The Epic American Credit and Bond Bubble Laboratory Message Board

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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: shades who wrote (58922)	4/20/2006 5:39:02 PM
From: Oblomov	Read Replies (1) of 110194

My immediate moderate libertarian response would be to say that liberty to contract is a fundamental right, and that people should be able to enter into whatever loan agreement they want. On the other hand, a wise person can learn from other people, and can avoid colossal errors by listening, research, and self-reflection. I don't think that someone has to be financially well-off to learn how to make good financial decisions. But the bankers and other financial gatekeepers have to be willing to teach good financial practice. I think the person making the loan has a moral responsibility to advise the customer of what is in his/her interests. The loan officer would have experience working with many people with respect to debt management, and could give candid advice. I know this isn't happening very much in this age of securitized loans, where the lender sells the loans and they bundle them with many other loans by credit quality. The credit scoring models are scarily accurate (I used to develop them), and are reasonably predictive even in credit-crunch situations. So the loan officer, lender, and even the ultimate loan investor have no incentive to make such value judgements. Nonetheless, this doesn't obviate these people from their moral duty to teach. Most people would probably be better off strictly using a community bank or credit union, where loans are still made on the basis of character and banking relationship in addition to credit score and income ratios. Perhaps I'm a bit biased, since I have sizable investments in some fast-growing community banks. But I have invested there because I believe strongly in the business model, and believe that such well-managed banking institutions will be able to weather the economic storms to come.

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