Comments on: Ptolemaic Finance vs. Shiller’s The Subprime Solution

By: anon

anon — Wed, 17 Sep 2008 01:18:03 +0000

You are an anti-libertarian hack of the most pernicious kind.

By: Bill

Bill — Wed, 17 Sep 2008 01:13:55 +0000

It seems as though the Bush Administration actually wanted more oversight for Fannie and Freddie (see this article from the NY Times). And who was blocking this legislation? I’ll let Barney Frank tell you:

“These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

And here is Mel Watt from N.C.

“I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing”

The role that politicians and activists played in “nudging” the financial system needs to be addressed as well. Claiming this was a problem of laissez faire policies or animal spirits is too simplistic.

By: Maryland Conservatarian

Maryland Conservatarian — Tue, 16 Sep 2008 20:48:38 +0000

“But he insists that these bailouts must be targeted at low-income victims of subprime deals.”

Victims?? An interesting experiment would be for a group of like-minded progressives to pool their money and then lend it out to similar low-income borrowers in arrangements that more closely resemble “prime” deals…then wait to hear who is described as the “victim” on subsequent defaults.

By: Jonathan Lubin

Jonathan Lubin — Tue, 16 Sep 2008 15:26:21 +0000

Large hedge fund and private equity fund investors often are able to get fund sponsors put skin in the game and invest alongside the fat cats so as to align incentives properly.

By: James Grimmelmann

James Grimmelmann — Tue, 16 Sep 2008 14:54:18 +0000

As I understand it, a 2 & 20 agreement means that the fund gets to keep 2% of assets under management, regardless of returns. Of course it’s going to pioneer ever-riskier investments–it has to pay for its exorbitant fees somehow.

The excess incentive to risk comes from the “and 20″ part, not the “and 2″ part. 2% is high but hardly exorbitant for an actively-managed fund, especially one are as active as the typical hedge fund.