This American Life: Bad Bank

Want to understand the whole banking crisis thing? Go listen to the most recent episode of This American Life:

The collapse of the banking system explained, in just 59 minutes. Our crack economics team—the guys who explained the mortgage crisis, Alex Blumberg and NPR’s Adam Davidson—are back to help all of us understand the news. For instance, when we talk about an insolvent bank, what does it actually mean, and why are we giving hundreds of billions of dollars to rich bankers who screwed up their own businesses? Also, two guys go to New Jersey to look at a toxic asset.

I’m far from being an economist, but this put it all into perspective for me. It also brought home just how fucked we are. This is going to hurt regardless of how it’s handled the only question will be how much will it hurt and that depends on how it’s handled. The idea that we, as taxpayers, will see the government recoup the money they’ve given the banks is probably a bit of false hope given out to make the bailouts more palatable. We’re going to end up paying either way.

The surprising bit is the fact that Americans, as a whole, are at least partially responsible for the mess. Sure the banks shouldn’t have been handing out some of the loans they have, but the truth is most of us have been living beyond our means for a long time now. Which is particularly frustrating to someone like myself who has been doing his best to live within his means for years and is still going to get hurt by the financial melt down.

6 thoughts on “This American Life: Bad Bank

  1. I’d have to disagree with you on that one.  You don’t blame the victim of scam artists for the problem of scam artists, even though it would be much better if people were more aware of the world around them.  What you do is you make the right information available to them and you prosecute the scam artists you can find.

    For the same reason, I don’t blame everyone who was handed a sub-prime mortgage that they couldn’t pay for.  It’s not my job as a private citizen to understand the pitfalls of irresponsible mortgages.  That’s why economists and financial advisers go to expensive schools to learn that stuff and advise us.  It is quite possible that if the shaky loans hadn’t been made, we wouldn’t be in the fix we’re in.  When a loan officer (someone who should know better) advises their client that they can afford something that he knows they can’t, it’s the loan officers fault, NOT the client.  End of story.

    By the same token the REASON the public is living beyond it’s means is because our culture demands it.  I tried once going an entire month without using a credit card.  Give it a try sometime.  We’ve managed to train a whole generation to not only act silly, but to not notice.  So it’s our fault collectively for creating this culture, but it’s definitely NOT the fault of all those people who took those bad loans.  It is the fault of the loan officers for telling them it wouldn’t be a problem when they KNEW otherwise.

  2. Swordsbane writes…

    You don’t blame the victim of scam artists for the problem of scam artists, even though it would be much better if people were more aware of the world around them.  What you do is you make the right information available to them and you prosecute the scam artists you can find.

    Scam artist implies there was something illegal about what was done and that’s not the case. The mortgages, stupid as they were, were perfectly legal.

    For the same reason, I don’t blame everyone who was handed a sub-prime mortgage that they couldn’t pay for.  It’s not my job as a private citizen to understand the pitfalls of irresponsible mortgages.

    I disagree. You may as well say that it’s not your responsibility to ensure you know how to properly handle a gun before the gun shop sells one to you so it’s not your fault if you accidentally killed someone with it.

    By the same token the REASON the public is living beyond it’s means is because our culture demands it.

    If the culture demanded you jump off a cliff, would you do it? Stop being a sheep and use your brain.

    I tried once going an entire month without using a credit card.  Give it a try sometime.

    Give it a try sometime? I live that life every day. I don’t have a single credit card in my name at the moment. Nor does my wife. We’ve been without credit cards since at least 2000, almost a decade. We do use debit cards which can act like credit cards in terms of being used for online or POS purchases, but if the money isn’t in the account then they don’t work. It requires keeping track of what we’ve spent and how much we’ve got left, which is why I spend half the day agonizing over whether to buy a cheap digital camcorder to dick around with.

    We’ve managed to train a whole generation to not only act silly, but to not notice.  So it’s our fault collectively for creating this culture, but it’s definitely NOT the fault of all those people who took those bad loans.  It is the fault of the loan officers for telling them it wouldn’t be a problem when they KNEW otherwise.

    Yes I’m sure that all of those people who took those loans were completely upstanding and forthright and didn’t fudge any numbers in order to increase their odds of landing the loan. Not a one of them is responsible for knowing better and taking it anyway. It was all the fault of those evil bankers.

    I’m sorry, but I don’t buy that. Ignorance isn’t a valid excuse. If you don’t understand what you’re getting into then perhaps you should be responsible enough not to get into it in the first place.

  3. Scam artist implies there was something illegal about what was done and that’s not the case. The mortgages, stupid as they were, were perfectly legal.

    The definition of a scam is: “a fraudulent or deceptive act or operation”  Sub-prime mortgages certainly qualify.  Maybe they’re not fraud, but they certainly were deceptive.

    I disagree. You may as well say that it’s not your responsibility to ensure you know how to properly handle a gun before the gun shop sells one to you so it’s not your fault if you accidentally killed someone with it.

    Killing someone is obvious and already illegal, so naturally, if a gun-shop owner advised you to do something obviously dangerous, you would be expected to know better.  But if a gun-shop owner advised you that something that was legal but unwise was just fine, you would probably believe him if there was no reason not to, and a bad loan isn’t going to kill anyone and even if you screw up royally, it isn’t supposed to hurt anyone but you.  As it turned out, they were extremely harmful to quite a few people other than the one’s who took them.  Should the borrowers have known that this would happen too?

    Give it a try sometime? I live that life every day. I don’t have a single credit card in my name at the moment. Nor does my wife. We’ve been without credit cards since at least 2000, almost a decade. We do use debit cards which can act like credit cards in terms of being used for online or POS purchases, but if the money isn’t in the account then they don’t work. It requires keeping track of what we’ve spent and how much we’ve got left, which is why I spend half the day agonizing over whether to buy a cheap digital camcorder to dick around with.

    Congratulations.  You are part of a small segment of the population.  I’m part of a larger segment of the population but still not the majority.  I have one credit card.  The national average is seven.  It has achieved the level of brainwashing to have made that so widely accepted in the mind of the public.  Faced with that, how can we possibly expect the average person to understand the danger of sub-prime mortgages?

    Yes I’m sure that all of those people who took those loans were completely upstanding and forthright and didn’t fudge any numbers in order to increase their odds of landing the loan. Not a one of them is responsible for knowing better and taking it anyway. It was all the fault of those evil bankers.

    Of course they try to fudge the numbers, lie a little about their financial state or misrepresent things, but the bottom line is that they don’t know enough to know how far to go.  The mortgage house SHOULD know, not only for the benefit of their client, but as we’ve seen, also for the benefit of the company they work for.  As I said.  It’s their job to know.  if they go along with it, then they are a lot more responsible than the client they just worked so hard to convince they were right.  And anyway, all that fudging and misrepresentation happens with most loans and mortgages, but it was the sub-primes that blew up.

    I’m sorry, but I don’t buy that. Ignorance isn’t a valid excuse. If you don’t understand what you’re getting into then perhaps you should be responsible enough not to get into it in the first place.

    Willful ignorance isn’t a valid excuse.  Simple ignorance is.  It’s okay to make a mistake once.  It should be forgiven.  The loan companies made it twice.  They convinced themselves it was okay and THEN they convinced their clients.

  4. Umm, why are there “loan managers?” Are they supposed to be professional and represent both the bank and the borrower to see that loans are responsible? Why would you need an officer of the bank to turn down a ridiculous loan request? When the government requires lenders to accept loans they would not have accepted previously because the borrowers could not afford the loan, and then insures the loan with funds from Freddie and Fanny, your business would be stupid to not make hay while the sun shines. I find Dodd and Franks carry a major share of the guilt for this situation.  angry

  5. Yes, that Show and the one from the Fall about what caused the whole Sub-Prime problem to begin with should be on an endless loop on one of the useless cable news channels.

    Have you listened to the Planet Money podcasts from the same guys?  Good stuff there too.

    Leguru:  Very little of the financial melt down has anything to do with Fannie and Freddie since most of the stupid was going on *before* Freddie and Fannies rules were changed.  Stop listening to the cable news channels, they do not actually provide news.

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