December 7, 2008

A wiki solution to the credit crunch?

The conventional wisdom is that our economic woes are due to a credit crunch, and the credit crunch is due to the inability of financial institutions to figure out what mortgage-backed or derived financial instruments are actually worth. "Securitization" (a.k.a., "secretization" in Travis Talk) makes it hard to figure out whether the entity asking you for a loan is bankrupt or not. So, financial institutions are reluctant to lend money to each other.

If this really is the problem, then there is a potential solution. During the credit crunch of 1907, J.P. Morgan had the leaders of all the major corporations bring their books to his mansion, where his men reviewed them and then J.P. told the executives what they must do -- you and you merge, you sell your Midwestern rail lines to him, etc.

The books are a lot more complicated these days, but our technology is better too.

What if the government posted all the details of all financial assets online and encouraged citizens to post comments on the assets, such as mortgaged properties.

This is a desperate step since it would involve colossal invasions of privacy. ("The Jones have a $600,000 mortgage! Are you kidding? There's no way their income is $180,000 like they claimed. She drinks and got laid off from her last job. And the house if full of termites. Plus I hear he has cancer. Their son is supposed to be a drug addict so you won't see that money. You won't get paid a dime back on this one.")

But, maybe there is some way to work this idea out so that it would work?

My published articles are archived at iSteve.com -- Steve Sailer

19 comments:

Anonymous said...

Why not just look at people's credit reports and income tax statements?

Mike said...

This idea strikes me as clever, but too problematic on the levels of privacy, meta-accountability, sheer informational logistics, and power balance...

A small tweak would be to have all submitted comments be private, viewable only by the loan institution, not peoples' neighbors.

KlaosOldanburg said...

A while ago, I thought about a wiki to record the condition of foreclosed homes, so we know which ones have pipes and unbroken windows.

Anonymous said...

Check out Intellipedia: http://en.wikipedia.org/wiki/Intellipedia


Also in an unrelated note I've found some interesting ethno-data.

Oxford publishes demographic information disaggregated by ethnicity! A very rare window.
www.ox.ac.uk/gazette/2007-8/supps/2_vol138.pdf

Here's the 2001 British census for comparison: http://www.statistics.gov.uk/cci/nugget.asp?id=455

Also Oxford does not practice affirmative action.

Anonymous said...

Steve this makes a lot of sense.

I believe you have said in the past that many people bought big new houses in the exurbs in an effort to get away from the underclass.

No one wants to live next door to people with "pathologies"

isn't the solution to this a gated community that is built close in, a community with strict rules that allow the community board to boot out anyone practicing pathological behavior -

I would put forth that most people in america are happy with some level of income diversity, so long as they can be assured that the people that are a little different from them abide by all the usual social norms - no loud music, no letting their children burgarize and graffiti the neighborhood and etc.

are there places in america where, due to strong enforcement of social norms (be it in gated communities or otherwise) people with higher incomes can comfortably live with people with lower incomes

Or is it such that almost everyone with a high income really wants to live in a subdivision only with people with similar high incomes -

put it another way - can you point to a neighborhood where one family has HHI of $300k per year and they live next door to another family with a HHI of $60k and the kids are the same age and play together successfully? I would assume that there is some sort of enforcement mechanism that allows in those $60k per year families that "play by the rules" and excludes those that don't "play by the rules"

any examples of this in action-?

the point is, Do people have an incredible urge to live next to people with the same income and wealth, or do people simply have an urge to live next to people who exhibit the behaviour and mannerisms of civilization

beowulf said...

What if the government posted all the details of all financial assets online and encouraged citizens to post comments on the assets, such as mortgaged properties.

Umm, doesn't the Securities Exchange Commission already do this with publicly traded companies? Granted the "comments" are in the form of stock market buy or sell orders, but its still the so-called wisdom of crowds that sets the stock price.

Maybe the government should require public filings from hedge funds and large private companies first.

headache said...

Anon sed:
"isn't the solution to this a gated community that is built close in, a community with strict rules that allow the community board to boot out anyone practicing pathological behavior -"

Funny you mention this. This is exactly what's transpiring in South Africa. Local communities are fencing off and have organised sentries to keep the syndicates out. The government is trying to fight this with the argument that everybody should have roaming rights. This is essentially the anti-pass laws law. But the funny thing is that many middle class blacks who enjoy the security and order of these enclosed white communities also reside there and are accepted as long as they don't bring along the townships culture. Locals predict the future will consist of local gated communities who organise their own protection along the lines of the old commando system. Residents will try to minimise travel outside and consider going to town or the airport as risky travel. Basically outside of these communities you have dysfunctional police and syndicates have free reign. Kinda like the Middle Ages where the woods were unsecured and teeming with criminals.

Anonymous said...

"any examples of this in action-?"

Almost any small town.

Anonymous said...

"isn't the solution to this a gated community that is built close in, a community with strict rules that allow the community board to boot out anyone practicing pathological behavior -"

They are called Home Owners Associations (HOA) and they are just as much trouble as they are worth. Something like 70% of HOA are involved in suing their residents. Who wants to be used for not mowing their lawn every two weeks? For not getting approval for doing home remodeling?

get real said...

"I would put forth that most people in america are happy with some level of income diversity, so long as they can be assured that the people that are a little different from them abide by all the usual social norms - no loud music, no letting their children burgarize and graffiti the neighborhood and etc. "

I have it on good authority that people enjoy a bit of pathology in their neighbors as long as it doesn't lower the value of homes in their neighborhood.

Anonymous said...

The only people whose books should be opened up to public scrutiny are the central bankers.

When people realise that the "credit crunch" (or business cycle contraction phase) is nothing but the central bankers deciding to stop lending "money" created out of thin air, in order to transfer assets to the wealthy - with these baksters being the wealthiest of all - all other questions are answered.

Cancel Our Debt said...

Your solution is so, like, 2 months ago...

The problem now is the general deflation, which makes all loans a loser's bet. Banks don't want to give them out, because they are more likely to fail, and borrowers don't want to take them, because they are harder to pay off.

The home value deflation was the first phase, but it has spread much wider at this point.

Crash! goes the economy.

Henry Canaday said...

I think the Wiki approach works because, although there are ill-informed contributors and a few malicious pranks, there is no sufficient incentive for wide-scale misinformation. If the same approach were used to value bank solvency, there would be obvious incentives for misinformation, and these incentives would apply to organizations with the tools and sophistication to massively misinform.

Another objection is interpretation of so much data on so many properties. While algorithms for interpreting unstructured data, which is what the prose comments would be, has improved, I doubt if it has improved to the point it could be relied upon for big-money decisions. So it would have to be done manually for hundreds of thousands of properties.

Anonymous said...

Uhh... are you serious?
First, let's talk "libel" as it would relate to someone selling a house, and someone with a grudge (ex-wife?) upchucking pertinent, yet personal information, thus lowering the price of the house?
But let's go a step further. Let's say the ex decides to make things up.
The courts would be backed up for decades.
Steve, you need to watch a few episodes on Jerry Springer, top it off with some Judy Judy, and roll those people around on your tongue for a bit, then come back with some better ideas.

Anonymous said...

What about a citizenist approach to solving our economic problems?


I would put forth the proposition that on average the immigration of super high IQ people from Korea helps the economy.

People from Korea with high IQ generally pay more in taxes than they take in government benefits.

The generally don't default on their mortgages or commit violent crimes.

Seems to me that what is best for the current citizens of the USA is to offer citizenship to every single Korean person who has an IQ over 120 and is of working age.

Korea is a crowded rather unpleasant country. Many Koreans dream of the perfect weather of coastal california

do other citizenists agree that massive immigration of the highest iq people from Korea will benefit the US economy?


i suspect that many i steve readers really care about maintaining a certain preferred "racial mix" here in the usa, not in creating a nation with the highest possible IQ and the best possible economy. But i am in favor of high iq and good economy

Noumenon said...

Hey, Steve, let me be the 20th to inform you (hopefully) that Google is racist (or at least it knows what stereotypes people really believe).

Anonymous said...

i suspect that many i steve readers really care about maintaining a certain preferred "racial mix" here in the usa, not in creating a nation with the highest possible IQ and the best possible economy. But i am in favor of high iq and good economy

OK, I promise not to have any more children and will try and adopt some high IQ Koreans. I'll also try and persuade family and friends to do the same.

Then we all be better off, happy in the knowledge we've all done our best for 'America' and the economy.

As you quite rightly point out, what we want for the future really has no bearing on the matter.

Anonymous said...

I once had a Realtor tell me, "the poor people have to live somewhere". This was a responce to my question about whether a particular neighborhood in question was a good place to buy a rental property.

The number of rental units in a neighborhood is a great indicator of which direction the neighborhood is headed.

Born Again Democrat said...

Financial privacy is a greatly over-valued commodity, especially when you consider how much it costs society. If there were no secret bank accounts and every public corporation's books were open to public inspection, think of all the criminal sindicates, drug cartels, terrorist organizations, and just plain tax cheats that would be put out of business. Besides, gossip is good!