Egad
Posted by tgirsch

Please tell me this is some kind of sick joke…

August 9th, 2007 | Culture, Terrorism | no comments

Sub-Prime Mortgages and the Limits of Personal Responsibility
Posted by tgirsch

This whole sub-prime mortgage crash has me thinking, about some things I’ve been thinking about a lot lately. If reports are correct, you could have some 7 million Americans losing their homes. This is, of course, a Very Bad Thing. But it raises a lot of questions concerning what, if anything, to do about it.

Invariably, when stuff like this happens, the “personal responsibility” crowd always starts chiming in about how these people shouldn’t have bought homes in the first place, shouldn’t have taken loans with these oppressive terms, etc. And they’re probably right, as far as it goes. But what really bothers me — what just does not sit right at all — is this tendency to put essentially all of the risk and all of the blame on the people who took out the loans, while effectively giving those who made the loans a free pass.

Sure, it’s stupid to take out an interest-only loan with 0% down and a low teaser rate that balloons into an oppressive variable rate. But to make such loans — especially to the low-income people most likely to take them out — isn’t just stupid, it’s criminal. As bad as it is, it’s even worse with the credit card industry. Between ridiculous interest rates — in some cases 30% or more — and exorbitant service charges for all sorts of things, it’s an industry whose entire profit model is predicated on ripping people off. They’re not just allowing people to make bad decisions, they’re counting on it. More than that, they spend untold millions every year actively encouraging that behavior. That, too, is just plain criminal, whether or not it’s technically illegal. There was a time, not all that long ago, when we used to call predatory lenders “loan sharks.” Now, we call them “banks.”

And lest you think it’s just the people directly involved who are victimized, think again. Lenders raise rates and fees elsewhere to compensate for the percentage of people they lend to who they know will inevitably default. When some of them file for bankruptcy, everyone pays, not just them. Worse still, with personal debt at record highs and personal savings at record lows, our entire economy is artificially buoyed by these wholly unsustainable business practices. Sooner or later, something’s got to give, and the entire economy is going to suffer for it.

My argument is, it ought to be illegal to engage in these business practices. I just don’t see why “personal responsibility” only ever applies to the exploited, and not the exploiters; and I don’t see why “freedom” has to be equated with “the freedom to rip people off,” still less the freedom to rip poor people off. To my mind, this is exactly the sort of regulation of commerce that the government ought to be involved in. When an entire industry exists to take advantage of people, and the entire economy stands to suffer greatly as a result, why shouldn’t the government step in and do something? What ever happened to an ounce of prevention?

All of this brings me to an even larger point: Why is it that “personal responsibility” types are so unwilling to look at these problems in the aggregate? It’s all well and good to say that people should behave in a personally responsible manner — they’re right, they should — but what happens when we know that as a rule, the majority of them (or even a large minority of them) won’t do so? At some point, personally irresponsible behavior becomes everybody’s problem, not just the problem of those engaging in it. So why are we so allergic to taking proactive steps to prevent it, or at least to prevent profiteers from taking advantage of it? You know that the profiteers are thinking about these things in the aggregate: they have a pretty good idea of how many people are going to default after how long / how much paid, and they’re budgeting accordingly. (And, when their estimates turn out to be wrong, they hide behind bankruptcy and other such corporate protection.) If they’re allowed to think in such terms, why can’t we as a society do the same?

Before anyone accuses me of it (as someone inevitably will), I’m not suggesting that we tightly regulate and control all aspects of an individual’s every day life. Nor am I some sort of anti-capitalist. Far from it. I’m all in favor of making an honest buck. I just put a lot of emphasis on the “honest” part of the equation. What I advocate is, for lack of a better term, supply-side regulation. If you want to solve problems like these, you need to attack the predators, not their prey. Put strict regulations on high-risk loans, and prohibit the kind of predatory marketing these lenders often engage in. Put mandatory caps on variable interest rates. Require the lenders to carry default-insurance on the high-risk loans they do write.

If banks can’t stay in business without resorting to such despicable practices, then in my estimation, they don’t deserve to stay in business. I’d widen that beyond banks, too: If your business model relies on ripping people off, you’re a criminal, plain and simple, and the law ought to recognize that.

August 9th, 2007 | Politics, Economics, News & Current Events | 26 comments

Early School Good For Kids
Posted by Kevin

I don’t think there is much doubt about this any more, but here is more evidence that pre-school is good for kids, even the most disadvantaged:

Minority preschoolers from low-income families who participated in a comprehensive school-based intervention fared better educationally, socially and economically as they moved into young adulthood, according to a report by University of Minnesota professors Arthur Reynolds and Judy Temple. The study is published today in the Journal of the American Medical Association’s (JAMA) Archives of Pediatrics & Adolescent Medicine. Reynolds is a child development professor in the College of Education and Human Development and Judy Temple is a professor in the department of applied economics and in the Humphrey Institute of Public Affairs.

“This study is the first to show that large-scale established programs run by schools can have enduring effects into adulthood on general health and well-being,” Reynolds says. “Early childhood programs can promote not only educational success but health status and behavior.”

Reynolds’ research group discovered that by age 24, children who were involved in preschool programs were more likely to finish high school, attend four-year colleges and have health insurance coverage, and less likely to be arrested for a felony, be incarcerated or develop depressive symptoms. For example, the preschool group had higher rates of high school completion with 71.4 percent finishing high school compared with a 63.7 percent finish rate among those in the non preschool group. Those who attended preschool also were more likely to have health insurance with 70.2 percent having insurance compared with 61.5 percent of those not in preschool. Those children in the program also had lower rates of felony arrests with 16.5 percent compared with 21.1 percent and lower depressive symptoms with 12.8 percent compared with 17.4 percent.

Universal pre-school would not be the first thing I introduced if I was made Supreme Ruler of the Universe, but it would be in the top five. For a relatively modest investment, it returns enormous amounts to society.

August 9th, 2007 | Politics, Economics, Culture, Education | 5 comments