Regulation vs. Good Business Sense

With all this talk about the financial crisis, I can’t help but wonder how stupid the people running these firms really are. Couldn’t they tell that the mortgages and investments that have gone bad were bad ideas in the first place?

Take the so-called “liar loans,” where there was no effort to verify income of potential borrowers, and borrowers were encouraged to inflate their income so that they’d be able to get bigger mortgates (and, hence, bigger houses). Why did anyone think it was a good idea to disconnect the mortgage from a realistic assessment of the borrower’s ability to pay?

Of course, it’s not like this tendency in lenders is new. In 1987 I bought a used car (with an insurance settlement to replace an old beater that was stolen), and I had to fight with the car dealer over the price I was willing to spend. I had so much money from the insurance settlement, and wanted to pay a certain amount per month in car payment and no more. But the dealer kept arguing with me, saying my income would allow me to afford a lot more car (with a much longer loan period and a higher monthly payment). I kept insisting that I didn’t *want* to pay more. This was met with a blank stare, something the salesman couldn’t seem to comprehend. I eventually got exactly what I asked for, and a $110/month car payment (I think it was a 2-year loan period, but can’t recall for certain).

Why would any sensibly-run lender want to loan not just more than what the borrower wants, but more than the borrower’s income justifies? Is that not just a really bad business decision?

This is why it annoys me that the government seems to be stepping in to buy the bad investments, and so many commentators seem so willing to say “there’s enough blame to go around for everybody.” No, there *isn’t* — if the lenders had followed good business practices, none of this would have happened. They didn’t and now the whiny-assed titty babies want to be rescued from their bad judgement.

It pisses me off a lot, especially given that the same people championing the bailout (I mean *you*, John McCain) were perfectly happy last Spring to tell the borrowers that they didn’t deserve a bailout themselves because they’d made bad decisions in taking out these mortgages.