Comments on The Psy-Fi Blog: Financial Lessons in Mass Deception

I have often thought about how the world of financ...

2010-06-02T06:55:46.836+01:00

I have often thought about how the world of finance would be in that film 'The Invention of Lying'.

In it nobody can lie apart from one guy. Do you think they would have sound banks?

May I venture a suggestion? The 'liar loans...

2010-02-18T09:14:36.157Z
May I venture a suggestion? The 'liar loans' phenomenon is interesting but it may need a little more thought. You see, in many securitisation transactions, the so-called 'originator' of the loans retains an interest through subordinated debt provided to the securitisation trust, so that the 'originator' bears the so-called 'first loss' piece.

‘Tis true but never as simple as it seems. There’s some interesting research around the Originate to Distribute model which effectively shows that those institutions which were more lax in their lending standards suffered disproportionately when everything went south, probably because they were left with a lot of very low standard mortgages which they couldn’t flip. See Originate-to-Distribute and the Sub-Prime Mortgage Crisis.

Hi Arjan

Great article! But next to the fact that we are at the same time natural liars and natural truth tellers, we are also freeloaders and altruistic.

I agree: I’ve touched on altruism here: When a Dollar’s Not Just a Dollar. However altruism it evolved it must have been associated with relatively tight-knit social groups, perhaps for gene preservation. It certainly wasn’t intended to cope with situations where we’re dealing with remote, faceless individuals. Change the social situation and you likely change the response. Of course, being pithy and wide-ranging in 1200 words is always a challenge :)

Great article! But next to the fact that we are at...

2010-02-18T05:10:45.301Z
Great article! But next to the fact that we are at the same time natural liars and natural truth tellers, we are also freeloaders and altruistic.

So I don't disagree, but the take away from this article shouldn't be that people are only born liars.

Read the work by Frans de Waal for example to get the more nuanced picture: http://seedmagazine.com/content/article/survival_of_the_kindest/

We are natural liars and we do it surprisingly ...

2010-02-17T17:35:46.961Z
We are natural liars and we do it surprisingly often.

This is so. And it is important to point this out.

It is not the only thing that is so of us humans, however.

We are also natural truth tellers. We devote enormous amounts of energy to writing songs and books and manuals that tell the truth about stuff.

We're a mixed-up bunch. We destroy entire economies with Get Rich Quick investing approaches. Then we wade into the rubble and begin the long process of rebuilding them stronger than they ever were before.

We've been liars and truth-tellers since the beginning. I don't think this is going to change. We just get more creative re our efforts pursuing both tasks.

We're a funny sort of animal, that much is fair to say.

Rob

thanks, i'll post your definition up too, the ...

2010-02-17T17:20:35.973Z
thanks, i'll post your definition up too, the other things are no doubt closer to what I was thinking, would never have guessed tent holders in a million years

Yes, evolutionary biology is a fascinating topic. ...

2010-02-17T17:10:41.239Z
Yes, evolutionary biology is a fascinating topic. Matt Ridley's work on that area was always interesting (pity he wasted so much time with Northern Rock, however).

May I venture a suggestion? The 'liar loans' phenomenon is interesting but it may need a little more thought. You see, in many securitisation transactions, the so-called 'originator' of the loans retains an interest through subordinated debt provided to the securitisation trust, so that the 'originator' bears the so-called 'first loss' piece.

Let me try to translate that gobbledy-gook: It simply means that the people who made the loan in the first place continue to bear some of the risk that the loan may default. To put some simple numbers to it, let's say that GBP 100,000,000 of loan are securitised and let's say that the 'originator' provides subordinated funding of GBP 30,000,000. That means that for defaults of up to GBP 30,000,000, the person who made the loan suffers the entire risk of loss. As you can imagine, that tends to have a settling effect in terms of ensuring that the borrowers are in fact credit-worthy.

Hi Ilene I didn't realise "guy-ropes&quo...

2010-02-17T16:37:07.283Z
Hi Ilene

I didn't realise "guy-ropes" was British English. They're the ropes you use to hold a tent in place, although I'm sure they've been used for other things :)

Hi Tim, I loved your article and posted it on Phil...

2010-02-17T16:18:19.130Z
Hi Tim, I loved your article and posted it on Phil's Favorites, with this intro, which might make me sound clueless - what's guy-ropes?

Insightful, excellent article about our not-so-excellent human nature. I just don't know what guy-ropes are (probably not my first mental image). - Ilene