How to Get a Ton of People to Cross a Freeway

Incent them.

See, for a long time the whole housing crisis and economy things has been blamed on greed.  You know, greed of the bankers and the banks.  Greed of the mortgage lenders and the lending houses.  Greed on the folks thta bought and sold mortgage backed securities.  All of ’em.  all Street is just infested with greed.  [Note the absence of the greed of the home owner.  Cause’ you know, guys who earn 17k as a fry cook at the DQ aren’t being greedy when they try and buy a 400,000 dollar house.]

Never understood that.  I have always felt it’s supposed to be that way.  You know, like when I’m offered two similar jobs, I take the one that pays the most.  When trying to buy a car, I try to find the best price and then again, when given a chose between gas at $2.55 or gas at $2.85, I always pick the $2.55 price.  Always.  Never occurs to me who is more deserving.  IN fact, the only person I think of is me.  And how I benefit.  We’re all greedy.  And the whole thing depends on that.  It’s why we invent all the things that we invent.  Because we want to make money.  And because of that, we have innovations and quality of life increases and all kinds of progressive stuff.

Anyway, so, I have tried to explain it this way.  Suppose I have a hundred bucks that I wanna lend in order to make some money.  And two guys come to me wanting to borrow that money and then repay me $103.  Who am I going to lend it to?  Well, I am going to try to identify which one is better able and most likely to repay me.  Then I’m gonna lend the money to him.  Every time.  Every single time.  Always.  Not ever the other guy.  Ever.

Except.

Except if I can change the rules a little and shade gain along with risk.  That it, if I am able to enter into agreement on different terms, I may be willing to lend to the other guy.  What, you ask, would cause me to lend to the less qualified borrower?  Why, by increasing the return.  I may be willing to lend to the guy if he agrees to pay me back $115 dollars.  And so we negotiate and come to terms.  Note, however, that neither of us are going to agree to terms unless we think that it is in our best interest to do so.

Now, in this small example, can you think of a thing that would cause me to ignore the ability of the borrower to pay me back?  In other words, what would cause me to just loan that hundo out to EVERYBODY that knocked on my door?  Nothing.  I would never do that.  Ever.

Except.

Except if Ii could turn around and sell that loan to another company.  Now to compress the story…what would cause THAT company to buy these loans from lenders without knowledge of risk?  The same thing.  The ability to sell ’em.  And you know who was buyin?  Fannie and Freddie.  And you know why THEY were buyin’?  Cause they had NO downside.  If they as a company fail, the government would bail ’em out.  And they did and Uncle Sam did too.

So, I have always said that if you lined up 10,000 people on one side of I-540 and I was on the other, I could increase the number of people who tried to cross by increasing the financial incentive to do so.  And, in the end, whose fault would it be if someone was hit and killed?  Tricky huh?

But today, today I am vindicated.

Leave a Reply

Your email address will not be published. Required fields are marked *