed by the overall welfare drain on the economy caused by the creation of new or larger government agencies. So in a strict cost-benefit sense, “government protection” almost always seems to cost us more than we get out of it. Indeed, protection from the mob might be a better deal.

  2. complIment not complEment

    ========

    It is called predatory lending not because the lenders were merely enabling the foolish decisions of citizens, but because lenders were assuring citizens that they could service the debt they were incurring. Not in a fraudulent way, but in a predatory way. Every adult understand how to paint a rosy picture, especially if you can make a lot of assumptions about the economy.

    You do understand the financial industry rates loans and that these loans are objectively rated very poorly? Do you seriously believe that loan officers made an honest attempt to convey this risk to the customer, and it was just misunderstood? ignored?! Trot out a chunk of instances where the loan officer was RELUCTANT and the customer was insistent, then you have the beginnings of an argument. (I predict you can’t, because the size of the problem suggests alternate behaviors, doesn’t it?)

    ========

    Do you think any of the porn stars Tiger Woods nailed made the representation that he could weather the storm when he got caught? Or, perhaps that it would be worth it? The analogy breaks down a bit when you understand that nailing porn stars doesn’t imply that they assured you it was a good idea — only that it was a hot idea.

    Final point just to be clear: people don’t go to porn stars for relationship decision advice or life advice because they’re porn stars and there is a stigma that their career might not be everyone’s first choice. Even IF porn stars offered Tiger predatory advice about the benefits of dating, Tiger would have a reasonable impulse to ignore this advice. Can the same be said of financial analysts?

    1. I don’t know any porn stars, but if I did, I would be more willing to take financial advice from her than from your average mortgage broker! Wouldn’t you?

  3. Had one more thought:

    Does the war on drugs fit this analogy? Trying to save foolish citizens from the predatory “pushers”?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s