If I worked on Wall Street … I would be bilking people out of their life savings
Do you actually think that a finance professional who donated a significant portion of their income to effective charity would be doing more harm than good? Even given that you can save the life of a child in the developing world for on the order of $2000?
I don’t think the problem is finance professionals in general—it’s finance professionals in particularly corrupt parts of the industry.
Figuring out in advance that a job is doing particularly corrupt work seems to be something that people are very bad at—I don’t know whether it’s mostly that it would be hard for a neutral observer, or that people don’t want the problems of dealing with the consequences to their own lives if they find that their job is destructive.
Hmm, I was thinking the assumption (which I don’t necessarily entirely agree with) was that finance professionals were simply earning money without providing any benefit to society, and so a net negative. It sounds like your comment assumes that some of them are actually actively doing harm (though perhaps unintentionally), beyond just taking their own paycheck’s worth out of the productive economy. Is that your understanding?
The mortgage crisis was a result of banks being able to sell mortgages to other banks. This meant that the bank making the loan could make money just by the mortgage being initiated—the first bank no longer had a strong interest in the loan being repaid.
There were some other pieces to the situation that I don’t have clear in my mind at the moment, but I think there were incentives for the mortgage to actually not be repaid and the house to be taken by a bank.
One piece that I am clear on is that there were people who decided it wasn’t worth it for banks to keep accurate track of who owned which mortgage, or what had been paid, or what had been agreed to.
This is stealing people’s houses. It’s a degree of damage which it’s hard to imagine being covered by charity.
The other side of the story is that not every bank behaved like that—not all of finance is fraudulent.
Its at least somewhat true, if perhaps not well stated- packaged mortgages and derivatives based on packaged mortgages (mortgages sold as investment vehicles to other banks and funds) played a very large role in the crisis.
Without “selling mortgages to other banks” the popping of the housing bubble wouldn’t have turned into the liquidity crunch that started in 2008.
So were mortgages by themselves. Without the widespread availability of mortgages “the popping of the housing bubble wouldn’t have turned into the liquidity crunch” too. Or, for that matter, without the fact that the “standard” mortgage is a 30-year fixed—not, say, a 1⁄1 ARM.
But anyway, the reason for the contagion from mortgages to liquidity wasn’t the ability to sell mortgages. It was the mispricing of mortgage derivatives, specifically the widespread belief that certain tranches of collateralized mortgage obligations (CMOs) were effectively risk-free.
If you want to dig deeper, the real cause was the global asset bubble helped by the too-loose monetary policy in the mid-2000s.
Financial economics are complicated. Snap judgements from popular press rarely have much relationship to reality.
So were mortgages by themselves. Without the widespread availability of mortgages “the popping of the housing bubble wouldn’t have turned into the liquidity crunch” too.
Well, sure. And also without houses themselves…
My point is that the statement wasn’t false on its face. Repackaging and reselling was A proximate cause of the liquidity crunch, its not the only cause but its a part of what happened.
This is stealing people’s houses. It’s a degree of damage which it’s hard to imagine being covered by charity.
Is it really? I suppose this depends on how many houses any individual is responsible for and how much money they capture per house. I guess that second part is the real issue—any individual who would be giving to charity probably only captures a fraction of what they earn for their firm.
But if you could capture the whole value of a predatory mortgage and convert it into developing world lives saved, it’s not hard to imagine the numbers adding up. (One American family goes bankrupt and 20 Malawian children who otherwise would have don’t die in childhood? On the face of it that looks like a pretty positive net outcome.)
If you can do outsized damage significantly beyond what you can capture as income though, then I suppose it gets a bit tougher to justify.
(One American family goes bankrupt and 20 Malawian children who otherwise would have don’t die in childhood? On the face of it that looks like a pretty positive net outcome.)
If we’re talking about donations on the scale of the activities that went into the mortgage crisis, I think you’d start to suffer seriously diminishing returns.
Even if you didn’t, there are other problems you’d run into, such as the limited ability of the Malawian (or other impoverished African) society and economy to accommodate such a sudden spike in children surviving to adulthood. The lives that you save from extermination at the hands of malaria or other preventable causes are probably mostly going to be relatively lousy or short due to other causes, pending much further investment.
As I understood it, the hypothetical was a single individual deciding to work in finance and donate a large portion of their income to efficient charity. In that case I don’t think the diminishing returns are so much of an issue.
I would worry more about negative flow-through effects of a decline in trust and basic decency in society. I think those are much more clear than flow-through effects of positive giving. I’m not sure if this outweighs the 20-to-1 ratio.
Do you actually think that a finance professional who donated a significant portion of their income to effective charity would be doing more harm than good? Even given that you can save the life of a child in the developing world for on the order of $2000?
I don’t think the problem is finance professionals in general—it’s finance professionals in particularly corrupt parts of the industry.
Figuring out in advance that a job is doing particularly corrupt work seems to be something that people are very bad at—I don’t know whether it’s mostly that it would be hard for a neutral observer, or that people don’t want the problems of dealing with the consequences to their own lives if they find that their job is destructive.
Hmm, I was thinking the assumption (which I don’t necessarily entirely agree with) was that finance professionals were simply earning money without providing any benefit to society, and so a net negative. It sounds like your comment assumes that some of them are actually actively doing harm (though perhaps unintentionally), beyond just taking their own paycheck’s worth out of the productive economy. Is that your understanding?
The mortgage crisis was a result of banks being able to sell mortgages to other banks. This meant that the bank making the loan could make money just by the mortgage being initiated—the first bank no longer had a strong interest in the loan being repaid.
There were some other pieces to the situation that I don’t have clear in my mind at the moment, but I think there were incentives for the mortgage to actually not be repaid and the house to be taken by a bank.
One piece that I am clear on is that there were people who decided it wasn’t worth it for banks to keep accurate track of who owned which mortgage, or what had been paid, or what had been agreed to.
This is stealing people’s houses. It’s a degree of damage which it’s hard to imagine being covered by charity.
The other side of the story is that not every bank behaved like that—not all of finance is fraudulent.
This is not true. In fact, this is probably not even wrong...
Its at least somewhat true, if perhaps not well stated- packaged mortgages and derivatives based on packaged mortgages (mortgages sold as investment vehicles to other banks and funds) played a very large role in the crisis.
Without “selling mortgages to other banks” the popping of the housing bubble wouldn’t have turned into the liquidity crunch that started in 2008.
So were mortgages by themselves. Without the widespread availability of mortgages “the popping of the housing bubble wouldn’t have turned into the liquidity crunch” too. Or, for that matter, without the fact that the “standard” mortgage is a 30-year fixed—not, say, a 1⁄1 ARM.
But anyway, the reason for the contagion from mortgages to liquidity wasn’t the ability to sell mortgages. It was the mispricing of mortgage derivatives, specifically the widespread belief that certain tranches of collateralized mortgage obligations (CMOs) were effectively risk-free.
If you want to dig deeper, the real cause was the global asset bubble helped by the too-loose monetary policy in the mid-2000s.
Financial economics are complicated. Snap judgements from popular press rarely have much relationship to reality.
Well, sure. And also without houses themselves…
My point is that the statement wasn’t false on its face. Repackaging and reselling was A proximate cause of the liquidity crunch, its not the only cause but its a part of what happened.
Is it really? I suppose this depends on how many houses any individual is responsible for and how much money they capture per house. I guess that second part is the real issue—any individual who would be giving to charity probably only captures a fraction of what they earn for their firm.
But if you could capture the whole value of a predatory mortgage and convert it into developing world lives saved, it’s not hard to imagine the numbers adding up. (One American family goes bankrupt and 20 Malawian children who otherwise would have don’t die in childhood? On the face of it that looks like a pretty positive net outcome.)
If you can do outsized damage significantly beyond what you can capture as income though, then I suppose it gets a bit tougher to justify.
If we’re talking about donations on the scale of the activities that went into the mortgage crisis, I think you’d start to suffer seriously diminishing returns.
Even if you didn’t, there are other problems you’d run into, such as the limited ability of the Malawian (or other impoverished African) society and economy to accommodate such a sudden spike in children surviving to adulthood. The lives that you save from extermination at the hands of malaria or other preventable causes are probably mostly going to be relatively lousy or short due to other causes, pending much further investment.
As I understood it, the hypothetical was a single individual deciding to work in finance and donate a large portion of their income to efficient charity. In that case I don’t think the diminishing returns are so much of an issue.
I would worry more about negative flow-through effects of a decline in trust and basic decency in society. I think those are much more clear than flow-through effects of positive giving. I’m not sure if this outweighs the 20-to-1 ratio.