Unfortunately, picking out a villian based on one's political perspective -- as Dana Steven's does in her review and as the filmaker's apparently do -- is the same kind of simplistic thinking that got us into this mess in the first place. Barney Frank (who I admire in most respects) probably has more to do with this crisis than Ronald Reagan does.

Ten and even five years ago, the lawsuits were flying because the banks were accused of not giving enough loans to lower income people. Anyone who argued that home ownership is perhaps not for eveyone would have been shouted down as a racist, classist, or some other -ist.

The financially illiterate slobs who purchased homes they couldn't afford apparently leave Ms. Stevens misty-eyed, and understandably, because losing one's home is a terrible thing (it has happened to friends of mine, and even to my brother, a guy with a wife and three kids). But they were certainly ultimately as culpable as all the other fools in the chain -- the mortgage brokers who let borrowers lie on their application forms, the underwriters who approved the loans because it would be 'someone else's problem', the rating services who giae subprime CDOs"AAA" ratings (especially them), the investment bankers who purchased them...they all assumed that the issue would be 'somebody else's problem'. At the end of the day, though, these problems most fundamentally be focused on a system that allowed people to borrow money they could't repay, and then walk away with impunity. More fundamentally, I am at a loss to understand why someone who borrowed $500,000 they could not afford deserves my pity, while the person they borrowed from, and then stiffed, deserves only contempt. Maybe that sort of attitude is the real problem here.

Maybe if you actually watched the film, you might start to understand.

Watching the film (which hasn't come anywhere near where I live) isn't really the issue. As Dana Stevens' correctly points out, the issue is explaining a complex issue in a manner that can be watched by a mass audience. That is difficult enough, since any book about any financial issue (from Barbarian's at the Gates to the Smartest Guys in the Room) invariably are already simplifications, movies about them usually just go for comic effect -- the real issues are simply too complex to explain. Dana Stevens, and the maker of the film, are pretty certain where the blame should lie, and it is that point I am commenting on.

So, please don't condenscend to someone who probably knows a helluva lot more about this topic than you do. Next time, make a worthwhile comment, please.

*** So, please don't condenscend to someone who probably knows a helluva lot more about this topic than you do. ***

Or imagines he does. It certainly doesn't look that way based on your comments so far.

Nice job rating up your own post, by the way. You're clearly very impressed with yourself. I tossed in a minus just to even things out.

First of all, there are two ways you can deal with an unwanted regulatory mandate. The most common is passive aggressive foot dragging not to comply. The first line subprime lenders, both banks and mortgage brokers, didn't behave that way in 2005-07. Instead, they enthusiastically marketed the product. Why? Because they believed that they could unload the loans on somebody else and wouldn't have to take the consequences.

Second, the people who helped them unload the loans -- the securitizers and the rating agencies -- weren't subject to the Community Reinvestment Act at all. They just saw what they thought was a good thing and jumped on it.

Third, all fools are not equally culpable. There are some whom you don't expect to know any better, and who a decently run government protects from themselves. (Most retail financial advertising in this country is themed to convince these poor and middle class shmucks that they do know what they're doing and should be left free to do it). Then there are are the well educated professionals, who are highly paid to know, but who are mostly interested in finding a greater fool than themselves to hold the bag if it all goes wrong.

At bottom you have more contempt for the stupid than the cunning, which I suspect means that you identify more with the later than the former.

relevant to add to this discussion?

As I tried to explain in my post, I have plenty of sympathy for the people who borrowed money they couldn't pay back, particularly as it has affected family members of mine. My basic analysis of the situation is pretty much the same as yours. The problem with your comment is twofold:

1.) you assume that I have "contempt" for anyone -- I don't -- I simply question why one group of people who screwed up is treated as criminals while another, who are at least as and arguably more culpable, are treated as victims.

2.) you assume that a government should exist to 'protect people from themselves' -- that is EXACTLY what is wrong with the system we have now -- people are forever being protected from the consequences of their own actions. People who made $50,000 a year borrowed $800,000 at interest rates that were initially low but would reset in two years. They simply didn't think that anything could go wrong with that, and that they could sell or refinance under the same terms, because, well, they did it once didn't they? Financial literacy is as important as anyts other type of literacy, and I don't need or want the government to 'protect' me from making a bad investment, thank you. The people who lost money in this credit crunch were the financial people -- the investors -- not the borrowers. People are usually pretty smart, and will generally act in their self interest if they understand that it would hurt them if they borrow more than they can pay back...unfortunately, when you buy a house and lose it, the worse you will end up with is a seven year black mark on your credit record -- so, if anyone is showing contempt for the borrowers, it is you, I think.

Freetrader2:

Watching the film (which hasn't come anywhere near where I live) isn't really the issue. As Dana Stevens' correctly points out, the issue is explaining a complex issue in a manner that can be watched by a mass audience. That is difficult enough, since any book about any financial issue (from Barbarian's at the Gates to the Smartest Guys in the Room) invariably are already simplifications, movies about them usually just go for comic effect -- the real issues are simply too complex to explain. Dana Stevens, and the maker of the film, are pretty certain where the blame should lie, and it is that point I am commenting on.

So, please don't condenscend to someone who probably knows a helluva lot more about this topic than you do. Next time, make a worthwhile comment, please.

You have no idea what I know about this subject, and appealing to your own expertise does not lend validity to anything you say.

A major theme in the film (of which i have seen several large exerpts) is the very notion of complexity you mention. Complexity was used as a screen to confuse people, and in the case of these mortgages the confusion allowed and encouraged loan officers to sign people on to loans that the banks' experts knew would fail. Complexity was also used as a screen to protect the very same people and institutions that perpetrated these frauds from any of the consequences. The foreclosed home buyers themselves, the rest of the world economy that has suffered as a result, and the citizens who have been unwillinglingly drafted into mortgaging their children's future to save bankers' jobs and bonuses had no such protection. Once we understand this, we can see through all the bullshit about "financial instruments" and figure out with certainty where the blame lies.

my response was based on your assertion that if I would just watch the film I would "understand"...by which you apparently meant (if you even read my original post) that I would agree with the politically directed slant of the film makers, or at least Dana's intepretation of it. The issue is not my "understanding" but the fallacy that I will somehow become convinced of some simplistic answer based on viewing some necessarily simplified version of the facts presented on film. No. I stand by my original comment, and my subsequent response to you, which was essentially that I think I understand the facts quite well, thank you, whether or not you do.

The way to protect people from their own incapacity is before the fact, not after, by narrowing their options. Do you think that the ordinary high school educated guy making $50K can be made financially literate enough to exercise the range of mortgage choices that such people were offered?

Of course, that insults the little guy rather than flatters him. But if people were pretty smart, as you think, we wouldn't have regular speculative booms. It is dispiriting enough to see the middle and upper middle classes periodically mulcted by their belief that rising values of something or other that they don't understand will make them rich without work. People farther down the income scale ought not be given the opportunity to engage in the same folly. And for pedagogical purposes, how much worse should the experience be than to lose the house, to lose whatever money you put into it, and to have that fact appear on your credit record?

In Europe, gambling used to be regulated on a class basis. The casinos were for the rich, with access controlled by admission charges and dress requirements. The poor were allowed a sporting flutter on the football pools or the lottery. In our egalitarian country, everyone is not only allowed but encouraged to come to the casino, where you can pretend to live in luxury while you gamble beyond your means.

The investors I have little sympathy for, because they were well paid to have understood what they were doing, and because they have, or should have had, the capital to absorb their losses. For the middlemen, who arranged things so that everyone else bore the losses, I have none.

in everything you have written. Our difference is a matter of philosophy...my view is that within certain limits people should be allowed to do what they want with their money. Your view is that there needs to be some kind of government regulation to 'narrow their options' as you put it. There can't be one right answer, it is a question of individual freedom. I personally don't want a government housing czar to decide for me how much house I can buy. However, we effectively had that when everyone got FHA loans, 20 or so years ago. Then came sub prime, etc., which I have nothing against, since they allowed people new options, but as with all things new, were abused (but only once the credit bubble got going 2003-2006, they did their job fine for a long time).

My last point would be that capitalism will always have bubbles. Bubbles happen when people act 'falsely rationally'; that is, they respond to a signal that seems to be there but isn't (as in: housing prices can only go up, never down, therefore, I don't have to worry about paying back my loan because I can always sell the asset). It is never clear when the government should intervene to pop them, but it is abundantly clear in retrospect that the fed should have acted earlier. If lending had tightened up around 2004, we would have been spared most of the problems of the credit crunch.

So, I agree with the problem that you outline, particularly the problem of 'gambling' by people who presumably can't afford it. I personally am against this type of nanny-state-ism, but I understand that it may be justified on some level. It is, however, unquestionably a reduction of personal freedom.

Which brings me back to my earlier point -- those who overextended on these loans were damaged in short and medium term, but not permanently. Many of these lost hardly any money and have only a damanged credit history to show for their subprime adventure. The people who really lost here are the financial institutions, and to a lesser extent, the taxpayers.

You are assuming that the borrowers had no equity and lost nothing. I don't think that's correct. In proportion to what they had to lose, they lost as much or more than the lenders.

It is interesting that you use the term "nanny state," as if regulation is something just not manly. I prefer paternalism.

Many if not most subprime borrowers had minimal or no down payment, so I do not know how one would determine they have lost proportionally more. Many people would find the use of the word 'paternalism' somewhat condescending, or, er, paternalistic, but at least you call 'em like you see 'em.