Words of wisdom

Excellent insight into the housing/financial crisis, remarkably so given that is was first published in 1946, excerpted from the book "Economics in One Lesson," by Henry Hazlitt

"The Case against government-guaranteed loans and mortgages to private businesses and persons is almost as strong as, though less obvious than, the case against direct government loans and mortgages. The advocates of government-guaranteed mortgages also forget that what is being lent is ultimately real capital, which is limited in supply, and that they are helping identified (person) B at the expense of some unidentified (person) A. Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to "buy" houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in the long run they do not increase overall national production but encourage malinvestment."

Every person in America should read this book, but at the very least all elected and appointed officials. I wonder if it would have made a difference in our economy over the last 50 years?

-Joe

The end of the FICO score?

i'm going to make the bold assumption that a significant number of credit scores will be damaged in the coming months. like most things in life institutions are forever attempting to rationalize human nature and reduce it to a perfectly logical math equation. an algorithm can not consistently nor accurately predict irrational human behavior, especially during times of crisis (just ask the guys on wall street). i wonder if lenders will change their underwriting standards to discount the value of the FICO score? how many people with 720 credit scores are going to have their homes and SUV's repossessed? the determining factor in the repayment of a loan is not how many credit card payments a person has payed on time, but their character. character compels a person to fulfill their obligations even in difficult times. character cannot be deciphered from a credit score; the only way to determine character is through a relationship. relationships cultivate accountability between people and form the basis for a successful transaction. unfortunately a relationship can not be quantified with math.
good luck to the lenders!
-joe