It’s much more likely that, if people want a loan, they will try and game the system. There is a strong chance they would give the answers that they think reflect a better credit trustworthiness: “I definitely pay attention to financial details. I am perhaps, if anything, too cautious.” As opposed to: “Oh, I don’t care, just give me the cash.” Any psychological assessment scheme would have to be robust to such game-playing, perhaps by asking more opaque questions.
Category: Credit
Inside the Dark, Lucrative World of Consumer Debt Collection
Some of the deals Siegel made were hugely profitable, while others proved more troublesome. As he soon discovered, after creditors sell off unpaid debts, those debts enter a financial netherworld where strange things can happen. A gamut of players — including debt buyers, collectors, brokers, street hustlers and criminals — all work together, and against one another, to recoup every penny on every dollar. In this often-lawless marketplace, large portfolios of debt — usually in the form of spreadsheets holding debtors’ names, contact information and balances — are bought, sold and sometimes simply stolen.
The Prophet
To his listeners, Ramsey holds out the promise that they can simply choose to be different—that it’s within their power to not take part in recessions and the economic problems facing American families. “Debt is normal,” a Ramsey bumper sticker says. “Be weird.”
Shadow Banking And The Global Financial Ecosystem
In either case, the fundamental problem we are dealing with is a financial ecosystem that has outgrown the safety net that was put around it many years ago. Today we have new types of savers (cash portfolio managers versus retail depositors), new types of borrowers (risk portfolio managers to fund pensions versus ultimate borrowers to finance investments and consumption) and new types of banks (dealer banks that do securities financing versus traditional banks that finance the real economy more directly via loans) to whom discount window access and deposit insurance do not apply.
These twin pillars of the official safety net were erected around traditional, deposit-funded banks to address retail runs. In contrast, the crisis of 2007–09 was a crisis of institutional runs where cash portfolio managers ran on dealers, and dealers ran on risk portfolio managers. But importantly – as the examples above demonstrate – beyond the institutional façade of the ecosystem it is ultimately real wealth and promises that are at stake.
The Default Has Already Begun
The vaseline, in other words, already has sand in it. The global faith in US institutions has already been undermined. The mechanism by which catastrophe would arise has already been set into motion. And as a result, economic growth in both the US and the rest of the world will be lower than it should be. Unemployment will be higher. Social unrest will be more destructive. These things aren’t as bad now as they would be if we actually got to a point of payment default. But even a payment default wouldn’t cause mass overnight failures: the catastrophe would be slower and nastier than that, less visible, less spectacular. We’re not talking the final scene of Fight Club, we’re talking more about another global credit crisis — where “credit” means “trust”, and “trust” means “trust in the US government as the one institution which cannot fail”.
Abnormal Capitalist 