Some scientists think that investors are wired to focus on negative news such as this and make hasty decisions that cause the market as a whole to suffer. As Scientific American reported in its July 2009 issue, “Behavioral economic theories, which focus on the psychology of finance, predict that, at times, irrational thinking and emotion will prevail, leading hordes of people to spend more and more on investments instead of recognizing that they are overpaying only to later stampede out of the market in a panic, precipitating a crash.”
By capitalism’s perverse moral logic, if a person sells toxic assets by knowingly misrepresenting them as sound, the fault lies not with the misrepresentation of the seller, but rather with the lack of due diligence on the part of the overly trusting borrower. When the assets prove worthless and threaten both the solvency of both the seller and the borrower, the logic says the party responsible for the misrepresentation has a moral obligation to demand redress from the government, “Buy my toxic assets at face value and make me whole so that I return to my trade in toxic assets, or I will be forced to stop lending and crash the economy.”
Never mind that it undermines confidence in the market; there is no market that one can invest in that has any integrity. Whaddya gonna do with your 401(k) or IRA now? What will you retire on? Planning on living of of Social Security and Medicare? Talk to Paul Ryan about any of that?
Am I whacking at abstractions when I say I won’t feel bad for people who consider themselves politically moderate, have been nurturing a nest egg to live out their retirement on yet rail against taxes that would pay for regulation that would keep them from being cheated out of that retirement? What would I think when I see them selling oranges on freeway off-ramps to buy the second most important medication prescribed to them when they do retire?
What will you do about the calls for smaller government today?
The investors say that many of the loans they bought should never have been sold to them in the first place, because they fell short of bondholders’ stated standards. They want the bank to buy back bad loans.
The bank said it is not responsible for the poor performance of the loans, and outside experts agree.
“Investors are taking a low percentage pool shot,” said Janet Tavakoli, a Chicago-based derivatives consultant who has been a long-time critic of the way banks packaged and sold mortgage bonds during the housing boom. “This will be a long drawn out process and (Patrick) could easily get stonewalled.”
The banks are screwing another group, now.
Professor Warren has strong political support and would get the new agency off to a great start. She would represent the Obama administration’s serious attempt to rein in financial misbehavior, at the same time as keeping the economic recovery on track. Anyone who thinks she would be bad for American families has not been paying close attention. And best of all, she is very good at explaining what she is doing and why that makes sense.