mach said:
"What does this mean though? The brutal reality is that some portion of any population will at some points in their lives are irresponsible about [anything and everything]."
It means that when those people are irresponsible they should suffer the consequences. I'd rather they learned beforehand but "learning from your mistakes" is a good teacher. Additionally, what's irresponsible to one might be fun to another (ie. skydiving).
mach said:
"Government creates markets"
False. People create markets through their demand. Government can influence markets greatly, but it cannot create or destroy markets; consider the "war on drugs", prohibition, or food.
mach said:
"Government ... sets the ground rules that are supposed to benefit the market as a whole."
Agreed with what was written. You and I probably have a drastically different definition of "ground rules" though. Determining when a lender can charge pre-payment penalties is not a "ground rule" in my opinion. Requiring full disclosure of extra fess or potential penalties is. Most of this bill strikes me as "there ought to be a law" sentiment rather than "will this improve the process" reasoning.
mach said:
"Additionally, the frequency of "bad borrowing" is presumed, if not evidenced, to go up when lenders get aggressive, make it more complicated, and/or intentionally lie, coupled with huge amounts of money injected into the system (foreign investment). We can control all of that, fairly well, and fairly."
1) We can't control all of that, regardless of "well" or "fairly". If we could, why didn't we? Keep in mind that every major player involved on both private and government sides didn't see a problem (despite internal warnings on both sides). You presume here that government regulation is sufficiently forward thinking, yet later on you describe the process as "see where it's weak and shore it up". An examination of government response to this and other crisis' suggests it's reactionary. Again, consider the "war on drugs", drug pushers are aggressive, distribution is overly complicated, sellers intentionally lie about quality, and large amounts of foreign capital are deployed. Are we really controlling all of that, well and fairly?
2) Neither aggressive salesmen, complicated forms, or an abundance of lenders (foreign investment), absolve the "bad borrowing". The borrowers made a mistake. If all of the to-be-banned practices were bad, then the simple solution is become a lender without those practices; not convince someone to write a law with unforeseen consequences.
3) Intentionally lie is already covered under existing contract law and fraud protection. Diligent enforcement of basic "ground rules" is welcome; increasingly specific and detailed restrictions (and the ensuing exceptions) are not.
mach said:
"If your filter is so poor that it lets all the bad stuff through, BY DESIGN, it will fail."
Agreed. Lenders that habitually made bad loans should fail, just like Countrywide and others did. Do you think lenders are in a hurry to offer the same loans again? Do you think anyone is buying up CDOs these days?
mach said:
"It's like desiging a poorly constructed home. A few years of no big storms...works great right? Big storm, everyone dies...not so good. That's why we have building code..."
Partially agree. Doesn't the home buyer have a duty to examine the potential for storm damage? Where do you draw the line between expected and unexpected? Consider Hurricane Katrina versus Category 3 government levees. Why does the building code have to be enforced under penalty, why not establish a "government recommended best practice" and allow people to choose?
mach said:
"If our system only works when we have "all responsible people", and "all responsible businesses", and "all responsible investors", then it is specifically designed to fail."
Our system does not assume all people, businesses or investors are responsible. It does (nominally) assume that irresponsible people, businesses or investors will bear the costs of their irresponsibility.
mach said:
"Limitations on irresponsible business practice is analgous to building code."
Why don't we limit personal irresponsibility? Why not legislate how much people can borrow? Why not enforce by penalty the government recommended daily allowance of calories, vitamins, and minerals? Why not place limits on how much time children can spend unsupervised? Why not place limits on how much a family of a given size and income can spend per month? Afterall, if you believe that people are stupid and will make mistakes we should have "ground rules" that prevent them from being taken advantage of by aggressive pastry salesmen, complicated web-browsers that allow underage access to porn, and the deluge of credit card applications right? Again, I'm all for laws that counter asymmetrical information, but saying "you can't do X, because some people might be too stupid to consider the consequences" seems to be seeking out Moral Hazard.
J