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A new bumper sticker: Lend Locally

So this is a brilliant point from the comments section. Brian Brady says local lending is a possible solution to our present problems. Greg’s reproduced it.

Now, the problem with secondary mortgage market is that, as currently constituted, it hasn’t been a true market for generations. It’s a political game to the extent that people on Wall Street knew they could socialize the risk, but capture the upside. How else to explain such risky behavior?

Defenders of big banks will point to efficiencies of large scale movements of capital. But certainly those efficiencies are overshadowed by the significant social and economic costs of politicized subsidies.

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  • 3 comments

    3 Comments so far

    1. Greg Swann February 12th, 2011 10:39 am

      > But certainly those efficiencies are overshadowed by the significant social and economic costs of politicized subsidies.

      Quite right. Efficient crime is still crime, and, as we are seeing, efficient kleptocracies simply oscillate madly into a more calamitous state of chaos.

      Moreover, there is no reason that an Ebay-like clearinghouse for the purchase of discounted notes — a secondary mortgage market — could not come into existence overnight, if the mafiosi of Rotarian Socialism would get out of the way.

      The same kinds of arguments could be applied to any sort of “regulated” market, though. Efficiency is the ultimate end-state argument for all of government, and it always boils down to efficient crime.

    2. Brian Brady February 12th, 2011 3:47 pm

      Greg is right about an online secondary market. I tried to build that but alas my ADD got in the way. I had hopes that Zillow might try it but advertising and lead gen is more their model.

      The bourse could be built on the premise of Caveat Emptor, along with reputation management via a bid the EBay model. There is opportunity for sharp minds, who understand lending, online commerce, and legal compliance.

      There is opportunity all over, righting the wrongs which socialism brings. It ain’t a big market…today…but

    3. Greg Swann February 12th, 2011 4:07 pm

      > along with reputation management via a bid the EBay model

      Check. And the discounting itself becomes a quality control mechanism: As it becames clear whose underwriting standards are better and whose worse — in terms of predicting defaults — the price offered for a particular note would be, essentially, the discounted probability of future profits and losses. This is what a free market should do, freely transmit the information necessary to judge risks and rewards.