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Can Housing and Credit be "Nudged" Back to Health?
Did human frailty cause this crisis? Several thinkers have come forward with a suggestion for improvements to fiscal policy that are based on fostering better decisions while preserving consumer choice, says HBS professor Jim Heskett. What should be done? What do you think? (Online forum now closed. Next forum begins January 7.)
Summing Up
The current global recession has, judging from responses to this month's column, many origins, among them housing and credit. All, of course, are traceable to human responses to both perceived opportunities and calamities, which in turn have been engineered by other humans. Given this, one might conclude that efforts to influence human decisions through "nudging" might be effective. However, respondents were far from unanimous in drawing this conclusion.
Adnan Younis Lodhi initiated the debate by saying "... the suggestion to limit 'temptation' (through "nudging" strategies—my insert) is an insult to individuals' intellect and tempering with human nature.... Only pain is the best teacher." Others agreed. Charlie Cullinane admonished, "Let the 'invisible hand' do what it does best!" Sondra Jacobson said, "No one knows what is best for another ... we have no choice but to let things be as they will, no matter how ludicrous and painful, until the understanding becomes knowledge." Tom Dolembo put it this way: "Nudge this back? Never ... As dumb as we are, we the people have learned that we can refuse to buy and prices will fall." P. Maxson asked, "Who gets to decide what the 'right' choices are?"
Ironically, some who questioned "nudge" strategies favored other perhaps more draconian solutions. Tony Evans said, "Generally, I like to see freedom for the individual to act...(but) regulation should be there.... Keeping 'excess' in check is an appropriate response by a civilized society." As Edware Hare put it, "Forget 'nudging.' We need to replace self-indulgence with self-restraint ... better education about economics and capitalism, harsher penalties for charlatans and thieves ...." Cole Woodson added, "The hope of nudging the economy in any direction is hoping for a miracle.... No securities of any type should even be allowed to be sold in the marketplace without government approval and some form of oversight." And Rahal Jayawardene commented, "... we need a carefully crafted, long term 'Social Engineering' campaign to transform the common mindset of people to foster a culture of thrift and prudence...."
Others favored and suggested nudges. Peter Ubel argued that "We human beings are imperfect decision-makers.... We are often harmed by our own worst instincts." Dan Wallace proposed: "I like 'nudge' solutions, and one approach here might be to provide a 100 percent mortgage interest deduction for people who put 20 percent down on a home, and ratchet the deduction down for people whose down payment is smaller." John Homan suggested, "... that the Federal Government give a 10 percent tax credit to the purchaser of a house and the purchaser pay it back ... over 20 years in equal installments with no interest."
Education in general as well as efforts to encourage simplicity and investor understanding seemed to go relatively unscathed in the discussion. But this suggests questions of: Just what kind of education? Who should be responsible for providing it? And what assurances would we have that investors and others would use it to their own best advantage as well as that of society? Would a "nudge" help here? What do you think?
Original Article
Books with one-word titles are in fashion these days. Two current ones, Nudge and Enough, help us understand the roots of the current housing and credit crises as well as possible ways of avoiding them in the future. The first of these books, by Richard Thaler and Cass Sunstein, maintains that too much economic theory, formed by "Econs," is based on the behavior of homo economicus (economic man, someone with the knowledge and inclination to optimize solutions in his best interest, no matter how complex the choices) and too little on the actual behavior of mere humans, which is beset by "bounded rationality" (limits on the complexity we can deal with) as well as our limited self-control (inability to resist "temptation").
They advocate the use of "choice architecture" by businesses or governments to influence choices in ways that encourage choosers to make decisions in their best interest. They call it "libertarian paternalism." This involves utilizing "nudges" such as the wording of choices in ways that influence individual actions, designing default choices (in the absence of action) that do not penalize individuals, limiting choices to those that are more comprehensible, taxing detrimental choices, and providing full disclosure to better inform decision-makers. In short, the goal is to foster better decisions (paternalism) while preserving choice (libertarianism). Think of parents fashioning choices for children in ways that lead to acceptable choices instead of commanding them to do something.
Contrast this with what happened in the related housing and credit meltdowns. Borrowers were confronted with a growing myriad of mortgage options with provisions that made them difficult to compare, even for economic man, let alone for average consumers who may also have had too little self-control in their desire for a home and a mortgage. The resulting mortgages were then packaged in ways that John Bogle, in his new book, Enough, characterizes as creating "a modern version of alchemy," turning packages of poorly-rated mortgages into triple-A-rated collateral debt obligations, complete with supposed insurance against risk. The problem was that even financial experts couldn't understand their value or their risk, further impeding the intelligent choice so important to effectively functioning markets. Worse yet, the financial products were created by financial engineers motivated to make them complex and therefore harder to understand.
What is to be done? According to Thaler and Sunstein, it starts with recognizing that while "greed and corruption helped create the crisis, ... simple human frailty played a vital role." They suggest providing incentives to make financial products easier, not more difficult, to understand. This would involve, among other things, more disclosure about the real costs and risks of a loan. Further, they suggest in a recent Financial Times op-ed that "government and the market should try to deal with temptation" (our limited self-control) by, for example, requiring that families accumulate some savings or be willing to shorten the term of the loan in order to qualify for refinancing. These recommendations fall at the intersection of financial and social engineering. They raise the question of whether housing and credit can be "nudged" back to health in this manner or whether there is some better approach. What do you think?
To read more:
John C. Bogle, Enough: True Measures of Money, Business and Life (New York: John Wiley & Sons, Inc., 2009)
Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness (New Haven: Yale University Press, 2008)
Richard Thaler and Cass Sunstein, "Human frailty caused this crisis," Financial Times, November 12, 2008, p. 11
- Adnan Younis Lodhi
- Section Officer, Ministry of Commerce, Pakistan
No one can disagree that greed and corruption are responsible for housing and credit crisis but we must also acknowledge that it is human greed that is the driving force behind innovation and economic growth. The fundamental assumption of social/economic engineering is flawed: it rest its entire argument on the presence of a benevolent, super intelligent, all knowing force (Government or Business Organization). The history of our societies has repeatedly showed of the absence of any such force.
The suggestion to provide incentives to make financial products easier is worth following. It represents a case of hidden or withheld information that could lead to bad decision making on part of investors. Regulations in the direction of making financial transactions crystal clear is the job of the government agencies where everyone clearly understand the risk involved in it.
But the suggestion to limit "temptation" is an insult to individuals intellect and tempering with human nature. Let us understand and accept that individuals are going to make economic mistakes that will harm their fortune. The response to this should not be to manage individuals or their actions. They will learn from the mistakes after pain and society will be better off in the long run. The moral hazard applies to individuals and corporations alike.
In my opinion, let housing and credit crisis takes its natural time. The bailouts may be a necessary evil but one must understand that each bailout is an incentive for next recklessness. Only pain is the best teacher.
- Sameer Kamat
In economic analyses, predictable parameters that revolve around logic and rationale are easier to deal with and analyze as opposed to those that involve a significant amount of subjectivity such as emotion and sentiment.
Apart from the housing and credit crises, we might be able to relate the application of Thaler/Sunstein's views directly to another area that we are all much more familiar with, capital markets, where all investors at least in theory are aware of the best practices - buy-low-sell-high, greed is bad, exercise caution in over-heated markets, buy (rather than sell) in a bear market when the valuations are attractive. But many of us have been guilty of discarding these principles, especially in extreme scenarios (self-fulfilling prophecies) created and fuelled by our collective intelligence that ironically mocks the very foundations that inspired those best-practices.
Considering the parallels between the two (i.e. capital markets and housing markets), it might help to understand how the concepts of "choice architecture" and "libertarian paternalism", which incidentally have been in use by organizations and governments for a long time, have helped influence such situations. In a stock market crash, when regulators say 'Keep the faith' while 80% of the analysts are screaming 'Sell now', what do you do?
During financial crises, banks and financial institutions often announce that they have enough cash reserves to avoid a liquidity crunch. However, in a situation where the general public sentiment is so overwhelmingly biased against the system, neither nudging nor pushing can make a real impact.
There's plenty for us to learn from history. A few elements that could make a difference in the housing and credit crises: timing, aligned interests across the board and one common master plan for coordinated nudging.
- Charlie Cullinane
It may seem a very simple way of looking at this crisis but I believe that the best way to handle mortgages is that there should be a substantial downpayment, and the ability to make monthly payments. If this sounds familiar it is because this is the formula that has been used for many years, and has worked.
Unfortunately there are many people that should not own a house due to poor finances and the inability (be it lack of time, knowledge, or money) to take care of a house. The "invisible hand" of Adam Smith seems to do a pretty good job of policing credit. The problem occurs when the government gets involved and determines that everybody should be a home owner, or that interest rates should be driven down.
What is to be done? Let the housing market work its way out of this with minimal intervention. Let the "invisible hand" do what it does best!
- Paul R. Selzer
- Engineer, PCCA
I have seen the worst of the housing crisis here in Southern California. Most of it was caused by greed! The 1% adjustable loans given out to people who could not provide income verification to qualify for loans in excess of $500,000. People in our government enabled these loans to be given out to those who would not be able to qualify because of lack of income verification.
AIG went bankrupt because they insured these loans that were bundled with the good loans. We are all to suffer for what has transpired in the real estate market and finance industry. The government bailout is only the tip of the "financial iceberg". Housing prices have fallen by at least 40% and will not recover for at least ten years. The layoff in the construction industry is due to the overabundance of houses on the housing. This trickles down to your local Home Depot and Lowes who are the suppliers to the construction industry.
The only bright spot in the housing market is that now first term homebuyers with great credit can now qualify for a home.
- Yi Zheng
- financial analyst
Yes the greed of human beings have driven Wall Street to package all the mortgage backed securities that neither the buyers nor the sellers could fully understand or evaluate, leading to an explosion of credit spread and an ensuing deterioration of assets as well as a further deleveraging of balance sheets, which like dominos, eventually morphed into all kinds of problems in the economy from housing to financial intermediaries and now to the manufacturing sectors. But is Wall Street the only one to blame for the current financial storm we are struggling with? Packaging of credit products and short selling have always existed in the financial markets. In fact, Wall Street has so far renovated at a faster pace than government regulators can keep up with. Is it ultimately the fault of Wall Street to have developed too quickly, or should the regulators have come up with vigorous regulations to take reins of the wild market before it is too late?
US economy has just shed about half a million jobs last month, and this all started with the collapse of housing market. Who is then to blame for its failure? Is it the real estate brokers who have overvalued their products; is it the mortgage market that has led to massive foreclosures? Policy-makers should be familiar with the danger of an over-heated and over-valued market. We have seen the burst of dot.com bubble; why is that we did not question before this crisis whether housing market too would one day go down the same route?
Now we are all calling a ZIRP (zero interest rate policy) policy in the world's major economies. But it is not that far away when we were still in the talks of actually hiking rates on back of soaring food and energy prices. Commodity traders are calling for oil price to fall below $25 now, but just a few months ago we traded as high as to $149, driving all the manufacturers and airlines to purchase expensive futures contracts to stop loss. In a few months' time after Lehman's fall, the worlds' major economies went from inflation to disinflation and currently at serious risk of deflation. Why is that we did not realize the need for quantitative easing in addition to monetary policies before we cut the rates to 1%? Why is that when Fed was already slashing rates to cope with a fast deteriorating economy driven by asset deleveraging and credit concern, BoE and ECB were both slow to act?
We turned our backs on Lehman Brothers and for very good reason as well - don't we all understand the danger of moral hazard and perverse incentives - and now we are granting everyone a piece of TARP, with more fancy acronyms in the making. The fall of Lehman had serious consequences, including but not limited to a colossus explosion of credit spread, an unprecedented flight-to-quality in the fixed-income market, drying of the short-term funding market and stress on interbank lending, etc. Traditionally banks are the ones responsible for distributing risk, intermediating short term lending, and providing credit. Now central banks have to take over these responsibilities, stepping into virtually every link of the financial market activities or even taking over control of some of the banks. Every borrowing and lending transaction that used to be deemed ordinary and happen on a day-to-day basis has come to a halt. What exactly crippled the financial institutions that we have trusted for so long? Was it the deterioration of assets caused by mortgaged backed securities, the ensuing deleveraging of balance sheet (and everyone doing it all together at the same time), or was it the fall of Lehman brothers that eventually crashed the little confidence and trust left in the financial system? Was it really wise to let Lehman go and then to bail out Citibank along with the biggest rescue package in history? Is it right that we are currently in a situation that can only be described as bailout frenzy with massive moral hazard in the making because we were worried about the perverse incentive from bailing out one investment bank?
One cannot foresee everything. But it seems there are a lot we did not foresee during the past year. Looking back at the major events that have happened during the development of this credit crisis we have always been just one step - albeit a very important step -late in preventing them. Maybe now is the time to start thinking ahead.
- Dianne Jacobs
- Founding Principal, The Talent Advisors (Melbourne, Australia)
The breakdown of the housing and credit markets was systemic in nature, with seismic consequences felt around the world. Change is inevitable to deal with the resulting new realities. The under-pricing of risk will be adjusted. Responsible governance and good risk-management practices will be heightened. A scarcity of capital for credit and capital expenditure purposes will require stimulus.
There will be lingering pain for many people as a result of what has happened and, as in past recessions, many will become much more conservative in their behaviours including financial conservatism. This may last for many years and the changes may be societal. What history has also shown is that what will emerge are energy, ambition and innovation.
Yet, what is needed may be more than changing what we do or even why we do it, but a change of who we are and what we stand for. It requires a strategic shift in mindset. An apt perspective, attributed to Einstein, is that "the world we have made as a result of the level of thinking we have done thus far creates problems we cannot solve at the same level of thinking at which we created them."
- Ulysses U. Pardey, MBA
- Managing Director, Am-Tech, S.A., Panama, Rep. of Panama
Can Housing and Credit be "Nudged" Back to Health?
A diamond parachute for Main Street?
Broadly speaking and for the sake of a background for this comment let us suppose that a fair portion of this global crisis started with the import of poverty into the USA from abroad through a globalization limited to cutting costs and the export worldwide from the USA of this poverty through debt which could not be paid by American workers.
Some workable definitions for this comment:
A workable definition of a comprehensive globalization could be the export of the American dream without the import of poverty. This could be the American-Capitalism Zone or the American-Zone. Poverty has been imported in the USA by the 20th century globalization oftentimes limited to cutting costs, reducing employment and the corresponding circulating cash in the USA.
A workable definition of superior-quality capitalism could be debt and its payment complemented with the export of the American dream without importing poverty. In other words, debt and its payment within a comprehensive globalization, the American-zone
Debt and its payment seem to be the true bread and butter of capitalism to the point that some international applications of capitalism in the 20th century - and its implications at the beginning of the 21rst century - might have been questioned; however, not debt per se which is one of the sources of profit and access to a better quality of life.
A superior-quality capitalism and a winning definition of globalization seem to be strongly related. This could be the reason why there seems to be a need for guidance and agreement upon what superior-quality capitalism and comprehensive globalization are for in the 21rst century.
Some general observations: No debt could imply no profit and no better quality-of-life. No income could imply no payments. No job could imply no capitalism. Indeed, if there is no cash we can get by with barter, if earth stops moving we could use another yardstick for time but if no one works no one undertakes anything. It reads as if more jobs more capitalism; therefore, how to favor employment and capitalism considering globalization?
There is strong evidence that enough consumers and lenders did not make it because of a set of human reasons and there is also evidence that these reasons will prevail oftentimes if their business relationship is open-loose to whatever might happen. How to bridge what is human with business realities? Could this favor capitalism? Therefore an assortment of fairness-awareness-guidance-hope and "sponsorship" could be needed to learn from mistakes and improve capitalism and globalization.
How to do it?
If the U.S. defines globalization as the game of poverty - importing poverty and paying for it with jobs - then it loses the game, and so does the rest of the world, as this global crisis demonstrates it so well. Therefore, the need-based question could be: How to define globalization as a game in which the U.S. is a winner and the rest of the world will also benefit?
Then, how to export the American dream without importing poverty?
Interested countries might have to be eligible to enter in the American-Capitalism Zone or the American-Zone, and this reads as a win-win situation for its country-members.
U.S. industries and other stakeholders could establish standard American wages-and-operation expenses and other common rules of the game for comprehensive globalization purposes to be met by countries which want to be members of the American-Capitalism Zone market, a comprehensive globalization. Then fair competition within the American-Capitalism Zone could take place and be based upon creativity, innovation, quality and service for the prosperity and well-being of its fellow consumer-citizens, and not on poverty, the lose-lose game for everyone. Besides, this is more like in-truth exporting the American dream in order to help enhance democracy and the quality of life abroad for the benefit of all members.
The housing and credit current situations could be the consequences of something rather than the causes of this global crisis to solve. This something could be, to some extent, the unbalancing relationship of consumers' debt with consumers' income (consumers' payment capability, circulating cash or employment) and a globalization limited to cutting costs, eliminating jobs and the corresponding circulating cash in the USA.
A workable guidance in order to frame some workable solutions could be something like this: Deal simultaneously with the consequences and the causes of this crisis. Among the consequences could be the victims of this crisis in the American economy and among the causes could be the absence of the benefits of a comprehensive globalization or the American-Capitalism Zone.
Therefore a workable way to deal properly with the victims could be to help them out all the way so that they have reasons to believe in the American capitalism as a first-class way of life they can be proud of because Uncle Sam does pay for the lessons he learns, this time to their detriment. This could be the dollar side of a would-be "globalized" deal and what about culture within the comprehensive globalization, the American-Capitalism Zone? Could Americans become somewhat more European-like (or rest-of-the-world like) and Europeans (or the rest of the world) somewhat more American-like? Are there barriers to this such as unquestioned meanings and assumptions or untapped understandings and arrangements? This might favor a comprehensive globalization and therefore a superior-quality capitalism and longer-lasting jobs. This way superior-quality capitalism could turn more people of Main Street into prime-enough consumers of debt for a win-win situation.
Are the tools in place in order to solve the problems and needs related to this global crisis? Hopefully, these tools are being set in place.
According to what I have read recently, USD 28.57 billion could result in 1 million new jobs.
What to do to generate with celerity millions of brand-new well-paying jobs and how to convince some leader(s) to go for it?
This might be one more fascinating and attention-grabbing topic for the incoming open forum with an advantageous very long-lasting Worldwide-and-Historical impact.
- Sunil Varughese
- Director, Brand Indigo LLC, Dubai
With around $14 trillion credit card debt even toilet paper sales have fallen down in USA today.
Each individual has to do his bit towards 'voluntary simplicity' and playing a 'sustainable role' whenever possible. Each one of us, especially adults have to downsize our wants to practical levels and be role models to our children.
Our generation's senseless consumption habits have not only made the later generations lives more tough but we are in the process of leaving behind debt as "legacy".
- Phil Clark
- Owner, Clark & Associates
Greed and the violation of trust drove the financial crisis. The average person does not understand all the ins and outs of the financial markets and all the rules about buying a home. When those they feel "know" these markets are trusted to guide them successfully and they violate that trust for their own greed...the system collapses.
Watch the ads on TV, all have some mention of trusting their organization in them. Is that false advertising? That is why simple and limited choices based on sound principles are the foundation of sound business. When people take advantage of each other for their own gain instead of helping each be successful...an unsustainable relationship will evolve.
- Gerald Nanninga
- VP, Retail Ventures, Inc.
In addition to the wise counsel in many of the comments to only give out loans to people who can pay them back, there is another concern--linkage of risk and reward. Those who were signing up the bad loans were not taking any of the risk on those loans, as they were rebundled and sold right away. Hence, they were not penalized for bad behavior.
If you want bad behavior to stop, make sure the people signing up customers for loans have "skin in the game" and link their rewards to the long-term results of their actions. In other words, if you write bad loans, you suffer loss. That would be far more effective than nudging the consumer.
- Stephen Kanitz
The true culprit of this crisis was not greed, leverage or bad lending practices, but a little known fact. America has a tax code that allows Americans to deduct from taxable income, the interest on home mortgages, extendable to summer homes and sail boats. Up to 1 million dollars worth of mortgage.
Obviously it's not a brilliant government economic policy, because it creates the following predictable consequences: 1. It stimulates indebtedness and over-indebtedness of practicably every American citizen. The higher the real estate debt, the higher your deductible allowances.
- It stimulates mortgages with minimal down payments, and maximum debt. Banks that demanded 30% down payments were outsmarted by competition.
The real culprit of this crisis was not the free market, banks, profit motive, or greed. It was an economic policy to encourage housing, distorting the free market, giving absurdly high incentives (nominal interest), in a ludicrous way via debt.
- Alan Guinn
- Managing Director and CEO, The Guinn Consultancy Group, Inc.
None of the current alternatives being made available really address the fact that a sea change in the thinking of the people has occurred in our society as a whole, do they? Politicians are shaken to the core and are fearful of that fact, because it means that power has shifted back to the group that authorizes that power---the people. Isn't that an amazing thing? Democrats are quick to note that they hold the power, but they are unsure and seemingly divided on how to leverage that position. Republicans would be quick to note that they are on a new pathway. Maybe so, but hope has been dashed before.
In the USA, our elected politicians are practicing square- world theory in a round-world reality. It's actually not their fault--they've simply been products of their environment; a failed party system that has grown more and more unresponsive to the people, and more and more responsive to whatever flavor of special interest seems to be able to best "game" the system this week, this month, this year, or this administration.
To resolve the current issues facing the USA and the World requires completely different thought processes. Forget what you learned in B School. It's dated.
Start thinking in terms of the new realities we face and how those realities may be applied to improve our lives, reposition the infrastructure of government, restructure our finances, and focus our strengths to improve our world.
Ignore the day-to-day political positioning of the media and headline seeking politicians, and focus--rather--on what you can do, individually, to improve your world and the situation of those around you. This is the golden key to success of any program that any government, anywhere, elects to promulgate.
- Sondra Jacobson
- Main Street Human, Earth
It is ludicrous to believe that financial and social engineering in the form of "libertarian paternalism" is the solution to human greed, whether in the housing market, the financial institutions or the open market in general. As long as there are shills and people willing to purchase their wares, no matter the detriment to their person or their pocketbook, there will be greed. The have nots will always want what the haves have obtained.
Governments, financial institutions, and the general public are made up of these humans. As the recent, and all previous crises, that have occurred in human history indicate, we, as a race of beings, are still learning the intrinsic values of living successfully. Until we all agree to move out of our very uncomfortable Tower of Babel and adopt behaviors as a race that are not self destructive, no amount of "paternalism" or "libertarian" practices will save us from having these ridiculous experiences, over and over again. The only claim that the human race can make to date, is that, miraculously, it has survived to continue to make the same mistakes, over and over again. The solution... from Walden... travel the "road less followed" and from Shakespeare... "to thine own self be true"... and from common sense... harm no being on the way up the ladder...they will hurt you on their way down.
No one knows what is best for another... we just have opinions, some more substantial than others, of what "should" be inflicted. We all, intrinsically, have an understanding, no matter how hidden from consciousness, of what is best for life, as well as what is detrimental. So... we have no choice but to let things be as they will, no matter how ludicrous and painful, until the understanding becomes knowledge. The goal - find the understanding and quit inflicting the "should" and in the process hope we don't kill ourselves off as a race. To our current knowledge there really is only "us" globally.
- Tom Dolembo
- Consultant, Dolembo Associates
Oh, Jim. Heavens no. Nudge? It's about value. Houses were valued at x. The entire mortgage structure was a fiction of algorithms based on x squared increases well into the future. But houses are really worth x squared minus (say buyers). Nudge this back? Never. This market is as close to a mortified sailcat as I've seen in 50 years. And, as dumb as we are, we the people have learned that we can refuse to buy and prices will fall. This is a devaluation revolution. Gotta love real capitalism in action. It never was about B School trained masters of the universe and their valuations, but about simple buyers and sellers. Ah, I so miss Professor Levitt. What would he make of this? He never missed a sale.
- Dan Wallace
- Change Catalyst, Launchpad Partners
I disagree profoundly with the first and fourth posts, which say that greed (and corruption) caused the mortgage meltdown. The initiating cause was a dramatic growth between 1998 and 2006 in the amount of capital available for investment - money that went to Wall Street looking for a home. Unlike corporate debt, mortgages can be 'manufactured' because easing of money drives up prices, moves people from renting to ownership and drives refinancing. So that's where the money went. Wall Street told the mortgage originators that there was capital available to fund whatever they could generate. The originators kept coming up with progressively looser loan "programs" for their brokers to offer the market. The market took those programs.
Whose fault was it? Everyone's. It was a frenzy. In a frenzy, even smart, decent people do stupid, indecent things. Like leveraging 30:1. Like rating junk credits AAA. AIG's failure makes it clear that they grossly underpriced the "insurance" for this market. Should they have known better? Of course.
This is not new. When a particular class of assets goes up beyond reason, at some point people start to assume that it will keep going up. Before you criticize, ask yourself how many Internet stocks you owned in the late 90's. It was the same thing - I was told once of a company called YouIdiot.com, whose only business consisted of selling its own stock.
The tech crash did not trash the economy because it was neither as leveraged nor as interconnected as the mortgage market. But the behavior pattern was the same (as it was in the Dutch tulip boom/bust of 1637).
The best/fastest way to rehabilitate the market in the short term would be for the government to intervene and serve as the guarantor of the full monthly payments of mortgages in default. That would cause all of the so-called toxic mortgage assets, as well as the credit default swaps that insure them, to start performing again. This would patch the hole in the financial system and allow that system to begin re-inflating. I estimate that this would cost at most $200 billion - a large sum, but a lot less than we've spent and will spend on various bailout initiatives.
This should have been the government's first step in the bailout, and I continue to be amazed (shocked?) that it hasn't been done. Would it 'unfairly' immunize people who took on mortgages they couldn't afford? Absolutely. But one thing the bailout won't be is fair, and I see no reason to prefer dumping money into Citi over dumping into the mortgages that cause Citi's problem. (For more on this, please see http://dwallace12.wordpress.com.)
In exchange for this action, the government should take warrants for 15-20% of the equity in the banks and other institutions that hold these assets. The resulting gains would reward taxpayers for the intervention and might even take a chunk out of the national debt.
The long-term fix, in terms of preventing this from happening again is tougher. I like "nudge" solutions, and one approach here might be to provide a 100% mortgage interest deduction for people who put 20% down on a home, and ratchet the deduction down for people whose down payment is smaller. Just a thought in real time.
While we're at it, here's a nudge I really like. Rather than attempting to mandate auto company fuel economy, the government should charge a steeply graduated surtax based on the either the horsepower or (low) fuel economy of newly purchased cars.
- P. Maxson
- Environmental consultant
I like to see old ideas given new names and wrapped up in new packaging if the ruse will finally convince anyone to pay attention to them! So-called environmentalists have been arguing for decades for measures to restrict consumer choice to a narrower and smarter range - things like progressively increasing gasoline taxes to encourage consumers to make the right choices about what cars they buy and how much they drive, at the same time permitting planet-friendly alternatives a chance to compete.
The whole idea that any typical consumer would have all the information available to make the right choices, or that she would make the right choices even if she did, is idiotic. And who gets to decide what the "right" choices are? I suspect a group of intelligent people at a well respected business school could suggest how that might work. The days of a laissez-faire free-market free-for-all is soooo last Administration.
- Patrick Duffy
- President, American Machine & Gear
Especially given the lead times required to produce housing, there have always been and always will be cycles in housing. Anyone who works in home construction and home lending had better understand that. The problem this time was absurd lending practices (no doc loans, interest only loans, lending to people who couldn't qualify for a loan if they didn't get a teaser rate in the beginning, etc.) Mortgage brokers created and sold these loans because they were just the sales force. "Bad debts? Not our problem." They had no incentive to avoid bad lending practices.
There may be other causes as well, but the area of most concern to me is how long these bad lending practices continued. Normally, the feedback to the economic system happens sooner than it did this time. What kept lending continuing? In the days when lending institutions (banks, savings & loans) held the mortgages they generated, they realized sooner that they had made a mistake, perhaps with a little help from the bank examiners. But when it is a public employees retirement plan or any of the other financial organizations that got involved lending directly, through a mortgage broker and a mortgage servicing provider, there is nobody ready to "take away the punch bowl." At the same time, Freddie and Fannie paid Congressmen and Senators to look the other way. When is a bribe not a bribe? When it's a campaign contribution!
Does any of this sound familiar, a bit of deja vu from the '80's?
- Beverly Kossum
- Owner, Consulting Practice
I think the formula is very simple and said many times before, give homes to those who are in the position of investing capital to obtain them and have a sufficient income to pay for them.
I also believe that the mortgage industry is at fault in their ability to completely ignore basic financial ratios historically used to determine if an investor can indeed afford their investment.
That said, if you have been lured into an investment based on a banker or mortgage lender encouraging you to buy more by showing you a confusing array of financing opportunities that mere mortals cannot understand, I'll forgive those who did "buy-up" on the premise that what was in front of them looked like they could afford it. Unfortunately, they could not understand it.
However, in my lifetime (I've been around a while), I assume most folks who make $50,000 or so, know they cannot afford a home worth millions, but yet many put pen to paper and now cry for help.
I am sad for our current economic predicament, but do remember the mid-70's when gas was priced very high and not much was available. Back then, I was forced to purchase a foreign car for affordability (the U.S. automakers were busy making very large gas guzzling vehicles). We all promised to save energy. Promises, promises.
I believe our behavior at the mortgage financing desks across America will return, just as soon as we fix this current crisis. After that - those entitled indivduals will find a way to finance an unaffordable home. And, someone will be there to help when they fall.
- Tony Evans
- CEO, The 3 Graces Co. Ltd
Generally, I like to see freedom for the individual to act, stupidly if they wish and to the harm of their own good fortune if they insist.
What I think has been lost though, is the balance between individual freedom and responsibilty towards others. In the case being considered here, the resultant imbalance has spilled over into pretty much every walk of economic life.
We now have a situation where governments and central banks are initiating policies that penalize the wise, the savers and those investing carefully for their and their families' futures (as long as government doesn't go bezerk with death duties). Pensioners are also getting hammered, or at least their pension funds are.
Regulation should be there to stop the imbalance between personal freedom and responsibility to each other. Keeping 'excess' in check is an appropriate response by a civilised society. The Ten Commandments represent a good early example of this.
In the property/credit markets, it is equally possible to construct equivalent requirements without being oppressive.
Charles Dickens summed the whole thing up through Mr. Micawber in his book "David Copperfield" where he highlights the emotional benefit of being in credit (just) rather than debt (see Chapter 12). A conservative view of the ability to cover payments would stand the world economy in good stead.
The concept of using the same route to get out of the mess as was used to get into it seems to stretch credulity - or at least credit-ability!
- Ron Villejo, Ph.D.
- Psychologist, Dubai, UAE
There is an economist named Hyman Minsky, who - unlike Alan Greenspan and many of us - could've readily predicted this severe economic crisis with his theory of Financial Instability. I first read about him in a Wall Street Journal article last year:
070818-In time of tumult, obscure economist gains currency http://online.wsj.com/article/SB118736585456901047.html
I re-read it and found his theory even more compelling. I also found a short paper he wrote before his death, which I can send to whoever is interested. Let me know: email@example.com.
Minsky talked about the inherent instability of financial and economic systems. As a psychologist, I'll talk about people and their human frailty, to help shed light on the economic crisis. At the end of the day, it isn't one thing that led to all of this, but the melange of factors already posted here.
Years ago, as a professor, I came up with a model of imperatives as way of grasping and bridging cultural conflict. One imperative is simplicity. In brief: Even the smartest of us are prone to very simplistic, tunnel-visioned thinking - under states of heightened emotion. I argued that with highly sensitive issues, we tend to think and relate in black-or-white terms. For example, in the US years ago, abortion became polarized to Pro-Life versus Pro-Choice - when in fact there is quite a lot of "gray zone" (i.e., complexity and sensitivity) to the issue.
This imperative of simplicity is applicable, I argue, in an economic vein. In a long bull market, when elation and optimism are high - and keep getting higher - people literally lose sight of a fundamental law of the universe and the economy: what goes up, must come down. Put crudely, the greedy get greedier as they seek more and more wealth, and there's seemingly no end to sunny weather! Investing, speculating, making a lot of money etc. can become an intoxicating, vicious cycle that reinforces itself - until of course people, systems and economies break down.
There are thus uniquely human aspects of who we are, which make us prone to such thinking and feeling - and I think this echoes what Minksy refers to as "internal dynamics of capitalist economies" that make these very economies prone to instabilities.
Simplicity is also applicable in the converse: In the throes of panic, worry or frank depression, people lose sight of another law: What goes down, does come up! Things generally move in cycles. In fact, one theory of depression points out that unduly catastrophic thinking and believing in the permanence of bad times are symptoms. So the psychologist's aim is to ease the emotional storm (i.e., minimize the effect of the simplicity imperative) while helping the depressed person take a broader perspective on things (i.e., recover the ability to think in a complex vein).
Organizations, government and individuals alike can dole out whatever blame they wish. Indeed, people who had a play in all of this must be held accountable for their actions and not simply bailed out!
Over this decade, the US has been hit with horrible events: From the IT bust, to the accounting scandals, to 9/11, to wars and fiascos in the Middle East, to the subprime mess and now the economic crash. Most importantly, we must heed the lessons of the past and do things differently and better going forward. For, so far, we have obviously not taken enough heed and we have not made sufficient changes! Now, more than ever, is the time to do so.
Ron Villejo, Ph.D. Psychologist Dubai, UAE
- Garrett Pagon
- Snohomish Commercial
The Federal Reserve enabled the real estate bubble with an easy money policy that it adopted in reaction to the dot com bust. None of the observable effects (greed, leverage, speculation, etc.) would have been possible without the easy money and low interest rates provided by the Fed.
- John Wilson
- Group Commander, Northern Ireland Fire & Rescue Service
Surely, in a democracy, the reason that we elect a government is to have an entity that looks to the 'common good' and we except - enthusiastically or grudgingly - that good, sustainable and stable government requires some 'blunting' of the excesses we humans are prone too. When this does not happen it is hardly surprising that at some point we pay the price for this 'freedom'.
Modest but real restrictions on borrowing (i.e., limits on multiples of earnings, proof of earnings, prior saving track-record, etc.) represent a balanced approach and knowingly limit the unhealthy exuberance of a less constrained market but still allow innovation and appropriate reward for entrepreneurial risk-takers.
A mixture of statutory, voluntary and informal social regulation really does minimise the 'boom-bust' potential across the general loan/credit industry: why would anyone not want that?
- Edward Hare
- Retired Director, Strategy and Planning, Fortune 300 Mnfr.
Can housing and credit be "nudged" back to health? Heck, what's happening in these areas is the symptom, not the disease and several contributors seem to see that. We have a populace who have been conditioned, driven 24/7...to CONSUME. Most are poorly educated in the realities of finance and capitalism. The media bombards them to "buy now!", with no interest, no payments for years. The implicit message is that money is virtually free, that it has no time value. And that, of course, is a lie.
We have a social problem which our government exacerbates with well intentioned desires for everyone to "own" a home. Then, such social programs have to one day face the cold hard realitiies of capitalism.
Government subsidies and incentives have the power to badly distort free markets in disastrous ways. When will our elected officials and lawmakers ever get that through their thick skulls? And everyone can sees an opportunity to make fee-income by preying on tidal waves of public money and consumers who want what they want (or feel "entitled to") NOW (regardless of whether they can afford it) are going to do so.
Forget "nudging". We need to replace self-indulgence with self-restraint, to return to values of responsibility and self-reliance, better education about economics and capitalism, harsher penalties for charlatans and thieves, a common sense government that actually does its job, and a political system that's not corroded by money and special interests. Lots of us realize that......it's not the what that's at question, it's the how...and who.... that seems to elude us.
- Ulysses U. Pardey, MBA
- Managing Director, Am-Tech, S.A., Panama, Rep. of Panama
Allow me to make a further comment.
A comprehensive-globalization market: Is it a "good-enough product" for the business of superior-quality capitalism considering a meaningful workable definition of globalization for good-enough additional profitable-growth and social-peace for all its country-members?
Generally speaking companies are successful when they launch a product/service for a specific market after previous and appropriate business homework in order to insure profit. They do not launch a product in an "out-of-shape" condition for whatever might happen out there, loss or profit.
Capitalism needs more consumers for growth and globalization means more people, more potential consumers. Because Capitalism and globalization do have a key thing in common - more people - put together they represent possibly the greatest potential for growth ever. Then the question could be: what kind of consumers? Does this depend on the kind of globalization?
A comprehensive-globalization market could be dealt with as a standardized "stadium-and-rules product" for a specific Capitalism purpose such as more consumers with good-enough purchasing power who can get in debt and pay for it, generating additional profitable-growth and social-peace and avoiding the import of poverty.
For the sake of a comparison, the very American football - a highly competitive and hard-hitting game - has its own "manufactured" or "man-made" stadium-and-rules that players must play by to win ... and they do.
Such a "product" could be a mass-market item made in USA for domestic and international consumers. Therefore such a comprehensive-globalization market ought to be "manufactured" accordingly by the appropriate stakeholders.
Free-trade treaties (the goods and money side of this "product") and free employees-traveling treaties (the employees side of this "product" for business trips purposes or domestic-like flights within this "product") could to some extend be useful tools to frame the building of this comprehensive-globalization market to favor more and better employment, capitalism and social peace.
Is it possible, with such a "product", to keep prices down or competitive enough - and support a workable social-peace - because of more competition based upon creativity, innovation, quality, service and scale rather than upon poverty?
How could this highly possible real-life setting evolve the business of teaching business?
Thank you for the opportunity.
- Peter Manda
- owner, Manda Translations, LLC
The current credit crisis has its origins in Reagan-era credit liberalization and the excesses resulting from blind deregulation. As with individuals, government too has a responsibility and it's time it stopped shirking it.
- Cole Woodson
- IT Manager, Commonwealth of Pennsylvania
The hope of nudging the economy in any direction is hoping for a miracle. There are a number of insightful and accurate observations among the contributions, but still much sidestepping of one important issue. Central banks are still responsible for monetary policy...regardless of what economic system is in place. In addition, the purpose of government is to govern...everybody.
In the United States, much of the problem stems from the fact that nobody was "minding the store" on behalf of the public. We can blame greedy capitalists, but the fact is that the legal climate and the political climate were both conducive to the acts that led to the current situation. Lack of enforcement of existing regulation and the lack of political will to actually create an environment where corporations CAN be held accountable for misconduct are two of the principal factors complicating the creation of a solution to this "crisis".
In a rational, well-planned world how difficult should it be to establish the contents of a bundled security...unless something is being concealed? Why would the government turn over billions of dollars to failed companies without setting reasonable terms for oversight and repayment? Ultimately, the questions are how do we determine culpability and what do we do to prevent the same thing from happening in another twenty years?
The junk bond scandals in the 1980s had a similar set of circumstances: overvalued securities sold to unsuspecting investors, auditing and accounting firms turning a blind eye and no government oversight. Obviously, there were no lessons learn. The vehicles are somewhat different, but the mechanics of the situation are similar enough that some of the solutions are obvious. No securities of any type should even be allowed to be sold in the marketplace without government approval and some form of oversight. I thought that was what the Securities and Exchange Commission was created to monitor...or at least that was what I was always taught.
I am not saying that total government control is the answer. The marketplace can create value...the government creates currency. One of the major peripheral problems that I alluded to is the unknown value of securities. If the total value of secondary securities cannot be determined, how do we know how overleveraged the market actually is? This becomes an auditor's nightmare, but wait....who is actually being audited? I have not heard of any of the major banks or investment houses being subject to an audit by any government agency (please correct me if I am wrong...it is possible that I failed to hear or pay attention to it if it happened).
I do not believe that there is a unified answer to this issue. It will have to be solved in small segments. The one component that we cannot afford to overlook is the regulatory role of the government. Hopefully, not an excessive but a necessary and effective one.
- Anonymous
The real answer is simple - the government!!!! We should all be thanking Barney Frank and his masterful management of the regulations that control(ed) the banking and finance system.
- Jan C Otto
Two statistics are etched on the inside of my eyelids:
The US, with 3% of the world's petroleum reserves, consumes 25% of the world's petroleum output.
The US, with 5% of the world's population, consumes 25% of the world's resources.
Long-term, this is unsustainable.
I long ago lost my faith in any kind of rational solution for any of the so-called "ills" that beset mankind. (Read "The Tragedy of the Commons", by Garrett Hardin.)
Mother Nature always bats last, and I believe she will come up with a (most unpleasant) solution. I just don't know when.
Homo sapiens (ironic designation), like rats and cockroaches, will "survive" in some form, no matter what.
But don't waste your time looking for rational solutions to what is an irrational problem. Can anyone point to one instance of humans acting rationally, as a species, in the entire known history of the species?
- John F. Homan
The business of the American family is their house. And the house that the American family lives in is under attack from a hostile market place. The family can not sell the house, refinance the house or buy a larger house. The value of the house is going down due to the market conditions.
I propose that the Federal Government give a 10% tax credit to the purchaser of a house and that the purchaser pay it back to the Federal Government over 20 years in equal installments with no interest. If the American family buys a house for $300,000 then they would get a tax credit of $30,000. If they turn around and sell the home the tax credit amount is payable right away. If they live in the house then the amount of the tax credit is payable over 20 years in equal installments of $1,500 per year, or $125 per month. The balance payable when they sell the house. This action would jump start the sales of houses.
We are told that the basis of the financial crisis is founded in the lower or falling house prices. We are told that we borrowed too much against the house value and the bubble has broken bringing the house value down. Further, we are told that inflation is a bad thing and we should fight inflation individually and collectively. I take the position that a mild round of inflation is an acceptable situation and would cure some of the ills in the market place.
The American family is frightened for the loss of value in the house and they should be. The news media all report some calamity each day in the financial markets. The government has pledged large sums of money to many different banks and financial institutions and the flow of money through them is slow and controled by people, bankers, that the American family does not trust. The bankers are such an unusual bunch they don't even trust each other (do they know more than the American family, they probably do). The bankers had lending criteria that worked for years. They included documentation that you had what you said you had and that you would put a down payment of 20% on the house. Now, along comes Wall Street and says you don't need documentation and you only need a small down payment and this and that. The Wall Street type sold the mortgage and booked a fat profit that the CEO skimmed at a greater rate than the wise guys in Vegas, did while the mob ran the old town. Maybe these CEOs are the new mob.
Our President has Mr. Henry Paulson, a Wall Street graduate, as the Secretary of the Treasury. Mr. Paulson is pouring money into these banks and Wall Street firms at an alarming rate. And, nothing seems to satisfy the need of these operations or the markets. It appears that the fox has guard duty at the hen house, wink, wink! The big question looms, "Is the money going to the right place?" I say it is not. The money needs to go to the American family in the form of a tax credit on the purchases of the house.
The tax credit can be used for many different things and the consumer knows how to spend when the money is available. The entire Main Street economy would light up and function very well. This would help the American family, the realtors, the local builder, the real banks and the entire economy. American families that are overextended can retrench and those that have some cash can put it to work in real estate. This action would get the money where it is needed. The money would not just go out for a shotgun blast that would not amount to a breeze. It would, however, be concentrated on those that would do something that helps the economy.
I have heard some comments from Senator Mikulski of Maryland concerning tax credits. Please take this idea to the Senate and get something that will work for the American family. We need to have the good life back to the people of this great nation.
- George Bodway
- US Citizen
Comments on the path to the economy we now share and recovery.
Whatever happened to common sense and reality based value systems? What impact will this crisis have on our nation's value system, the economy and our mortgages?
In the past few decades we increasingly allowed the "smart guys" to run our world for a little too long perhaps and with way to much unchecked influence on our systems and daily lives. Truth is, we made a bad turn and we made bad choices, now obvious back several years ago, around the time of the Carter administration and we need to regroup and fix what we messed up. All this time we have listened to talking heads tell us how smart they are and how much good they will accomplish. All the while executives got rich and politicians kept getting elected based on many promises they never even thought possible; while we the people, kept digging a deeper hole for our nation.
I thought at the time of 911 that the world would start valuing and rethinking education, the function and relevance of monetary policy and the use of knowledge in a more meaningful and prudent way. I think that now as we shortly change our calendars to 2009; that is what our citizens and I am contemplating, along with, who we want as a leader.
Leaders or leadership values of all types must change; political, finance, corporate and in our schools. Follower's value systems must change and we must create a structure in our lives and schools which teach protection factors, (behavioral, emotional and cognitive) engagement, safety and preparation, responsibility to a sustainably economy and world and we must do so with an intentional philosophy....
Point being folks, did our value system put way to many eggs in one basket, one hope? Did we forget "We the People?" Did we stop valuing our future, just as we lost sight that everybody matters and everybody can make a difference, a contribution? Do we teach principled and thoughtful coexistence and do we have a sustainable plan with long term economic goals? Will we stop the procrastination of the middle class in America and hear their voice so long absent in today's dogmas, issues and ideas? Will you encourage their voices or continue to shout over them and continue making middle class citizens feel they are stupid? Will we craft solutions that solve problems for all the people or dig the dumb smart guy's out of their bind? Will someone stand up and explain how this change actually works for everyone on a long term basis?
Fortunately, as we rebuild our lives, economies and organizations, life has a mysterious way of renewing itself. This time, though, something has changed fundamentally inside us and around us. We have realized that we must learn to live and lead in turbulent times with well reasoned responses; not just triage aimed at bailing out and perpetuating false hopes.
One thing is certain: Americans are strong, courageous, and resilient people. We have a deep history of confronting our challenges with the resolve needed to rebound. We are some of the world's greatest common sense problem solvers. Relearning to lead in turbulent times with common sense may be our next adventure, a mega-trend. Put the suggestion boxes back out so that we the people of uncommon diversity can be heard and understood. The goal however will fail to move forward, if we don't teach in our schools the importance of an ongoing dialog over protection factors, integrity and principled acts.
- Paul Karres
- owner & president, Nevada Leadership Institute
The events and situation of the financial and real estate markets, as well as other industries, can be boiled down to one simple phrase: Acute Bad Judgment Syndrome. ABJS can be broken into four parts:1. Poor situational awareness, 2. Closely coupled systems, 3. Overestimation of one's own ability, and 4. Herd Mentality. Of those four, the fact that we are dealing with a complex closely coupled system, which reaches even into severe budget shortages in about 30 states, shows we are engaged in a situation that is beyond the ability of any one person, or group to deal with it effectively. Throw in the other three factors, and it will be months, or even years before the U.S. economy gets back on track. The highly visible debacle with the automobile industry is primia facie evidence as to how bad the leadership is at the top in a major industry. And they are not alone, either. The days of a strong economy bailing out poor corporate leadership are over. Now, if you're in charge, you've got to be good. George Armstrong Custer is probably rolling over in his grave, laughing, because this isn't any different than the Battle of the Little Bighorn. Remember, there were no survivors.
- Mohit
Regulation is necessary but not sufficient:
I agree to a large extent with what Adnan Younis Lodhi has said. However, one must realize that the government has to play a regulatory role if the free market has to work as intended. Left to itself, a free market risks running into crises like this one. This is because of the concept of "externality". Some party has to regulate the market to "internalize" externalities. It is true that such a party may not function well and there is no way to design a system where it never fails. That, however, is no reason to abandon the idea altogether.
Regulations for the current crisis:
Some people have suggested a regulation to make a substantial downpayment mandatory. But the market can fail in other ways even after this is done. Also, is that a good tradeoff in the sense that is it "fair" to deny people the chance of owning a home if they can afford to pay for it with a mortgage plan that is otherwise available in the market? Is it "optimal" in the sense of maximizing value for all?
Another idea that works much better is to hold the rating agencies accountable for their blunders. Again, this need not be done via regulation; it can be done by their customers who got burned. If the ratings of these sub-prime securities were not misleading, this crisis could have been easily prevented. Buyers of this security would have stopped buying or offered lower returns for them, which would backpressure all the way to the origination of the loans and result in normal slow growth of home values instead of a big spike and a cliff drop. The result: creditworthy borrowers will get a loan with a downpayment amount or interest terms set by the market and not by regulation. Perhaps, a minimum downpayment regulation is still a good "safety net" to have in place in case other forces fail to have the intended result(as I said before the system will never be perfect). However, if the intention of this is to be a "safety net" then perhaps 20% (the most popular number) may not the right number.
Humans learn. Everytime a human escapes punishment for a mistake or gets rewarded for it, other humans learn erroneous behavior. Using "spectacular" crisis to make an excuse to pardon or reward bad behavior creates a mal-functioning economy like the one we have now. Everytime, a human is punished for bad behavior and rewarded for good behavior, other humans learn good behavior. I hope the new US administration will act based on these very basic first principles.
- Rahal Jayawardene
- Millennium Information Technologies Ltd.
I'm not sure whether "Paternalism" will foster better decision making in investments, nor will it be of much help to bring credit and housing back to health.
What I believe is that we need a carefully crafted, long term "Social Engineering" campaign to transform the common mindset of people to foster a culture of thrift and prudence against the culture of extravagant borrowing.
- Gamaliel Pascual
- Managing Director, SMetrix, Inc.
The role of AIG in this financial meltdown will be examined for decades to count. The alchemy of making subprime credits acceptable was made possible by the black art of credit default swaps.
Somehow, financial engineers convinced themselves that these swaps were subject to the same actuarial principles of other insurance products.
Equally mystifying to me is this...the phenomenon of herd mentality suggests that business as lucrative as CDS underwriting would have attracted competition from other large insurance firms. Thank goodness that did not happen. What restrained the other insurers which did not restrain AIG?
- Peter A. Ubel
Two cents from a primary care physician:
I am a physician at the University of Michigan and an expert on how people make decisions, having conducted decision-making research for a decade and a half. Politically speaking, I'm a flaming moderate -- I marvel at the wonders of capitalism, but at the same time I'm painfully aware of the limits of free markets.
We human beings are imperfect decision-makers. We have a limited ability to hold complex information in our heads, even when this information is relevant to important decisions we face. We are often harmed by our own worst instincts, prey to limited willpower and susceptible to manipulation by people who know more about the things that influence our own behavior than we do.
Unlike commentor number one, then, I don't believe that limiting temptation is an insult, nor that it is an unjustified tampering with human nature. Instead, I think the right kind of policies, which reduce the chance we will harm ourselves, are an intelligent response to the scientific recognition that our willpower and our decision-making ability are often quite limited.
And unlike commentor number 11, who says that "the real culprit is not the free market," I would say -- there is no single culprit. This mess is big enough to blame on plenty of things: on a government hooked on promoting homeownership, on a regulatory system that allowed people to take out loans that were beyond their means, and on consumers who often didn't understand the terms of their own mortgages and who were too often unrealistically optimistic that their home prices or their take-home pay would rise fast enough that their unaffordable houses would become affordable.
The free market works best when all people behave rationally. Policies work best when they acknowledge that human nature is a complicated mix of rational and irrational behaviors, and that the free market needs to be tweaked accordingly.
Peter A. Ubel M. D. Author of: Free Market Madness: Why Human Nature Is at Odds with Economics-and Why it Matters, Harvard Business Press (January 2009)
Personal website (with posts): http://www.peterubel.com/
- peter stratton
- retired physician, corp exec
Those slick "borrower" predators with "simple human weaknesses" got us again! Like the immigrant farmer in CA making $8/hr who was given the entire mortgage amount of over $700,000 with no money down to purchase a house. The crises is entirely the fault of the greedy predatory lenders which includes virtually all the financial institutions in the country. Why aren't they in prison?
- Sujeet Prabhu
- Manager, Larsen & Toubro Limited
In recent times, the speed of financial "innovation" has outpaced the ability of the government to monitor the markets or the ability of the individual to understand the various financial products.
Recent events have caused us to look at the government to guide us in our choices. These "nudges" could help improve the health of the financial markets by influencing individual choices while ensuring that individuals are protected during market reversals . Over time, those individuals who develop a greater understanding of their finances could ignore the nudges while others could continue to use them for guidance.
Ultimately, the choice still continues to be ours.
- Hujaj Ali Nawaz Khan
- General Manager, TAFANI General Contracting L.L.c
Can Housing and Credit be "Nudged" Back to Health?
Do we need it?
Credit primiraly is a sole action to satisfy the need of the needy whereas now a days that sort of credit is called Grant, commercial credit primary should be sourced with the spirit of grant, having zero intrest rate and payback at the convinence of borrower.(simplest among all financial products). Capital placement in commercial transactions and payback schduling should be engineered with the cash flows of commeciral function and moral and social pressures on borrower to honor commitment along administrative controls in case of malafied intended defaults should be taken by creditor/society. This would enable a lot of people to understand the dynamics of functional business across industries and boundries could be chalked out by the people who have their stake in the businesses as partnerships after crossing the grant investor stage to feel the pain of business and get experience on qulified and experience people. This is called "maturing the investor" and low barriers to entry throgh selection of funtional arrangement and partners, in fact the money placed in any shortlisted economy will enable to determine the true picture in front of investing party which will eliminate the frenzy pictures painted by all others.
It will require trust and cleanliness to perform all these arrangement and honest is the key to sucess to this model where credit multi perform along societal development with a win-win situation for all.


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Courses: Second-Year Chinese (CNSEB004001)
Spring 2013
Class Number: 1119
Second-year Chinese aims for further development of language skills in speaking, listening, reading, and writing. Five hours of class plus individual conference. This is a year-long course; both semesters (CNSE 003 and 004) are required for credit. Prerequisite: First-year Chinese or consent of instructor. Limited to 18 students.
Div: Lang 2; Haverford: Humanities (HU)
Drills will be at Haverford T/Th 8:30-10:00 or 10:00-11:30.
Enrollment Limit: 18; Enrollment Criteria: Placement Exam;
Fulfills: Class Nbr: 1119 Div: Lang 2; HU
Meeting Times
MWF 9:00am-10:00am,TTH 0:00am-0:00am

subset: commoncrawl


text:
Over the last ten years we have kept one of the largest collections of original male bondage with free access. From time to time we have updated the site and this is the 2013 version of it, more to come in 2014
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text:
By Army Sgt. 1st Class Jon SoucySpecial to American Forces Press Service
CAMP WILLIAMS, Utah, July 28, 2009 When it comes to fighting wildfires, most people immediately think of water or fire retardant dropped from helicopters and other aircraft, or soot-covered firefighters using hoses and foam to battle back towering blazes.
Few people, however, think of goats as a firefighting tool, but goats are exactly what the Utah National Guard is using to lessen the potential of wildfires at this installation near Salt Lake City.
The Utah Guard has enlisted more than 1,200 goats and sheep to consume sagebrush and oak brush before this year's fire season, said Sean Hammond, manager of the Utah Guard's Integrated Training Area. Less brush means less fuel for wildfires, he explained.
But contrary to popular belief, goats won't eat everything.
"There are certain plants that they would just have to be starved to eat," said Doug Johnson, natural resources manager for the Utah Army National Guard. "But they'll eat a lot of our heavy fuels pretty readily, like the sagebrush and the oak brush. And they do a great job dealing with those fields."
The goats were first introduced in 1999 as an experiment in cooperation with Utah State University, Hammond said. Two years later during a massive wildfire that spread through the camp, the goats proved their worth.
"The 'goat firebreak' had only been constructed a very short distance," Hammond said, "but where it was constructed, the fire stopped, even when it jumped roads and other firebreaks."
In 2003, the goats were officially added to Camp Williams' fire prevention plan and were used to construct more firebreaks. The Utah Guard has steadily increased the length of those areas over the past six years, and currently has about 10 miles of goat-cleared firebreaks, Hammond said.
The value of the goats' efforts was proven again in 2006, when another major wildfire broke out on the camp.
"The fire was driven by winds approaching 20 mph into twin, bulldozed firebreaks," Hammond said. "The twin firebreaks held for between 10 and 15 minutes before the fire jumped the lines and raced uphill toward the camp's northern boundary."
At that point, pushed by nearly 40 mph winds, the blaze neared the top of the ridge, when it hit the area cleared by the goats.
"The fire line plowed into the goat firebreak and stopped," Hammond said. "Personnel on the ridge at the time … remarked that had it not been for the goats, the fire would not have stopped at the ridgeline."
If the fire had not stopped there, Hammond explained, it most likely would have continued on to nearby housing developments.
The goats also have helped to clear Camp Williams of other unwanted items. In 2007, an unexploded artillery shell was found after the goats had cleared an area along the camp's artillery impact area. Suspected to have been fired during training in the mid-1980s, the round sat unnoticed in heavy brush before the goats got to it.
"They eat [just about] everything down to stubble," said Army Lt. Col. Hank McIntire, the state public affairs officer. "It makes it look like a wasteland. Once the area was cleared off by the goats, the round was easily seen."
A berm was built around the shell for safety, and an explosive ordnance disposal team destroyed the shell with an explosive charge. The wildfires of the previous year had come within 200 meters of the shell, McIntire said.
The goats' success has strengthened ties with those who live near the camp, McIntire added. Plans are under way to increase the number of goat-built firebreaks. A planned extension is to be built along the western edge of the camp, and the Utah State Forestry and Fire Department will pick up the addition's cost, Hammond said.
(Army Sgt. 1st Class Jon Soucy serves at the National Guard Bureau.)


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Dave Skolberg of Mitchell "blocks" at the end of a pass Saturday afternoon during the Mount Vernon pheasant hunt fundraiser at the Rosewood Barn hunting lodge north of Mount Vernon. Mount Vernon Legion member John Fraser said about 19 hunters participated in the guided hunt, which was followed by a Rocky Mountain oyster and chislic feed at the American Legion in Mount Vernon. Event planners were not sure by press time how much money was raised during the event, but the funds will go to support Mount Vernon Legion baseball. (Candy DenOuden/Republic)
Read the article: PHOTO: Pheasant hunt fundraiser


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Maryland freshman center Trayvon Reed will miss between eight and twelve weeks with a fractured ankle, the program announced in a release on Tuesday evening.
According to the release, Reed suffered the injury in April while he was still in high school and it was discovered during a "pre-participation physical" at the university.
The injury will not require surgery.
Reed stands 7-1, making him the defensive anchor of Maryland's 2014 recruiting class. He was brought in by head coach Mark Turgeon to be a rim-protecting presence with the understanding that his offensive game would need to develop in order for him to be a contributor on that end of the floor at the college level.
Now this injury becomes a setback, as a chunk of the time he would have been able to spend developing this summer has been lost.
Reed is part of a five-man recruiting class for the Terrapins in 2014 along with guards Melo Trimble and Dion Wiley, swingman Jared Nickens, and forward Michal Cekovsky.


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CLEVELAND -- The Jerry Sandusky case has had a profound impact locally.
The Cleveland Rape Crisis Center Hotline (216-619-6192) has received a 300% increase in calls from men seeking help for sexual abuse they suffered as children.
"I have found ways to be strong." says Kevin Sweeney, a sexual abuse survivor.
His story began when he was eight-years-old and his Boy Scout Leader began abusing him. He kept the five years of abuse he endured a secret for decades.
"Like most perpetrators he befriended me first, gained my trust and confidence and then began to do things to me he shouldn't have done," Kevin says.
Like most victims, Kevin never told a soul because the abuser threatened physical harm to Kevin's family.
"I was frightened enough that I knew I had to hold on to the secret."
But keeping that secret carried a price. Kevin experienced Post Traumatic Stress Disorder, such as night terrors and reliving the experience. He says he failed to thrive as a child and developed some Obsessive Compulsion issues as well.
"When you keep your story of your victimization to yourself for long periods of time, it does damage within you. It does damage to your inner core."
Seven years ago Kevin learned the man who abused him had died. That's when Kevin realized he could no longer hide from the affects of the abuse.
"The emotions that I had been keeping suppressed just erupted," Kevin remembers.
At that time, Kevin was in his 40s and for the first time he finally told someone what happened. First his wife, then his family. While he began seeing a therapist, he says healing really began when he started sharing his story with other male victims at the Cleveland Rape Crisis Center.
"By interacting with other men, I have found ways to rewrite my past, so that I understand it and accept it," Kevin says.
Megan O'Bryan, President and CEO of the Cleveland Rape Crisis Center, says the Sandusky case caused organization to review some of it's programs to appeal to men.
"I was very encouraged to see that people were so outraged to learn about this tragedy, and the courage of the men coming forward has really helped other men come forward and say, 'you're not alone. I've been sexually assaulted as well." O'Bryan says.
Kevin hopes his story will help someone else face and fight those demons.
"Hopefully they're stepping forward and getting the help they need so that their lives are better."
Additional Resources click HERE


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Under Pressure
MSN radio sideline reporter Jed Drenning is providing periodic commentary on the Mountaineer football program for WVUsports.com. You can read more about Mountaineer football at Jed's website http://thesignalcaller.com. You can also follow Jed on Twitter: @TheSignalCaller
It's been a wearisome week in the Mountain State and beyond.
On the home front in Tucker County, I was busy with the final edit of this article late Monday night when heavy snows took out our electric. Later in the week, still with no power and with few options at my disposal, I ventured across the mountains to Elkins with my hard drive in tow. Long story short, if not for the kindness (and power source) offered by the office of Dr. Eric Anger and the technical know-how provided by Dr. Matthew Downs (a forgiving Marshall grad, I might add), I couldn't have submitted this edition of "Hot Reads" in time to run before the game. Many thanks, guys.
When it rains, it pours . . . but even the wind and snow of Frankenstorm can't compare to the deluge Texas Christian head coach Gary Patterson has faced over the last 12 months.
Four weeks ago, an overwhelming adversity wrought by months of attrition – coupled with the weight of playing so many freshmen (28 overall) - finally caught up to Patterson's Horned Frogs. Since the end of last season, Texas Christian had already parted ways with 20 players and several would-be starters for various off-the-field reasons when another issue outside the lines in the early hours of Oct. 4 struck the program with perhaps greater velocity than anything yet. Starting quarterback Casey Pachall, a 2011 second team all-Mountain West performer, was arrested by Fort Worth police and charged with DWI. The arrest quickly resulted in Pachall's suspension from the team and ultimately the junior signal caller dropped out of school to pursue rehabilitation. The incident came on the heels of a sensational September by Pachall in which he had thrown 10 touchdowns against just one interception to guide Texas Christian to a 4-0 start.
It's difficult to the extreme for a team to withstand these kinds of personnel hits without suffering through an aftermath – and the Frogs have suffered indeed. Since Pachall left the program, TCU has lost three of four games. Redshirt-freshman Trevone Boykin was thrust into duty as Pachall's replacement. Boykin, ranked by some recruiting outlets as the No. 5 dual-threat QB in the nation coming out of West Mesquite (Tex.) High School two years ago, has had his moments. He engineered a 332-yard passing effort in a triple-OT loss to Texas Tech, in addition to a seminal performance in a 49-21 win over Baylor in which he accounted for 317 total yards and five scores. Boykin left last week's loss to OSU, however, with an injury and was replaced in the final minutes by sophomore Matt Brown. Boykin's status heading into the West Virginia game is questionable, although Patterson has said this week that he will start, but Boykin's health only adds to a growing list of concerns for Patterson's squad. Texas Christian, which earlier in the year lost starting tailback Waymon James to injury for the entire season, might also be without leading rusher Matthew Tucker on Saturday. Adding to the difficulty of TCU's situation is the status of defensive end Stansly Maponga, a preseason first team all-Big 12 selection, which is unclear as well as the Frogs head to Morgantown.
Nevertheless, a Patterson defense is still a Patterson defense. Irrespective of defections and personnel issues, his units are invariably smart, physical and tougher than a two-dollar steak.
As expected, the Horned Frogs unique 4-2-5 scheme has once again proved exceptional in key areas, ranking No. 6 nationally in third down defense and No. 1 in the Big 12 against the run while leading the league with an eye-popping 22 takeaways (16 of which have come in TCU's four road games).
"They are very sound in what they do," said Dana Holgorsen earlier this week." They don't have a lot of busted assignments. There aren't a lot of blown coverages. They don't beat themselves on defense."
To that point, during an offseason conversation I had with a friend who regularly faced Patterson's defensive wizardry as an offensive coordinator in Conference USA, he assured me that – high flying Big 12 offenses or not – one team that would show up to play solid defense on a weekly basis would be Texas Christian. By and large that's been true this fall, but TCU has been somewhat susceptible on the backend, allowing 300-plus yards through the air four times in five league games. The Frogs have helped compensate for this deficiency by picking off 15 passes, tops in the Big 12.
The Mountaineers have been mired in their own share of well-documented troubles against the pass, allowing 360 yards per game through the air to rank last in the nation while yielding a gaudy 28 completions of 25-plus yards. Perhaps more distressing is the fact that WVU ranks 119th in the country in pass efficiency defense – an underrated statistic in the pass happy Big 12 Conference where it can be a deceptively telling benchmark. In 2010, the Mountaineers ranked 13th nationally in this same category. A year ago, they finished 11th. This season, the only team ranked lower than West Virginia in pass efficiency defense is a leaky Colorado unit that has allowed 29 touchdown tosses while intercepting just three passes.
Just how bad have things gotten for the Mountaineer pass defense? West Virginia is the only team in the nation allowing more than 10 yards per pass attempt. For the sake of precision, the figure is actually 10.04. That's not per completion – that's per attempt. To embrace the magnitude of that figure, consider that the only team I could dig up in this century that finished a season allowing close to 10 yards per pass attempt was a winless 2001 Navy squad, which yielded 9.96.
So what has brought us to this unimaginable defensive crisis? Yes, youth has played a role (as has an overall lack of numbers) but the answer might be less complex than you think, and is tantamount to a pair of mismatched ships crossing in the night. What you have witnessed this year is quite simply a defense that lacks depth at key areas (WVU listed eight freshmen on its defensive two-deep against K-State) navigating a schedule replete with twice as many capable offenses (particularly passing attacks) as any slate in West Virginia history. Imagine if a whaling vessel sailed into open waters against the 16-inch guns of the USS New Jersey. Now imagine if it did so for three hours every Saturday. In recent weeks you've regrettably seen what that might look like.
The good news is that it can be fixed, or at least duct-taped, but don't expect that to happen until WVU revives its lost pass rush and returns to the business of penetrating the backfield. During West Virginia's 5-0 start, it averaged one sack every 13 opponents' pass attempts and one tackle-for-loss every 10 snaps. Compare that to the ratios of one sack per every 33 pass attempts and one TFL for every 17 snaps that WVU has fallen to during its two-game skid and you begin to see why the Mountaineers defensive shortcomings have crept to the surface.
In its first five games West Virginia faced three offenses that are now ranked in the top 15 nationally in scoring and allowed 460 yards (336 passing) and 35 points per contest. In its two losses – both against top 15 scoring offenses as well - the WVU defense has yielded a far more alarming average of 577 yards (411 passing) and 52 points.
Defensive pressure is what allows you to surrender yards by the bucket-full and still win games. It's what puts a defense in position to force enough turnovers (WVU had 1.6 takeaways per game during the 5-0 start and 1.0 since), create enough third and longs and make enough key stops to help a team win.
• With 10 tackles-for-loss against Marshall (a total that included two each by Terence Garvin, Josh Francis and Karl Joseph), West Virginia forced the Herd into several unmanageable third down and long situations – including third and 17 and third and 14 in the first quarter alone. This helped WVU shuffle Rakeem Cato and the Marshall offense off the field three times in the Herd's first four tries on third down, setting the stage for Geno Smith and West Virginia's own offense to seize an early 13-0 lead that was never relinquished.
• Would the Mountaineers win over Maryland have ended differently if the tempo hadn't been set by a Darwin Cook sack in the first quarter? Cook's sack stopped a Terps drive to the WVU 30 and broke open a scoreless game with a forced fumble that was scooped up by Doug Rigg who rambled 51 yards for the first points of the game.
• Where might West Virginia have been without the two Garvin sacks in the second quarter against Baylor that led to a missed field goal and a punt?
• It was a fourth quarter sack by WVU's Francis on second and eight in the Texas game that led to an incompletion on third and long and helped the Mountaineers cling to a 41-38 lead. On the next series it was a Pat Miller sack following an errant shotgun snap that led to a missed Longhorns field goal attempt to once again help WVU secure the lead and, ultimately, the win.
Gloss over for a moment the yards, or even the points allowed, in those games. Those aren't the entire focus. The plays listed above are exactly the type the West Virginia defense was making with enough frequency through five games to help Dana Holgorsen's squad remain unbeaten. To right the aforementioned ship after consecutive losses, it's incumbent upon the Mountaineer defense to rediscover that same big play aptitude and that same sense of opportunistic timing. Pressure at the point of attack – whether in the form of sacking the quarterback or taking down a ball carrier for a loss - is a deodorant that can conceal a lot of defensive odors and help win games.
The time is ripe for the West Virginia defense to reassert itself as a unit capable of making game-changing plays. Texas Christian's inexperience under center has been on display since losing Pachall prior to the Iowa State game. In four games without him, TCU has turned the football over 11 times while allowing one sack every 16 pass attempts. Moreover, the Frogs have hit a slump in their efforts to move the chains, successfully converting just seven of their last 32 (22%) third down attempts.
Injuries and roster depletion have resulted in a TCU lineup that's glued together like a ransom note. Despite considerable talent at several positions (including a dynamic receiving corps) this unpredictability is catching up to the Frogs in the form of inconsistency and uneven play. Last Saturday's 36-14 loss at Oklahoma State snapped a national-best streak of 33 straight games in which TCU had scored 20-plus points. Throw into the mix Texas Christian's newfound penchant for coughing up the football and this might be exactly the kind of offense a struggling West Virginia defense needs to make things right.
The time is now to stop the bleeding.
See you at the fifty.
Jed Drenning, West Virginia University Mountaineers, WVU, Big 12 football, TCU Horned Frogs
Big 12 Media Days: Dana Holgorsen
Women's Soccer: Amanda Hill and Mocha
Big 12 Media Days: Nick Kwiatkoski
Football: Dana Holgorsen on ESPN
Big 12 Media Days: Day One Report
Men's Basketball: Summer Update


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Article ID: 939942 - View products that this article applies to.
This article has been archived. It is offered "as is" and will no longer be updated.
Bug #: 50001392 (SQL Hotfix)
Microsoft distributes Microsoft SQL Server 2005 fixes as one downloadable file. Because the fixes are cumulative, each new release contains all the hotfixes and all the security fixes that were included with the previous SQL Server 2005 fix release.
On This Page
This article describes the following about this hotfix release:
Consider the following scenario. To use Microsoft SQL Server 2005 Service Pack 2 together with Microsoft SharePoint Products and Technologies, you configure Microsoft SQL Server 2005 Reporting Services to run under the SharePoint integrated mode. Additionally, you configure Reporting Services to use a trusted account. You configure the SharePoint Products and Technologies Web application to use forms-based authentication. In this scenario, you receive the following error message when you try to access a report:
<title>Object moved</title>

Object moved to here.

This problem occurs because the WebRequestHelper.SetRequestHeaders(webRequest) function deletes the forms authentication cookie. However, a later call of the WebRequestHelper.SetRequestHeaders(webRequest) function does not add the forms authentication cookie again. SharePoint Products and Technologies correctly adds the forms authentication cookie when SharePoint Products and Technologies connects to the SOAP proxy. SharePoint Products and Technologies connects to the SOAP proxy when you try to access the report.
Hotfix informationA supported hotfix is available from Microsoft. However, this hotfix is intended to correct only the problem that is described in this article. Apply this hotfix only to systems that are experiencing this specific problem. This hotfix might receive additional testing. Therefore, if you are not severely affected by this problem, we recommend that you wait for the next software update that contains this hotfix.
If the hotfix is available for download, there is a "Hotfix download available" section at the top of this Knowledge Base article. If this section does not appear, contact Microsoft Customer Service and Support to obtain the hotfix.
Note If additional issues occur or if any troubleshooting is required, you might have to create a separate service request. The usual support costs will apply to additional support questions and issues that do not qualify for this specific hotfix. For a complete list of Microsoft Customer Service and Support telephone numbers or to create a separate service request, visit the following Microsoft Web site:
http://support.microsoft.com/contactus/?ws=supportNote The "Hotfix download available" form displays the languages for which the hotfix is available. If you do not see your language, it is because a hotfix is not available for that language.
Restart informationYou do not have to restart the computer after you apply this hotfix.
Registry informationYou do not have to change the registry.
Hotfix file informationThis hotfix contains only those files that are required to correct the issues that this article lists. This hotfix may not contain all the files that you must have to fully update a product to the latest build.
The English version of this hotfix has the file attributes (or later file attributes) that are listed in the following table. The dates and times for these files are listed in Coordinated Universal Time (UTC). When you view the file information, it is converted to local time. To find the difference between UTC and local time, use the Time Zone tab in the Date and Time item in Control Panel.
Collapse this tableExpand this table
Microsoft has confirmed that this is a problem in the Microsoft products that are listed in the "Applies to" section.
More information
For more information about the naming schema for SQL Server updates, click the following article number to view the article in the Microsoft Knowledge Base:
822499For more information about software update terminology, click the following article number to view the article in the Microsoft Knowledge Base:
(https://support.microsoft.com/kb/822499/ )New naming schema for Microsoft SQL Server software update packages
(https://support.microsoft.com/kb/824684/LN/ )Description of the standard terminology that is used to describe Microsoft software updates
Article ID: 939942 - Last Review: January 16, 2015 - Revision: 4.0