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Best Columns: Business

Making lenders the villains of the mortgage mess; Hard-wired to follow the herd over the cliff

Making lenders the villains of the mortgage messSteve ChapmanChicago Tribune

Nothing is more fun than doing noble deeds with someone else’s money,” said Steve Chapman in the Chicago Tribune. “And right now, Democrats are getting ready for a rollicking good time.” Responding to the subprime mortgage problem, Democrats have devised a number of ways to “fleece the lenders” who supposedly lured millions of innocent borrowers into loans they couldn’t afford. Among their ideas is to place a moratorium on foreclosures, freeze teaser mortgage rates, and force lenders to reduce loan amounts “to reflect deflated home values.” The problem with this “punitive” approach is that it lets borrowers completely off the hook for their own “bad decisions.” Moreover, it collectively treats lenders as a monolithic villain when in fact, the vast majority of their loans turned out to be sound. And to make matters even worse, lenders in the future would “be far less willing to offer credit to people with flawed credit records.” That’s all a heavy price to pay so Democrats can rail against “greedy usurers.”

Hard-wired to follow the herd over the cliffShankar VedantamThe Washington Post

Every time an economic bubble bursts, economists wonder what drove masses of people to make the same foolish economic choices at the same time, said Shankar Vedantam in The Washington Post. It’s no great mystery, actually. “When people have limited information about something important,” they tend to rely “on other people as guides to their own behavior.” A 40-year-old experiment by psychologist Stanley Milgram starkly demonstrates this tendency. He had volunteers stand on a busy New York sidewalk and stare up at the sky. Within minutes, crowds would gather, all looking up at, well, nothing. Such herding behavior, especially in conditions of uncertainty, is hard-wired into our brains. When we see people around us going into a panic about, say, stock or housing prices, our first instinct isn’t to ask why everyone’s panicking. We’re more likely to assume that people are panicking for good reason and join the stampede. This can happen even if we recognize that we’re in the middle of a contagious panic. Apparently, people feel “less regretful about bad decisions if they know that many people made the same mistake.”

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