ARNOLD KLING
August 14, 2011
The Top Political Contributors
August 11, 2011
Gender and the New Commanding Heights
August 11, 2011
Jamie Galbraith Makes an Assumption
August 11, 2011
Macroeconometrics: The Science of Hubris
August 10, 2011
Real and Nominal Bond Yields
BRYAN CAPLAN
August 14, 2011
The Effect of Thumb Sucking on Income
August 12, 2011
The Voice of Cold, Hard Truth to All Would-Be Educators
August 12, 2011
Ability, Morality, and Prosperity: A Paper and a Report
August 11, 2011
The Theory of Time and Frittering
August 10, 2011
Male Variance and the Remnants of the Gender Gap
DAVID HENDERSON
August 9, 2011
Hayek in "Unbroken", Part Two
August 8, 2011
Hayek in "Unbroken"
August 5, 2011
James Bovard on the Peace Corps
August 4, 2011
Summers Way Off on FDR and 1941
August 3, 2011
The "Amazon" Tax
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I suppose Arnold is right that fraud is part of the cause of current mortgage crisis.
But traders have always faced the possibility of fraud, throughout the history of trade. Every threat of substantial loss to a trader creates an opportunity for an entrepreneur to invent a service which moderates the threat. Entrepreneurs constantly innovate with institutions of surety and trust, with the result that most of us can trade most of the time without encountering more risk than we can tolerate.
The scale of the current disturbance in mortgages suggests that something has happened outside this picture of market moderation. I suppose there must have been some act (or set of acts) by the state which encouraged or tolerated abnormal levels of fraud. But I have not yet seen a description of that act (or set of acts) by the state which convincingly identifies the cause of the current disturbance, to my thinking that is.
"Wall Street thought they were buying genuine mortgage loans"
Bull. The proof is simple, they could have paid you a few thousand and you would have explained it to them.
On the subject of subprime mortgage fraud, this link will take you to a colorful hedge fund letter on the subject that circulated "on wall street" a couple of months ago.
http://www.greaterdemocracy.org/wp-content/uploads/2007/08/haymanjuly07.pdf
Wallstreet was aware of the risks in buying mortgage backed securities. They should man up to their risks and stop blaming other ppl. Many brokers, processors, underwriters, etc have lost their jobs due to the mess.
North Carolina Mortgage
Yes, there was a blind eye turned to the risks of investing in mortgages by investors. However, the system was set up that the particulars needed to spot fraud were aggregated into oblivion by the time an investor saw anything.
Fraud detection was required early and low in the aggregation. Brokers and wholesalers chose not to do ask questions and thus put their business at risk. Now that the losses are accruing, investors aren't willing to risk their money on something with a history of going bad. Brokers and others in the industry are losing their jobs because the "industry" failed to protect their interests but rather went for the quick cash. Now anything coming out of a broker/wholesaler is viewed with suspicion and being mistrusted isn't a good trait for an investment.
Claiming you added sawdust to the candy only because the buyer had an insatiable sweet tooth and sugar was hard to come by, won't cause the buyer to purchase more candy once he realizes he has wood pulp in his teeth. Same goes for bad loans.