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"This is what happens when you lend money to poor people"

In the midst of the "subprime" mortgage "crisis," it pays to remember the biggest losers are the investors who put up their own money so poor people normally considered "un-creditworthy" could actually get a home mortgage. One of those fellows who found that "no good deed goes unpunished" was Michael Lewis, who draws some lessons at Bloomberg.com:


2) Poor people don't respect other people's money in the way money deserves to be respected.

Call me a romantic: I want everyone to have a shot at the American dream. Even people who haven't earned it. I did everything I could so that these schlubs could at least own their own place. The media is now making my generosity out to be some kind of scandal. Teaser rates weren't a scandal. Teaser rates were a sign of misplaced trust: I trusted these people to get their teams of lawyers to vet anything before they signed it. Turns out, if you're poor, you don't need to pay lawyers. You don't like the deal you just wave your hands in the air and moan about how poor you are. Then you default.

3) I've grown out of touch with ``poor culture.''

Hard to say when this happened; it might have been when I stopped flying commercial. Or maybe it was when I gave up the bleacher seats and got the suite. But the first rule in this business is to know the people you're in business with, and I broke it. People complain about the rich getting richer and the poor being left behind. Is it any wonder? Look at them! Did it ever occur to even one of them that they might pay me back by WORKING HARDER? I don't think so.

But as I say, it was my fault, for not studying the poor more closely before I lent them the money. When the only time you've ever seen a lion is in his cage in the zoo, you start thinking of him as a pet cat. You forget that he wants to eat you.


Read it all at the link above. It's a hoot. You gotta admire a guy who takes a beating and shrugs it off - sort of like the Black Knight in Monty Python and the Holy Grail.

Thanks to Instapundit for finding this column.


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Comments (18)

That guy is an ass. He sho... (Below threshold)

That guy is an ass. He should hire a junior loan officer at the local bank to explain how you earn a profit lending people money. The first lesson is don't lend money to people who can't pay it back.

Poverty does not always mea... (Below threshold)
John F Not Kerry:

Poverty does not always mean lack of integrity. It should come as no surprise that we find ourselves in this situation with debt. The boomers and following generations were given easy credit while not seeing the need to keep anything in reserve. Instead of thoughtful financial planning, we get commercial after commercial promising credit on everything from mortgages to refrigerators. We rob from our retirement to buy toys and party, yet when the bill comes due we want someone to bail us out. America needs to find a way to become a lending nation again, instaed of a debtor nation.

In the words of my wife, ab... (Below threshold)

In the words of my wife, about many people in Northern Virginia who are defaulting on their loans and claiming they didn't know what they were getting into: "if you cannot read your mortgage, one of the most important documents you will ever sign, and find out everything you are agreeing to you, you deserve to be poor." Pity for these people? Please... if you cannot sit back and rationally calculate what you can afford on something that big, you don't deserve pity when you lose it all. There is no room for such childish irresponsibility from adults.

This article is an incredib... (Below threshold)
Cee:

This article is an incredible over-simplification. Bad lending practices were the biggest cause of the subprime crisis. And it was greed that caused the lenders to lower the restrictions and NOT CHARITY to the poor.

In fact according to Freddie Mac, up to 15% of the people who bowwored subprime have good credit and decent income, they were just unsophiticated borrows who made a mistake. I'm not saying lets bail them out, and you can blame them for being naive, silly or whatever, if you want. But you can't pretend this is what you get for trying to help poor people. This is what happens when you take advantage of poor people in poorly thought out plans.

That is why the mortgage industry is in trouble. On the Buyers side this is what happens when you get caught up in the dream of a house and don't read the fine print.

Easy now, folks!In... (Below threshold)

Easy now, folks!

In case my remark "... it's a hoot" wasn't a big enough clue, note the tag "humor" at the bottom. Lewis' tongue is firmly in cheek.

And, P.J. O'Rourke didn't really mean we should "eat the rich," either . . .

;-)

Michael Lewis should run fo... (Below threshold)
Matt:

Michael Lewis should run for President. At least we'd get one candidate that has a sense of humor, can laugh at his mistakes (and learn from them) and understand satire.

I tried to victimize myself with a refinanced mortage during the sub-prime craze. I came to my senses when mortgage brokers couldn't actually offer me the teaser rates and only wanted to offer me ARM's. These were first rate mortgage companies, not small or new companies.

I saved myself by reading every bit of the papers the companies sent me and keeping detailed notes anytime anyone talked to me on the phone. Ultimately the mortgage companies lost my business because they would only offer me the worst lone terms (for me) possible.

The Mortgage crisis was caused by lazy/greedy/naive homeowners/buyers, greedy mortgage companies, greedy investors and greedy realtors working in cahoots with everyone to keep prices high.

By "poor people" you mean, ... (Below threshold)
RG:

By "poor people" you mean, illegal aliens. Jorge Bush's economic plan, don't enforce the law, let firms hire illegal aliens at rock-bottom wages and erase that pesky border at the same time.

Where's that idiot Michael Medved now? Is that clown laughing? That mouth-piece who deny's the coming North American Union.

As they would say in a cour... (Below threshold)
BrandonInBatonRouge:

As they would say in a court of law, ignorance is not a defense.


If a buyer signed a contract that turned out to have legitimate fraud hidden in the terms, that's one thing.

They can challenge that with a lawyer to invalidate the contract.


If they either don't read or don't understand what they're signing and get bit in the ass by the terms then that's their own damn fault.


I don't want to foot the bill for a bailout of mortgage companies or defaulting homeowners, both of whom made bad decisions.

If these idiots get bailout money for their mortgages that they can't afford to pay, then the US government may as well cut me a check to "bail out" my car loan because I "misunderstood" the terms when I signed the papers.

Yah, that article's good sa... (Below threshold)
jim:

Yah, that article's good satire.

Watch what happens, tho. If things get really bad for the companies, there will be a bail out - much like there was for the S & L "Silverado" series of bank failings that happened in the Midwest in the late 80's/early 90's...Neil Bush himself directly cost the US taxpayers $1.6 billion.

http://en.wikipedia.org/wiki/Savings_and_Loan_crisis

In the current case, if we're to believe in full free-market capitalism, these lenders should have to face the consequences of their own terrible decisions. But we know how it works. If poor people lose money, they need to wake up to capitalism, buck up and take it. If rich people lose money, we need to bail them out for the sake "keeping the economy steady".

Welfare for the wealthy, tough love for the masses...

The best humor is based on ... (Below threshold)
Apropos de Nada:

The best humor is based on truth. No kidding. This is a riot.

I love the stories of the evil loan companies "preying" on the poor. You've got to be kidding. There are enough "truth in lending"-type laws to prevent any but the intentionally obtuse from "getting burned" by a mortgage.

Was there greed? YES! Mortgage firms greedy to drive business into a new market, AND borrowers greedy to get what they KNEW they might have a hard time paying for.

Should either side be bailed out by siphoning even more of my paycheck into the public trough? #@(( NO! Both sides are the 3yo who just touched a hot stove. I - personally - didn't do THAT twice.

It is much easier to con pe... (Below threshold)
cstmbuild:

It is much easier to con people on loans than some of you think. I've been in the Real Estate industry for 20 yrs and it is amazing how naive buyers are. Mortgage BROKERS use bait switch tactics, make changes up to and AT the closing (You've got to remember that the loan company knows EVERYTHING about the buyer/refinancier, so they loan company has a massive advantage). Most buyers are willing to pay a few more dollars (which can mean several thousand) if they have the money to get it to close, because they are already out several hundred to $1000 dollars in fees and figure closing, even at added expense, is better than losing their money AND having no where to go that night. BTW, We close on the property and take possession same day. (When I can I will help them select a mortgage BANKER, but by Oklahoma law we cannot recommend a certain company.)

No one should be shocked that defaults among low-income or bad credit buyers have increased. They have bad credit because, SUPRISE, they didn't pay previous contractual commitments. The majority of low-income and bad credit loans are 100-103% loans and the Seller often pays a majority of closing costs for the Buyer, because the Buyer has never saved a dime for buying a house.
All it takes is a few minor or one major expense, ie medical bills, hail storm, car wreck/trouble, etc, to get the new homeowner behind. Since they bought the most house they couold afford it is virtually impossible for them to get caught back up. Not to mention they have nothing invested in the property---no down payment, almost no closing costs (there are some fees a seller cannot pay for a buyer), basically they moved in for nothing out of their pockets, so, in their minds, they aren't losing anything other than a house they are living in for "free".

Example: I handle some foreclosure properties that the owners have had for less than 18 months. They have already been evicted! The foreclosure and repossession process is not a short term process, so the new owners often made 0 to 6 payments before defaulting.

As one of those folks in Ok... (Below threshold)
CGHill Author Profile Page:

As one of those folks in Oklahoma who got a 102-percent loan, I consider myself fortunate that someone was willing to take a chance on me.

Coming up on four years now, and all's well; yes, I'm spending a tad more than I'd like, but I got what I wanted, and I'm not behind on anything.

Ya know....it is abo... (Below threshold)
nogo war:

Ya know....
it is about greed...
all levels are responsible...
Anyone remember when folks bought a home to live in....and not to "flip"

anyone remember the S&L-give money-to-everyone-during Reagan years?
I remember living in Denver with Silverado and Neil Bush...
Screw the lenders...Screw those who received loans they should have never received....
....but of course....just like the S&L
we... the tax payers will bail everyone out...

Prov. 11:6 - "the treacherous are caught by their own greed"

Most Americans involved in ... (Below threshold)
nogo war:

Most Americans involved in the stock market...are there with 401's etc...
it is not that we can buy and sell daily...

in case folks forgot..although this is not a cause for concern...it is simply an "adjustment"

Down -249.97 (1.87%)

not to worry..after Murdoch buys Dow Jones...it will always be rosy...

Hm. Joke or not, I'm bookma... (Below threshold)
Cripes:

Hm. Joke or not, I'm bookmarking this for the next time someone talks about elitist Dems and the Republicans as the party with the average person's interests at heart.

This guy is talking about p... (Below threshold)
Baggi:

This guy is talking about people like my mother in law. My mother in just claimed bankruptcy again last year. Not because of teaser rates but because she mismanages her money.

She did the right thing at first. She went to one of those credit agencies that help you get out of debt. But after about a year or so and $12,000.00 they found out they couldn't help her due to California law or some such thing. So they gave her back her $12,000.00 and told her she had to settle her debts herself.

What does she do? Instead of using that $12,000.00 to help settle up debts, she hides it in her sons bank account and declares bankruptcy.

Dispicable.

People who handle their ass... (Below threshold)
Hornet:

People who handle their assets poorly are, or soon become, poor people.

Poor people who handle their assets well do not stay poor forever.

One thing I discovered by going to real estate foreclosures during a booming real estate market is that some people make poor decisions. They could have sold the property and made a few dollars but instead chose not to face their problem by emotionally and intellectually 'shutting down' any thoughts in the matter.

"I love the stories of the ... (Below threshold)
Timothy Bartlett:

"I love the stories of the evil loan companies "preying" on the poor."

Or anyone "getting rich off of" the poor, for that matter. As if they're a huge fount of wealth, and if the evil fatcats only stopped raping them for a while, they'd all become millionaires.




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