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Author Topic: Why AIG needed to pay fat bonuses
The Drake
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Here's what's happening at Fannie Mae and Freddie Mac, where they didn't.

quote:
Now both companies are suffering from an exodus of senior and midlevel managers. The companies have been unable to replace executives who have either been pushed aside as part of last year’s government takeover, or who sought refuge at less stigmatized companies offering better pay and a more predictable future.
...
Freddie Mac has vacancies for a chief executive, a chief operating officer and a chief financial officer. At Fannie, there are openings for a general counsel, a chief risk officer and a chief technology officer. Both have many unfilled slots for senior vice presidents and other top positions.

quote:
The uncertain future of the companies as private companies has also contributed to low morale and made recruitment difficult. In contrast to Fannie and Freddie, major banks that have received financial assistance from the government can offer their executives stock-based bonuses on top of their annual salary — within limits — and their executives know that their companies will ultimately be weaned off financial assistance.

Where it used to be a badge of honor to work at Fannie and Freddie, they are now largely viewed in Washington with disdain and anger, because the companies are blamed for contributing to the economic crisis. And though they have cut the size of their bonuses drastically and eliminated some perks, the companies have come under withering criticism from some senior members of Congress for continuing to offer bonuses at all.

quote:
“Everybody is stretched very thin,” said James B. Lockhart III, director of the Federal Housing Finance Agency, the regulator for the two companies, in a recent interview. “The United States government probably has about $400 billion invested in these companies. If you lose these people, you jeopardize that investment.”

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Gaoics79
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Drake, the problem is that there is a large segment of the American population genuinely believes that anyone can run a major corporation, and that it's easy to fill such jobs with qualified people.

This belief is fuelled in part by justified anger over the excesses of big business, and in part by what I shall call "working class narcissism", which is the bizarre self-indulgent belief that white collars and professionals are just lazy fat-cats with no "real world" skills, and that any Joe the Plumber could replace them in a pinch (or they don't need replacement, because their jobs are useless to begin with).

There's also a perception that because factory workers and others in the blue collar sectors are facing the unemployment lines, these top level executives have no choice but to either stay where they are or "get in line" with the rest of us. In other words, these executives have no better option than the average GM factory worker.

I happen to think that many of these assumptions are faulty. But it's really the dominant perception now, so these bailed out companies, which are (for all intents and purposes) owned by the American tax payer, are going to be paraiahs that are going to sink under the weight of the taxpayers' outrage. The populists are sinking their own ships, all in the name of class warfare.

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RickyB
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They should offer fat bonuses based on recovery. Id be all for that. The sooner you can meet the government's conditions for repaying the money, notice the qualifier there, the more bonus you get. Obviously we need talented, proven people to run these companies. However, what with all the layoffs and downsizing, I simply refuse to believe none can be found.
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Kuato
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They should all remember that if Freddie and Fannie had adjusted their mortgages to allow 99.99% debt financing upon the collateral and give everyone access to capital, then these agencies, which connect into the Federal Reserve, would have been responsibly injecting the capital from the Fed into circulation and thus supporting the housing industry rather than..... refusing to provide mortgages upon collateral so that the housing industry had to look to wall street which provided pre-existing money for the new housing products, meaning that the snake began to eat its tail until digestion hit and the market crashed.

So, there is blame for Freddie and Fannie but the fault just isn't where people think it is.

Put me in charge- a mutant over-haul would straighten things out.

[ April 15, 2009, 03:59 PM: Message edited by: Kuato ]

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KnightEnder
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I may be deluding myself Jason but I'm almost positive I could, as CEO, run a huge company straight into the ground. [Smile]

KE

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kmbboots
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quote:
Originally posted by KnightEnder:
I may be deluding myself Jason but I'm almost positive I could, as CEO, run a huge company straight into the ground. [Smile]

KE

And fill your pockets while you're at it.
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Kuato
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At least as mutant-CEO I would have the good grace to be sure to make Oxygen free on Mars.
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The Drake
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quote:
Originally posted by RickyB:
The sooner you can meet the government's conditions for repaying the money

Assuming the government will let you repay the money? [Wink]
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Kuato
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.... because the Govt insists that you have to be able to provide lending or insuring performance to the people if you are going to be speculating using the assets of the people?
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flydye45
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That is crap. The bank does what it wants with the money. It pays an interest rate to THEIR lender, i.e. you and me. As long as they provide that, they have control of the money. And if they bring in more profit by speculating, well, good for them.

And if they aren't providing enough cash, someone else will. Again, how can anyone characterize the last 6 years as being low on credit boggles the mind. Today, well the banks are reacting appropriately. They were burned by their silly lending practices and now they are being careful with their lending

And the government is complaining (as they did in 94) that they aren't lending enough to deadbeats. Same old same old. Why are they called 'progressives'?

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KnightEnder
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Fly-to-English translation: "deadbeat" = "poor people who want a house in a decent neighborhood"

KE

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KnightEnder
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That's very magnanimous of you Kuato, now that Arney has found the "Free Oxygen Button". [Frown]

KE

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flydye45
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quote:
Originally posted by KnightEnder:
Fly-to-English translation: "deadbeat" = "poor people who want a house in a decent neighborhood"


You forgot a significant part of that formula: "And can't pay." Let's also ignore the fact that it's people who make the neighborhood. What are they doing to theirs?
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Colin JM0397
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IIRC housing stats don't hold up that assumption; low-income mortgagees repay at slightly above the national average.

For those of you not paying attention, bad mortgages are a drop in the bucket and are not the cause of our current problems.

Why some of you insist on this partisan bickering over NOTHING is beyond me... Kneejerk -isms? Love an argument? Cognitive dissonance?
All the above, IMO.

Let's review again: PBS interview

[ April 16, 2009, 07:56 AM: Message edited by: Colin JM0397 ]

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edgmatt
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A lot of the rhetoric such as "too big to fail" or "the government has too much invested in these companies" seems to assume that if these companies fail, or go bankrupt, that nothing else will spring up in its place. There are always people trying to make money, and there is often times investors looking to invest. There is certainly a demand for credit and loans, even though that demand is much lower right now. If the largest bank in America dissapeared, wouldn't that open up some room, competitively speaking, for other banks to be created? Wouldnt someone realize they can become very very rich by running a bank ( legally of course )?
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Pyrtolin
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quote:
Originally posted by edgmatt:
A lot of the rhetoric such as "too big to fail" or "the government has too much invested in these companies" seems to assume that if these companies fail, or go bankrupt, that nothing else will spring up in its place. There are always people trying to make money, and there is often times investors looking to invest. There is certainly a demand for credit and loans, even though that demand is much lower right now. If the largest bank in America dissapeared, wouldn't that open up some room, competitively speaking, for other banks to be created? Wouldnt someone realize they can become very very rich by running a bank ( legally of course )?

And where are they going to get the capital for such a venture? (Never mind at the scale required to match what's being lost) When you have a handful of giants dominating the market, the barriers to entry are immensely high- you can't compete on price, on power, on service, on name recognition, without a gigantic capital base, and if you're talking about the financial market, then your potential competition are the only sources of such investment; and it's a bit hard to convince them to let you borrow money from them to try to cut into their profits or shake up their market lock.

And that's when they're functioning. When they've lost most of their operating capital and their rest is frozen in bankruptcy proceedings, then what? Not only is there a problem getting access to the capital you need to get off the ground, but none of your potential customers can access what they have left to transfer it to you until the bankruptcy has been full processed and they know what they have left.

If the companies were smaller, it would be easier for another small entity to grab a market share, and less paralyzing when one falls apart. "Too big to fail" really means "too big to exist is a healthy market"- we do need to get closer to what you're suggesting by chopping these big institutions up into small ones that have room for failure and replacement.

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Pyrtolin
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quote:
Originally posted by KnightEnder:
Fly-to-English translation: "deadbeat" = "poor people who want a house in a decent neighborhood"

Actually, in context, "deadbeat" means "not white and not on Wall Street"
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Pyrtolin
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quote:
Originally posted by flydye45:
That is crap. The bank does what it wants with the money. It pays an interest rate to THEIR lender, i.e. you and me. As long as they provide that, they have control of the money. And if they bring in more profit by speculating, well, good for them.

Yeah, they may as well just set up a few massive ponzi schemes while they're at it. Those are plenty profitable enough in the time frame they need to pay off the support money.

Or better yet, they can just hop on down to Atlantic City with it and hit the tables. At least that way they're more honest about what they're, and they won't trash the markets by using them as a big gambling pool in the process while letting the people who actually want to invest do that without the mess that speculation makes.

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kenmeer livermaile
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"I may be deluding myself Jason but I'm almost positive I could, as CEO, run a huge company straight into the ground. [Smile]"

Augering a huge company straight down: that's a LOT of sittin' and spinnin', KE. Sure you're up to it?

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edgmatt
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quote:
When you have a handful of giants dominating the market, the barriers to entry are immensely high-
But we are talking about when one of those giants ( or more ) collapse, go bankrupt etc. My point was that IF that happens, that leaves room for someone else to do the same job but better. The example that springs to mind is the car industry. As of right now, the companies that are in danger of collapsing, are in that danger because not enough people wanted their product. We have been told that these companies are "too big to fail" which I took as, "we need these companies to survive because a) we need them to make cars for us b) of the amount of jobs those companies are able to secure c) the amount of money that flow in and out of those companies is large enough to have a big effect on the economy. My point is that if GM, for instance, dissapears... one possibility that could come of that is that there will be a new company, in time, that would make cars, and probably do it more efficiently. That is assuming that the demand for cars stays relatively the same as it was pre-crisis.

If the demand for cars stays low, as it is now, then there of course wont be as many new companies trying to build cars. But thats the risk of any company producing anything takes anyway.

quote:
And where are they going to get the capital for such a venture?
No one has any capital anywhere? There are still investors in America somewhere. People still want to make money somehow. Although there are LESS investors, and the climate is such that there is less incentive to invest, that does not mean there are NO investors anywhere.

The idea that ONLY small companies are good and big companies are bad simply cannot be true. How many HUGE companies start off in someones basement? Or in a little store somewhere? The big companies start off small like everyone else. As they get better at what they do, they get bigger. If they get to big where they either lose control of what each piece of the company is doing, or simply have to high a maintenance to sustain itself, then it either stops growing, shrinks a bit, or collapses completely.

I believe that it is this possibility of growing or shrinking or collapsing, this risk of failure set against the possibility of immense success that makes the economy work the most efficiently.

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flydye45
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quote:
Originally posted by Pyrtolin:
Yeah, they may as well just set up a few massive ponzi schemes while they're at it. Those are plenty profitable enough in the time frame they need to pay off the support money.

Or better yet, they can just hop on down to Atlantic City with it and hit the tables. At least that way they're more honest about what they're, and they won't trash the markets by using them as a big gambling pool in the process while letting the people who actually want to invest do that without the mess that speculation makes.

Shrugs. Ask Fred Smith, who payed off his payroll in just such a matter once. Runs this little operation in Memphis called Fed Ex. Maybe you've heard of it?

Ricky and Munga both seem to believe that the banks OWE people loans. It is a part of their business models, but I contend that as a matter of principle, they don't owe anyone anything. It isn't particularly wise to freeze that much capital, but in uncertain times, everyone hoards their cash...Except the Feds, who are busy cracking open other peoples' hoards and spreading them around.

This isn't social security (since you are speaking of Ponzi schemes) in that I have a much better chance of getting my ROI from a bank then I do of seeing the later.

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The Drake
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Don't overstate the barriers to entry. Nobody had bigger barriers to entry than the airline industry, and almost all of the giants had the wheels come off while upstarts stole their market share.

As to where the upstarts come from - regional banks. Here's the list of the publicly traded ones:

quote:
AANB ABCB AIB AMFI AMNB ANNB AROW ASBC AUBN AWBC BANF BAP BARI BBT BBV BERK BFR BHB BK BKBK BKSC BLX BMO BMRC BMTC BNCC.PK BOH BOKF BPOP BTFG BUSE BXS CAC CACB CASS CATY CBAN CBBO CBC CBIN CBKN CBON CBSH CBU CCBG CCFH CCNE CCOW.PK CFFI CFIC CFNL CFR CHCO CHCO CHFC CIB CMA CNAF CNB CNBC CNBKA CNBT COBT COBH COBZ COF COLB CORS CPF CRRB CSBK CTBI CTBK CVBF CVBK CVLY CWBC CWBC CWLZ CYN DEAR DRL ECBE EUBK EVBS EWBC FBNC FBP FBSS FCF FCNCA FFIN FFKT FHN FISI FITB FLIC FMAR FMBI FMER FMFC FNB FNLC FRBK FRGB FRME FSBK FSNM FTBK FULT FUNC FWBN FWV GABC GBCI GLOB.OB GNTY.PK GRAN GSBC HABC HBAN HBHC HDB HNBC HTBKE HU IBCA IBCP IBK IBK IBKC IBN IBNK IBOC IFC INDB IROQ JFBC KEY KFED LION LKFN LNBB MBFI MBHI MBVT METB MI MPB MSFG MSL MTB NABZY.PK NARA NBBC NBG NBTB NFB NKSH NOVB NPBC NRIM NSFC NTRS NWFL OFG OKSB ONB OSBC OVBC OZRK PBKS PCBC PCBK PEBO PFBI PFI PNBC PNBK PNC PNTE PRK PRSP PVTB RBCAA RBPAA RF RGFC.PK RKNG SAL SAN SASR SAVB SBCF SBIB SBNY SBP SBSI SCB SCBT SFNCA SGB SIVB SIXR SLFI SNBC SNBJ SNV SRCE STBC STBA STD STI STL STT SUB SUBK SUPR SUSQ TBNS TRMK TRST TRUED TSFG UB UBCP UBSC UBSH UBSI UCBH UCBH UMBF UMPQ UNTY USB USBI VIST VLY WABC WAIN WASH WBCO WBK WCBO WFC WHI WIBC WL WSBC WTFC WTNY ZION
I got this list from a random site, some of the symbols seem invalid but you get my drift.

We're not talking about three guys with a bathtub full of cash starting a bank one branch at a time. We're talking about medium players becoming big players when the big players screw up.

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The Drake
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deadbeat = person with no down payment who doesn't have an income that can support a legitimate mortgage who buys a variable rate mortgage during extremely favorable lending conditions expecting it to stay the same, and when it doesn't they default, but still expect to live in the house and want the government to force the lender to make the payments smaller for them
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Pyrtolin
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quote:
Originally posted by The Drake:
deadbeat = person with no down payment who doesn't have an income that can support a legitimate mortgage who buys a variable rate mortgage during extremely favorable lending conditions expecting it to stay the same, and when it doesn't they default, but still expect to live in the house and want the government to force the lender to make the payments smaller for them

Yes, but that doesn't fit the context of the comment he made, which was about the CRA, not the predatory brokerages.
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flydye45
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Predatory? If you aren't smart enough to buy a house (not rocket science), if you aren't smart enough to bring or hire someone smart enough to buy a house (not difficult) then maybe (crazy talk here) you shouldn't be buying a house.

It isn't context, it's projection.

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Pyrtolin
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quote:
Originally posted by flydye45:
Predatory? If you aren't smart enough to buy a house (not rocket science), if you aren't smart enough to bring or hire someone smart enough to buy a house (not difficult) then maybe (crazy talk here) you shouldn't be buying a house.

In a world of advertising "should" is a poor qualifier. But then again, preventing such was exactly why regulations preventing making predatory loans were put on commercial banks and investment banks were barred from the commercial market. When they got back in, agencies that had no restrictions were all over the media trying to hook as many people as possible, because nothing prevented them from making a nice middleman profit and handing off all the risk.
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IrishTD
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Well, just for reference there are about 8K banks and about 8K credit unions. From FDIC stats, 89 new commercial banks were chartered in 2008 (164 new charters in 2007).
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KidB
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The housing scheme was predatory to the extent that the credit and banking industries in general are predatory. Predatory, yes, but we have been trained Pavlov-style to run head-first into every open, toothsome maw we see.

[ April 16, 2009, 02:20 PM: Message edited by: KidB ]

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Pyrtolin
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quote:
Originally posted by KidB:
The housing scheme was predatory to the extent that the credit and banking industries in general are predatory. Predatory, yes, but we have been trained Pavlov-style to run head-first into every open, toothsome maw we see.

There's a difference though- the general banking and credit industries will turn down people they don't think they can get money out of. The Mortgage Brokerage industry was, essentially, paid by the investment bank industry for their loans, so they didn't care if the people buying the loans had any ability to pay. They got their cut on the origination fees (nicely rolled into the loans) and never had to worry about a single payment.
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KidB
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quote:
There's a difference though- the general banking and credit industries will turn down people they don't think they can get money out of. The Mortgage Brokerage industry was, essentially, paid by the investment bank industry for their loans, so they didn't care if the people buying the loans had any ability to pay. They got their cut on the origination fees (nicely rolled into the loans) and never had to worry about a single payment.
I see the distinction. But a caged wolf is no less predatory than a free one, only more dangerous to certain individuals in range.

Consider that the credit industry, thanks to significant de-regulation in the 80's and 90's, can get a lot more money out of people than it used to. The "getting money out of them" factor is based on public policy, just as it was with housing.

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The Drake
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Do you really believe Snickers will satisfy you?
Do you really think four out of five dentists recommend Trident?

Then why on earth would you listen to ads about what kind mortgage you should commit to for the next thirty years?

I'm tired of people acting as though consumers are some kind of media-zombies incapable of exercising independent judgement.

As far as making a nice middleman profit and handing off all the risk, isn't that what almost every retailer does when they sell goods to someone on credit? The credit card company takes all the risk, and the retailer earns their markup no matter what.

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KidB
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quote:
I'm tired of people acting as though consumers are some kind of media-zombies incapable of exercising independent judgement.

How do you explain their behavior then? Were they destined for stupidity? Genetically inferior? Or did they learn it? Or fail to learn, as the case may be? You have a limited range of possible explanations, I'm afraid.

Why do people capable of taking precautions fail to do so? Does this question interest you at all?

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Pyrtolin
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quote:
Originally posted by The Drake:
I'm tired of people acting as though consumers are some kind of media-zombies incapable of exercising independent judgement.

There's an entire industry out there that only exists because people can, indeed be manipulated in just such ways. PT Barnum built a huge business almost entirely on exploiting that aspect of human nature.

quote:
As far as making a nice middleman profit and handing off all the risk, isn't that what almost every retailer does when they sell goods to someone on credit? The credit card company takes all the risk, and the retailer earns their markup no matter what.
The difference is that the credit card company screens the customer risk before issuing the credit, they don't take the stores word that the customer is credit worthy.

Imagine if a credit company told the store "Sell as much as you want on credit, at whatever price you want, and we'll buy all the debts from you, no questions asked."

Even if the store starts out trying to be honest, they'll probably start to slip a little the third or fourth time the credit company comes back saying "Could you get more stuff sold on credit, we need more of these debts from you. And bigger ones too."

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msquared
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Greed. On both and all sides.

msquared

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The Drake
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quote:
There's an entire industry out there that only exists because people can, indeed be manipulated in just such ways. PT Barnum built a huge business almost entirely on exploiting that aspect of human nature.
"Can" is different from "Must". That people ARE manipulated in such ways is obvious, but they are more co-conspirator than victim.
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Pyrtolin
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quote:
Originally posted by The Drake:
quote:
There's an entire industry out there that only exists because people can, indeed be manipulated in just such ways. PT Barnum built a huge business almost entirely on exploiting that aspect of human nature.
"Can" is different from "Must". That people ARE manipulated in such ways is obvious, but they are more co-conspirator than victim.
Well, it will stop when it stops being profitable. How to make that happen is a trickier question.
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The Drake
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quote:
Originally posted by KidB:
Does this question interest you at all?

Yes, it is interesting. I blame religion, public school, and parents - as well as the individual. Each of those important entities tells you to accept what they teach you on faith without any real proof much of the time.

Add to this, the selling of the idea of altruism - the bank isn't in it to make money for themselves, they're just trying to help you own a new home because it will be cool for you and your family.

Plus, the government wouldn't let them do anything really bad, would they? No need to check their claims, because it isn't legal to make false claims in advertising, right?

If people were allowed/forced to be more self-reliant, they'd be less susceptible to herding tactics.

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RickyB
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"Ricky and Munga both seem to believe that the banks OWE people loans."

Dunno why you're lumping. That's munga's bag. BUT, seeing that to be a bank you need permission, i.e. a charter, then yes, they owe people loans as a condition of their charter, though of course not every loan to everyone. Also, when we're giving them money, if we want to demand that they use it to make loans, well, it's our money.

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RickyB
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"Add to this, the selling of the idea of altruism - the bank isn't in it to make money for themselves, they're just trying to help you own a new home because it will be cool for you and your family."

Well, unless we're talking freddie and fanny, which were created specifically to that end, then that's just silly and anyone who believes that should be put on a leash.

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kenmeer livermaile
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"Ricky and Munga both seem to believe that the banks OWE people loans."

That's a funny use of terms. Following your semantic grammar, it would almost make more sense to say "banks owe people debt".

Nothing serious in this remark, just amusement at how laNGUAGE CAN DO WEIRD THINGS. (oops)

It CAN be said that banks are allowed the many privileges they enjoy because their *purpose* is to loan money in a society where credit is the necessary lubricant of the economy (and work, good old-fashioned work, is the fuel).

I see more and more why munga has filled somewhat the hole in my heart left by Dey. Like they did with Dey, most people here misread her with rare rigor. They could rarely speak of Dey's fave topical premises in any terms remotely honest to what Dey actually said. Likewise munga.

If there's an afterlife, munga, dump that bum you're married to and go live on an island with me and Dey. You deserve two husbands. OK, 3. You can bring the bum along since you're already in one those time and all eternity futures contracts.

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