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The funny thing about this Barry Ritholtz post is that because he put some of his comments in a blockquote (just like the thing he was responding to), I had to read the 2nd half of the post 3 times to understand that I actually agreed with him. He’s surely right when he says:
3. It is the banks job to determine credit worthiness. THAT IS WHAT THEY DO. If they do not care to be bother to make this determination, then perhaps they should consider something other than the money lending business as a vocation.
(I think this is him…)
Well, he’s right except for one thing: he doesn’t dig deep enough. After all, in many/most cases, the banks he’s talking about were not the money lenders in the equation. In my book, that’s a misnomer, because the way our system is currently set up, the ultimate mortgage-bond buyer is the money lender, and the bank is just a middle man. So doesn’t he need a #4 (which I won’t put in a blockquote so as to avoid the same confusion):
4. It is a mortgage-bond investor’s job to determine the credit worthiness of the underlying pool of loans. THAT IS WHAT THEY DO. If they do not care to bother to make this determination, then perhaps they should consider something other than investing in mortgage bonds as a vocation.
The problem is, adding this bullet might accidentally lead you to ask and actually think about questions such as:
- Why are/were there so many mortgage-bond buyers?
- What created the incentive to mint so many “AAA” assets?
- Why did banks have an incentive to make loans that ‘were destined to fail’? (Surely all else equal, ‘make loans to people who won’t pay you back’ isn’t a good business strategy. If that’s what we agree banks were doing, what made it so?)
And we don’t want to ask THOSE questions, because (shh don’t tell anyone but) their answers all have to do with government policy. Let’s just chew out banks for randomly, and on the basis of no external incentivizing whatsoever, deciding to make loans that they knew wouldn’t get paid back, and call them greedy for doing so, without examining or explaining how ‘greed’ and ‘giving people money and not getting it back’ could possibly have been part of the same equation, without some other external actor also being in that equation.
Seriously, let’s not talk about any of that, because “the debate is over”. SHUT UP!
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