Dan Ariely’s Alternative Views of the Mortgage Crisis
By Barry Ritholtz - December 4th, 2008, 8:30PM
The behavioral economist on what we don’t see about the crumbling economy.
I do not know which makes a man more conservative—to know nothing but the present, or nothing but the past. —John Maynard Keynes, The End of Laissez-faire (1926) Ch. 1
Macro Notes
Sneakers, smartphones and software help to lift the moodPeter Boockvar
The 3 high profile earnings reports last night, NKE, ORCL and RIMM, all provided positive surprises and they are the main catalyst for the pre opening rally. Today is also quad witch expiration and the S&P quarterly rebalancing. China is taking another step forward in cooling their property mark set by requiring at least a 50% down payment on any purchases of land. This follows a tax on the sale of homes made within 5 yrs of purchase. Also, late yesterday Fitch said that Chinese bank's have off balance sheet transactions that are masking the true credit condition of their...
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December 4th, 2008 at 9:58 pm
What an academic. All hot air, and no substance. I can’t believe this guy is a professor. People DO design products for a wide range of abilities and limitation, and it’s always up to the consumer to figure out what’s best for them. Somehow a huge bank is going to do a better job of figuring out your ability to pay than you are? Or was he suggesting we just have a lowest common denominator approach to everything. God help us if we start listening to idiots like this guy.
December 4th, 2008 at 11:56 pm
Actually, we were already supposed to be doing what he recommends. The part he apparently does not understand, is that those with a fiduciary role (for example, mortgage brokers), took advantage of their client’s limitations.
Perhaps one of the most dramatic examples is found in the area of real estate appraisals, and the virtuous circle they fed into: up and down that particular foodchain were experts that knew better, but took the check.
I agree in one sense, however, that it seems goofy to have all these folks coming outta the woodwork, now that the whole debacle is obvious with 20/20 hindsight. Where was all this razor sharp analysis a year ago?
December 5th, 2008 at 7:15 am
LOL. Not just an academic….a European academic. Ack. I learned zero (and I even tried).
December 5th, 2008 at 7:50 am
His premise that the average person can’t figure out how much to borrow is absurd. The average person understands how much he can afford in terms of monthly payment. The average person understands, if told, how much a loan could go up and suddenly be unaffordable. That is not the problem .
The problem is a culture of ninnies that refuses to accept that reward is directly tied to productivity. Thisculture has decided to reward everyone, regardless of contribution. It started with kid’s soccer games where well-meaning dolt parents refused to keep score for fear of “labeling” some as winners and others as losers. These dolts did the same thing with housing, demanding that everyone be given the right to own a home. Now they are doing it with banking, autos, and anyone else who would fail.
So people didn’t need to know how much they could afford. It’s not like they have to pay it back.
The real issue, which this guy completely misses, is what this means going forward. Do you really think states like Texas and Oklahoma who spend within their means are going to fork over billions to bail out states like California who don’t? Do you really think that this will not be exploited for political gain in the states that are muddling through? Of course it will.