I thoroughly agree with your 1st & 3rd paragraphs, but the situation described in your 2nd paragraph sounds like one in which the lenders are irresponsible, whereas the owners of the borrower alone seem to usually be blamed.
For every unwise borrower there is an unwise lender. My sympathies are more with the borrower, since the lender, as the side that supposedly hired people with financial acumen, bears a majority of the responsibility for assessing risk.
Personally, I would give the majority of the blame to the banks (say 60%) and the rest to the borrower. The reason for this is that, in my experience, banks have got a lot less careful about who they lend money to (at least when it comes to personal lending).
Fault for that goes both ways, towards to people who took the loan and the people who gave the loan. The people who gave the loan knew a lot more about the specific details and risks, so I find it hard to blame the people who took the loan.
The borrower never has been and never should be the party to determine if they can repay a loan or if the assets being leveraged will retain their value through the life of the loan. This is the job of the lender. Yes, it was "irresponsible" for people to borrow so much, but the burden goes to the lender...and the regulators that allowed the lenders to behave that way...and the people that voted for elected officials that enabled regulators to do what they did.
In short, if you make money so freely available, you can expect people to take it.
I mean.. they did loan the money, with all the associated responsibilities and risks of loaning money. And they did do the work. All the agreements were entered voluntarily, so what's the fault here?
While this is true, the borrower is going to know their financial situation better and have somewhat more control over it, so it would make sense to blame them more.
I didn't mean to imply people were rational. Not only are people frequently not rational, there is also an information asymmetry that is involved with most financial/legal/medical decisions that would make people elect choices that are not in their own best interest.
I wasn't trying to say they were rational, merely that they are still required to agree to the terms of the predatory lending and they should still be considered responsible for their choices. Also, I wanted to point out that they frequently are not the innocent victims that they are made out to be. Many times they are just as bad as the lenders simply because they don't intend to pay. The lenders are just far better at inducing payment than crooked borrowers are at getting away without paying the money back.
Look at student loans. Nearly half of all students think that their loans will be forgiven eventually. Maybe they are right, maybe they aren't. No one knows. But the point is that they are taking on the loans because they don't expect to be held liable for and required to pay back in full.
I stated a simple and correct fact. In order for bad loans to exist there must be two parties involved: Irresponsible creditors and irresponsible (or stupid) borrowers. This is assuming that the terms of the loans are known by everyone. People lied to get loans but the banks, as many have pointed out, knew exactly who they were loaning to. And the borrowers knew very well that they couldn’t afford these loans. The only way they might not have is if they were not very smart.
I am completely surprised at how divisive this one simple fact has been. It is literally impossible to refute this.
And your comment on how society would be super fragile if I were right — it is.
Banks, credit agencies, and the whole sell side, selling bad debt in bad faith to organizations like pension funds, carry the brunt of the responsibility.
At the same time, the millions of poor and lower middle class people who took out loans way beyond their means -- and then defaulted on them -- aren't blameless victims, either.
Say I'm a shift manager at a grocery story, but I want to buy an $700,000 McMansion. So the bank offers me a Negative Amortization Loan. (Those were fairly common in the few years before 2008.)
The page clearly says that the loan will never be repayed if I make the minimum payment--the principal will grow every month. It clearly states the minimum monthly payment, a bit over half my paycheck.
It's amoral and greedy for the bank to make that offer. At the same time, it's irresponsible and greedy for me to take it.
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