When I worked for Fannie Mae, company size was a big reason why some lenders got slack and others didn’t. A major “customer” (i.e. seller of loans) could easily get special exceptions to underwriting policies, but it often wasn’t worth anyone’s time to negotiate with small lenders, and each one has less negotiating leverage anyway.
Much like in the parable of the talents, unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath.
This is a good reason to be worried about inequality, and more worried where the system seems opaque and mysterious.
Isn’t this an argument for encouraging more profitable banking (e.g., by eliminating capital requirements) so that banks could afford to give personalized attention to small borrowers? If banking is restricted, there’s only enough banking to go around for the big fish.
Sort of. With the kind of regulatory capture we have now, I don’t think we can assume that any plan like that will be done in a way that does what we want it to do, without a very close analysis of the specific institutions affected.
For example, it seems as though lower interest rates should have lowered the cost of living in a home. But instead they helped drive up prices where supply was inelastic until it was just as expensive. It also created a speculative bubble which led to the construction of many homes that eventually sat idle for a long time, not an obvious improvement in the use of capital. Wealth was transferred to incumbent homeowners, and intermediaries who make money on transaction volume. I worry that piecemeal deregulation like this would have analogous perverse consequences.
This might also just be trying to solve the wrong problem. If policymakers tried to make rules to keep the system stable, and then large actors used their bargaining power to extract profitable concessions that externalized costs onto the rest of the system, and then the system blew up in part because of those exceptions, it seems a bit strange to say that the problem is that small actors should have gotten a break too.
When I worked for Fannie Mae, company size was a big reason why some lenders got slack and others didn’t. A major “customer” (i.e. seller of loans) could easily get special exceptions to underwriting policies, but it often wasn’t worth anyone’s time to negotiate with small lenders, and each one has less negotiating leverage anyway.
Much like in the parable of the talents, unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath.
This is a good reason to be worried about inequality, and more worried where the system seems opaque and mysterious.
Isn’t this an argument for encouraging more profitable banking (e.g., by eliminating capital requirements) so that banks could afford to give personalized attention to small borrowers? If banking is restricted, there’s only enough banking to go around for the big fish.
Sort of. With the kind of regulatory capture we have now, I don’t think we can assume that any plan like that will be done in a way that does what we want it to do, without a very close analysis of the specific institutions affected.
For example, it seems as though lower interest rates should have lowered the cost of living in a home. But instead they helped drive up prices where supply was inelastic until it was just as expensive. It also created a speculative bubble which led to the construction of many homes that eventually sat idle for a long time, not an obvious improvement in the use of capital. Wealth was transferred to incumbent homeowners, and intermediaries who make money on transaction volume. I worry that piecemeal deregulation like this would have analogous perverse consequences.
This might also just be trying to solve the wrong problem. If policymakers tried to make rules to keep the system stable, and then large actors used their bargaining power to extract profitable concessions that externalized costs onto the rest of the system, and then the system blew up in part because of those exceptions, it seems a bit strange to say that the problem is that small actors should have gotten a break too.