The Rise of the (Financial) Machines 403
BartlebyScrivener writes "A New York Times Op-Ed quoting Freeman and George Dyson wonders if Wall Street geeks and 'quants' outsmarted themselves with computer algorithms to create the current financial debacle: 'Somehow the genius quants — the best and brightest geeks Wall Street firms could buy — fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and — poof! — created $62 trillion in imaginary wealth. It's not much of a stretch to imagine that all of that imaginary wealth is locked up somewhere inside the computers, and that we humans, led by the silverback males of the financial world, Ben Bernanke and Henry Paulson, are frantically beseeching the monolith for answers.'"
The quoted essay from George Dyson is available at Edge.
This American Life (Score:5, Interesting)
Second, I don't think the current financial problem world wide is the quants' fault. I think this credit crisis and market failure (although it might have a little to do with the quants) can be directly attributed to the world market investing heavily in the subprime mortgage bubble. Now, there's still software to blame, but it's not the quantitative analysis guys, it's the software in the hands of people who were in charge of buying bad loans and shipping them off to Wall Street to be sold to investors with a monthly mortgage check paying a huge return.
There was a This American Life episode on this sometime back that dealt with explaining the global subprime mortgage financial crisis (now known as a worldwide credit crisis). About 26 minutes into the first episode [thislife.org], you hear them talk about exactly this (you can stream the shows from these links or look at transcripts). Alex Blumberg & Adam Davidson are two producers of the show interviewing those involved. Enjoy this dialog from the show on the no doc loans these idiots were handing out like candy to anyone:
Alex Blumberg: But Glen didn't worry about whether the loans were good. That's someone else's problem. And this way of thinking thrived at every step of this mortgage security chain. A guy like Mike Francis, from Morgan Stanley, he told me he bought loans, lots of loans, from Glen's company, and he knew in his gut they were bad loans. Like these NINA loans. ... we did it
because everyone else was doing it.
... didnâ(TM)t seem worried at all:
Mike Francis: No income no asset loans. That's a liar's loan. We are telling you to lie to us. We're hoping you don't lie. Tell us what you make, tell us what you have in the bank, but we won't verify? Weâ(TM)re setting you up to lie. Something about that feels very wrong. It felt wrong way back when and I wish we had never done it. Unfortunately, what happened
Alex Blumberg: It's easy to ignore your gut fear when you are making a fortune in commissions. But Mike had other help in rationalizing what he was doing. Technological help. Mike sat at a desk with six computer screens, connected to millions of dollars worth of fancy analytic software designed by brilliant Ivy league math geniuses hired by his firm, which analyzed all the loans in all the pools that he bought and then sold. And the software, the data
Mike Francis: All the data that we had to review, to look at, on loans in production that were years old, was positive. They performed very well. All those factors, when you look at the pieces and parts. A 90% NINA loan from 3 years ago is performing amazingly well. Has a little bit of risk. Instead of defaulting 1.5% of the time it defaults at 3.5% of the time. Thatâ(TM)s not so bad. If Iâ(TM)m an investor buying that, if I get a little bit of return, Iâ(TM)m fine.
Adam Davidson: Wait Alex. I want to step in for a moment because this is a very important piece of tape. A big part of this story, of this whole crisis, is that a lot of really smart people, people who knew better, fooled themselves with this data. It was the triumph of data over common sense. Can you play that tape again?
Mike Francis: All the data that we had to review to look at, on loans in production, that were years old, was positive.
Adam Davidson: As we now know, they were using the wrong data. They looked at the recent history of mortgages and saw that foreclosure rate is generally below 2 percent. So they figured, absolute worst-case scenario, the foreclosure rate may go to 8 or 10 or 12 percent. But the problem with is the
Re:Yes, let's blame the geeks (Score:4, Interesting)
Or the Gov't and certain social engineering groups forcing the banks to make loans to people who wouldnt normally qualify under any circumstances...
NY Times praising the new program in 1999 [nytimes.com]
Bill Clinton admitted the democrats stopped any oversight of Fannie and Freddie: [newsbusters.org]
"CHRIS CUOMO, ABC NEWS: A little surprising for you to hear the Democrats saying, "This came out of nowhere, this is all about the Republicans. We had nothing to do with this." Nancy Pelosi saying it. She signed the '99 Gramm Bill. She knew what was going on with the SEC. They're all sophisticated people. Is that playing politics in this situation?
BILL CLINTON: Well, maybe everybody does that a little bit. I think the responsibility the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac."
Im not completely blaming the democrats, but they certainly set up the framework for the housing bubble and the subprime mess we are in now
Re:This American Life (Score:4, Interesting)
Douglas Adams gets it right AGAIN! (Score:5, Interesting)
They've obviously been using Reason - no, not the virtual synth package, but the one described in Dirk Gently's Holistic Detective Agency:
Gordon's great insight was to design a program which allowed you to specify in advance what decision you wished to reach, and only then give it all the facts. The program's task, which it was able to accomplish with connsumate ease, was simply to construct a plausible series of logical-sounding steps to connect the premises with the conclusion...
...The entire project was bought up, lock, stock and barrel, by the Pentagon.
Douglas Adams
Shesh... and the guy also predicted Wikipedia and Microsoft (or did he *cause* them?)
(Since DGHDA also contained a fair bit about computer music, I assume that the name of the synth package is no coincidence).
Re:The creation and transfer of funny money (Score:5, Interesting)
I've read my history. The gold standard places a dangerous deflationary bias in place on economies, often turning recessions into much more dangerous depressions. Anyone advocating such a policy has NOT read any history worth reading.
I'd suggest the following:
Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (NBER Series on Long-Term Factors in Economic Development), Barry Eichengreen, 1996, ISBN 0195101138
Geeks are not to blame (Score:3, Interesting)
I am a quantitative analyst. True, there were many modeling flaws with the way ABS and MBS were priced, which made it appear that they were very safe and had good returns. Now when that happens what do you do ? You borrow short at a low rate, and invest in that secure product which produces a higher rate.
On a free market, this will quickly rise the short term interest rate (demand increase and the supply of saving is finite) and slowly drive down the return on mortgages as more house are being built.
On the US market it will not rise the short term interest rate because it is set by the FOMC, it will instead create inflation. Thus, the money used to invest in those mortgages will not be lended by someone, it will be printed. There is no direct mechanism by which the lending dry itself out... the guys at the FOMC have to figure there's going to be inflation.
So yes, there have been many mistakes in modeling, but such mistakes are bound to happen, in any industry, and they will have bad consequences (they're mistakes!)
The problem is the federal reserve system which magnifies the effect of financial mistakes by a few order of magnitude by disconnecting the interest rate market from reality.
Re:Yes, let's blame the geeks (Score:5, Interesting)
from the 1999 NYT article above...
"Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits."
as you mentioned its not the small credit unions, or the smaller banks, its the large national banks that are having trouble, becasue they were afraid of politics from people like ACORN who would publicly deride them as racists if they didnt loan money to the poor...
Re:Yes, let's blame the geeks (Score:4, Interesting)
Riiiiight, the large banks are such big pushovers that they would rather face bankruptcy than be publicly derided.
Sounds ridiculous when it's phrased like that, huh? The funny thing is the CRA loans you're all whining about tended to have lower interest rates and be safer investments than the other subprime mortgages. They were less likely to be packaged into the securities that actually caused the crisis.
I know you really would rather blame black people than admit the free market failed, but the free market failed.
Re:TFA perpetuates voodoo explanations (Score:2, Interesting)
While most securities are traded openly using an intermediary, market maker or a broker, in this case the banks originated and purchased these things hidden from the open markets. They also conveniently pushed them off the balance sheet onto strange accounting entities (SPVs etc) whose purpose was solely to hide what they were holding. They did this so as to avoid the fluctuation of prices on their balance sheet and to avoid the mark to market rules that exist on securities.
What this did is that these assets could not be priced in the market. Since market could not price them, the banks started using computer models to price these assets - In would go conditions like 1% default rates, 2% prepayment rates and assumptions on what your neighbor was pricing them at and out would come the prices for the securities
These assumptions were flawed and the increasing prices for these things led the assumptions being even more off-reality. This was supposed to start as mark-to-market , it deteriorated into mark-to-model and then what Warren Buffett (in his 2004 letter) called mark-to-myth.
As long as reality did not interfere with the computer predictions, it let the banks create trillions of non existing assets. What we are seeing now is ofcourse a hard dose of reality.
So in summary, while there was greed at the lowest levels it should have been caught earlier if that reality had trickled back up to the computer models. The people in charge of the computers turned out to be wrong about the assumptions they were feeding the computers.
Re:Economy is Fundamentally Buggered (Score:2, Interesting)
Usually when a government goes bankrupt (or significantly loses money) , no one would buy their bonds . This means that no one is willing to lend them any more money - this should cause them to pay a higher interest rate. In the case of the U.S.A, it is the exact opposite. When US government announced that it was going to print $700 bn more of money and use it on an dubious plan, the rest of the world should have seen that US cannot reasonably pay back this amount and panicked. But on the other hand , the yields on the treasuries actually went down, i.e the interest rates the US govt has to pay is less than inflation.
This is due to the unique nature of US currency in the world economy - In fact the exact opposite happened to the Euro when the panic hit.
If the world wants to lend money to USA while knowing perfectly well that they are going to get papers not backed by economic production, why should the US not take the money? It is the rest of the world that is being stupid in stockpiling the money, not USA.
Whenever this "orgy" as you called it ends, the US dollar has to depreciate atleast by 50% against the yen (If I use the simple Big Mac index of prices) and more against lot of other currencies. Until this happens, enjoy it while it lasts.
Re:This American Life (Score:3, Interesting)
these two episodes gave me more information in two hours than I could gather watching every single major TV news show for weeks.
Couldn't agree more, and I've only listened to the first so far.
From a UK perspective, I've missed out on much of the information in this show - I knew of the sub-prime crisis, but had no idea of the reasons why so many bad investments were made. Most coverage here simply glosses over the fact that mortgages were given to people with bad credit and fails to delve any deeper.
I was also aware of how things were exacerbated because of the uncertainty of who owned which loans - the show was a huge eye-opener in this regard as I discovered not only how this came about, but also how massively more complex the situation is than I could have presumed.
These links are perhaps the most valuable ever posted on /., so thank you very much.
Everyone misunderstands Voodoo Economics... (Score:5, Interesting)
The Voodoo Economics attack was at the Laffer Curve, which claimed that there is a ideal point of taxation that maximizes government revenue, and above that, people don't do economic activity and therefore taxes decline. Reagan predicted that his tax cuts would increase revenue, which was NOT the case, but it did free up capital, got the economy going, and tax revenues DID increase in time. Also, we have really cut taxes... I'd like them lower and flatter, but we can't do that without cutting the government. Taxes are running around 17% of GDP and governments expenditures at 20% of GDP... I'd like to see those both around 10% or less.
The real thing that Reagan cutting taxes did was:
A) transfer wealth to current savers (money in 401k and tax deferred annuity programs) had deferred 70% (or 90% at some point) taxes, and could now take it out at 30% in the early days
B) allow middle class people to build wealth... middle class people get paid a wage/salary, whether that wage/salary is 20k or 250k, they pay taxes on their labor, and if the rates are high, they can't build wealth, if they are low, they can work overtime/part-time second job, and use that extra money to build wealth, at 70% - 90% taxes, they can't
C) stopped the real estate only system... the tax code HEAVILY favors real estate investors -- you can tax defer the capital gains forever by buying a new property (important when Capital Gains rate was 40%, where Obama wants it, less important at the 15% it is now -- and you can depreciate property... if you can buy a building for 3M, and depreciate it over 30 years, you have 100k in "losses," so if you are making 100k/year in profits renting it out, it's tax free... sure your depreciation gets paid back when you sell the property as a capital gain (so you convert ordinary income, taxed at 40% with FICA into capital gains at 15%), and can be deferred on an exchange
The problem is Obamanomics is that it is NOT Clinton-style populism and fiscal conservatism (at least when paired with a GOP Congress), it is NOT FDR/LBJ New Deal/Great Society program heavy, it is European style socialism... heavy on regulation, income redistribution, etc... capitalism produces more gains/growth, but also downturns... Americans suffer more in economic downturns, but we benefit more in upturns... You can't have the upside without the downside, which is what people apparently want.
Evils of subprime (Score:5, Interesting)
Guess what, subprime defaults are still under 10%, and even if they rise to 25%, that still means that 75% of the people with subprime mortgages were able to buy houses that they weren't otherwise. So "blaming" subprime is silly... the problem is that the holders of the banks mistook the risks, but nobody cared because as long as prices went up, they WERE risk free.
The problem in the boom was people took 2/28 and 3/27 loans... these were priced at 30 year loans (for amortization), but after 2 or 3 years, they reset from the low "teaser" (often 1% - 2.5% higher than the prime mortgages) to a high rate that would be 10% - 11%... The people getting them often didn't know that if interest rates STAYED the same, their rate would go from 7% - 11%, and they were qualified at the 7%... they assumed that sure the loan rate would "reset," but if interest rates could go up, they could also go down...
Brokers, new in the field, said things like "prime rate is stable, long term rates shift," because you had a 2 year stretch without the Fed moving it's rates. If someone had a low credit score now, they weren't going to be better in 2 years, because new home owners underestimate the costs of owning a home... but on paper, if you had some blemishes on your report, in Fannie Mae conforming only REALLY looked back two years (looked at 4, but mostly at 2)...
If you had a business or health failure, and took a LOT of hits on your credit score from not paying bills but nothing before/after, maybe you were better in two years. Most subprime people have a bunch of problems that are permanent. But, even if your score didn't improve, you could always refinance with another 2/28 in two years, giving the brokers your new equity in the house to try again...
So nobody worried, because with the market going up, if you couldn't make the payments, you could refinance out of trouble.
Re:Yes, let's blame the geeks (Score:1, Interesting)
I guess it depends on your point of view...
Do you blame los-alamos scientists for the bomb? Or do you blame truman for using it?
Do you blame poetsch for the idea or hilter for using it?
Do you blame nobel for dynamite or the assasins of czar alexander2 for using it?
Do you blame bill for dos or ibm for using it?
Seems like many share the blame for this one...
Re:Computer models do what they are told. (Score:4, Interesting)
When analyzing a disaster, "the problem" is not one of the things that, if changed, could have prevented it. It's all of those things.
There are a bunch of relatively dumb things that made this disaster possible. It only happened because people were looking at the system as if were static, and assuming that their change was the only change.
To create this crisis took venal lenders, dumb borrowers, shitty loans, sloppy packaging, too-cheap money, weak modeling, corrupt ratings agencies, excess leverage, poor transparency, unchecked greed, perverse compensation structures, rampant lobbyists, irresponsible government, and incompetent regulation.
We shouldn't fix just one of those. We should fix all of them.
Re:This American Life (Score:5, Interesting)
I have a good friend who is in Upper Management at one of the major banks affected by the sub-prime/securities collapse. He told me a year and a half ago what was going on and used a great analogy to illustrate the point. This isn't necessarily breaking news, just an easy way of understanding a complex situation which the media tends to spin way out of context. Obviously, there's much more to it than this and I'm certainly not an economic expert...
All the major banks (6 at the time) were purchasing enormous blocks of "bad paper" (high risk "AAA" mortgage loans) from each other. They would in turn, back the bad loans with their own securities investments or even securities from other financial institutions willing to assume a percentage of the risk.
Billions of dollars of this bad paper, which everyone knew was bad since it was over extended by weak securities, was being passed around like a hot potato in a game of musical chairs. They all knew the music was going to stop and someone would be caught with their pants down. At times, particular banks in ownership of the paper would only hold on to it for hours or days - just long enough to make a fractional profit from the bulk interest. Although incredibly risky, this method would collectively work for everybody involved except one - like playing a single round of Russian roulette. My friend said the day to day business for the past 1.5 years was to simply find a buyer if you were holding the paper, or try to be next in line to purchase as quickly as possible, then sell again as quickly as possible.
Simply put, he said this just isn't the way the banking industry is supposed to operate. The level of irresponsibility wasn't really about the high risk sub-prime mortgages that were issued to questionable applicants. The true irresponsibility lays in the C-Level/Executive Management teams of all the major banks, who encouraged and practically mandated the daily buying and selling of high risk bulk paper at a volume that would collapse even the strongest of banks. The key here is the volume of risk - literally enough to crush any bank.
The first bank who got caught was Bear Sterns in January 2008. For some illogical and unbeknownst reason, the industry assumed a major financial institution like Bear Sterns would never be the one caught without a chair when the music stopped. The psychological ripple effect of this sobering event just made the stakes higher and increased the speed at which the game was played, rather than putting the brakes on.
He said that initially it was almost a relief when Bear Sterns collapsed, because he and many other people in the industry thought the game was over and they had made it through unscathed. But, to his astonishment everyone continued to play this dangerous game with a gambler's mentality. Each time Fannie Mae/Freddie Mac cut the rates, the banks took it as a sign to play another short term round of the game. Eventually when the larger, more conservative banks realized this was well on it's way to failure (the tip-off was the Fed stopped cutting rates) they ceased backing the paper with their securities and the game ended for everyone leaving the smaller banks, securities firms, and finnancial institutions with the highest debt/risk scrambling to recover from losses. Lehman Brothers was the odd man out this time around.
just my 2 cents... oops 1.5 cents now...
wrong-o, blame Moody's (Score:5, Interesting)
The people who made this a catastrophic mess (as opposed to just a nasty mess) are the credit rating agencies (Moody's et.al.) who pretended there was any way to make a security (mortgage-backed or otherwise) exactly as low-risk as a U.S. Government obligation. Far fewer folks would have been legally allowed to purchase these products if the ratings had reflected the actual risk inherent in them and thus the potential impact to the economy of a failure in MBSes and CDS insurers would have been far, FAR less.
Moody's played exactly the same role in this debacle as Arthur-Anderson played in Enron's and I personally think they *ought* to suffer the same fate AA did so that future ratings agencies understand that failure to perform due diligence jeopardizes their company's existence. Wall Street understands Moody's role in this and the broad market continues to tank in spite of Bernanke's and Paulson's actions because we don't trust the ratings given by Moody's to other financial products or even companies so nobody knows how much risk they are really sitting on.
Let me say this clearly -- the heightened leveraging of the investment banks caused some problems but it isn't the leveraging that made this a catastrophic problem. The problem is catastrophic only because (a) folks who shouldn't have been allowed at all to be exposed to these risks were allowed to buy in and (b) folks who should have been allowed to take these risks weren't prepared through proper compensation for the risks they took on. All because the credit rating agencies did garbage-class work.
Until the credit rating agencies get as scared of the consequences of their negligent actions as accounting firms were post-AA this will continue to be repeated every time some finance person imagines up a new way to pretend to eliminate risk from investments which are fundamentally risky.
This is at least the third mess made by quants (Score:4, Interesting)
The first mess was the stock market crash of 1987. They came up with something called "portfolio insurance". They combined program trading, futures, and options into an incomprehensible stew that was supposed to allow a mutual fund to buy highly profitable, highly risky stocks but insulate itself from their risk. It went haywire and the market crashed.
The second time was Long Term Capital Management in the mid-to-late 1990's. It isn't clear what they were doing, but it almost caused a worldwide financial collapse and required government intervention.
This time it was financial deregulation, predatory mortgage lending, collateralized debt obligations, and credit default swaps. None of this stuff was understandable, including the mortgages and all the derivatives. Many mortgages violated Truth in Lending laws. They misled the prospective homeowners about the terms, and put them in fine print that an average person couldn't understand.
The underlying problems are these:
1. Financial derivatives. They take stocks, mortgages, and bonds and bundle them into other financial instruments, such as index instruments, and mortgage bundles. They do other things like splitting the interest from the principal and putting them into separate instruments. They then create futures, options, and options on futures for the bundled instruments. Options on stocks and bonds are reasonable and understandable. Futures on real commodities are understandable and valuable to producers and users of the real commodities. The rest of the derivatives add more and more complexity.
2. Allowing derivatives to settle in cash. This turns the derivatives into side bets on the real financial instruments. This is how 4 trillion dollars in mortgage and other bonds turned into 62 trillion in credit default swaps. A speculator doesn't have to hold the bond to buy "insurance" that the bond will pay off. A speculator doesn't have to hold a stock or borrow and short it (creating an obligation to buy it to close the loan) to place a bet on its price.
3. Arbitrage trading strategies that connect the derivatives side bets to the real market. The side bets don't remain side bets. The trading strategies do things like enabling speculators to drive down the prices of stocks while bypassing the discipline of the short sale procedures (which were also relaxed due to financial deregulation). These procedures include requirements for the stock price to go up on the transaction preceding the short sale (the "uptick" rule), and requiring the short seller to actually borrow the stock before selling it.
4. Financial deregulation that allowed all of the above problems to fester, and in some cases explicitly placed some of the financial instruments outside the scope of regulation. We can thank Phil Gramm, John McCain's best economic buddy, for this part of the problem.
5. Allowing some derivatives to be traded in unregulated markets and concealed in financial reports. The scope of the problem was allowed to be invisible.
6. Faulty models of the derivatives markets. The quants' algorithms were based on faulty models. Based on an op-ed in the Washington Post, the models appear to assume simple linear market behavior and normal random variability. They are most likely based on faulty economics like the "efficient market hypothesis" that is a fundamental principal of "free market conservative" economics. Markets simply are often not efficient. Charles Mackay (author of Extraordinary Popular Delusions and the Madness of Crowds) is every bit as good a describer of markets as Adam Smith. Since the derivatives and quants became more central in the markets, we have had more Mackay markets than Smith markets.
My suggested solution is to require any derivatives to settle in the underlying financial instruments or commodities. No purely cash settlements would be allowed. As a transitional provision, I would suggest immediately imposing a stiff tax on any derivative settlements that are made stric
Re:More Leverage.... (Score:1, Interesting)
You got this spot on right. The current crisis is as much a failure of regulation as anything - BASEL2 has a lot to answer for. It also introduced the mark to market requirement - which, when there is no liquid market, actually makes things a lot worse. You also need to think about just how much of the securitized sub-prime debt was rated AA or AAA (a lot of it) - and then ask how this happened. Add in a lot of inconsistency in the response the governement (spin that wheel - do we rescue or fold today? (or maybe that should be Fuld)). Summary - it's a lot more complicated than it's all down to a bunch of "fat cat bankers" (as the UK press calls them).
Re:Evils of subprime (Score:1, Interesting)
Only that the planetary GDP is about $50 Trillion and the derivatives hit something like $550 Trillion.
Re:This American Life (Score:4, Interesting)
Interest only loans exist for perfectly good reasons. They just aren't good reasons when applied to something like a home mortgage, that you're SUPPOSED to pay off over time. Consider a business line of credit. Lets say I run a business which I want to expand. This will require me to carry debt for a short period of time. Commercial paper is what they call it, but an interest only loan is basically what we're talking about here. I do something, or sell something that has an expense to create. I need to spend the money now but it'll be 30, or 60, or 90 days before I get paid for it. So fine, in 90 days I'll get paid, and it will cost me say $10 to produce the product and $2 in interest, but I'll make $15 once it gets paid off. When the choices are make $3 or make $0 becuase I can't afford to produce it in the first place, it makes sense. So it's going to take 90 days to get paid, but in 30 days, I need to crank out another product. That means more loans. In fact, that means I'll virtually ALWAYS have a loan out, which I'm paying interest on all the time, but never paying off. Of course, I could use my profits to pay down the debt, and if I'm not growing, requiring further up front expenses, then I certainly will pay it down. But for a company that's growing, a long term interest only loan makes perfect sense, as it provides them with the ability to make money. The bank certainly has no problem with it.
The difference here is, a house that you're living in doesn't make any money. At least, it's not supposed to. Oh sure, if you maintain it well it shouldn't lose any value, and if you spend $40k to add on a couple rooms, it might increase in value proportionately, but you're doing good if you sell your house for 6% more than you bought it for. Just enough extra to pay off the realestate agents and not consider it a loss.
All of that changes though when you consider that a house might increase in value, not because it generates revenue, but because the housing market in your area increases and suddenly your house is worth more... just because it is. The bank now thinks that this is safe collateral on a interest free loan as they'd be able to recover their investment through a foreclosure. That's why we had a subprime mess to begin with. The banks simply didn't care if the owner could pay the loan back as the house would be worth more later anyway.
There's another way to look at it. Interest payments on home mortgages are tax deductible. If you're constantly carrying around $20k in credit card debt, it makes perfect sense to refinance your home and pay that off. First off, you'd have a lower interest rate, and secondly, interest payments on the cards were not tax deductible and now those payments are. So if you're the type that's sitting with maxed out credit cards and you keep them maxed out, it might just make sense to transfer that debt to your mortgage, cut up the cards, and make interest only payments and pay cash for everything else for now on. Of course, that represents and requires a level of responsibility that you're probably not going to be able to live up to in the long run, and ultimately that's a big part of the problem. If people were more fiscally responsible in the first place, didn't purchase beyond their means, everything would be perfectly peachy right now.
-Restil
Re:Its the Economists, Stupid! (Score:3, Interesting)
The point is that there was no consensus model adhered to by the vast majority of economists that produced a consensus prediction.