Comments on: A classic example of the problem in financial markets http://thebankwatch.com/2007/11/05/a-classic-example-of-the-problem-in-financial-markets/ Tracking the evolution of financial institutions Wed, 15 Feb 2012 16:44:07 +0000 hourly 1 http://wordpress.com/ By: Colin http://thebankwatch.com/2007/11/05/a-classic-example-of-the-problem-in-financial-markets/#comment-18933 Mon, 05 Nov 2007 23:29:43 +0000 http://bankwatch.wordpress.com/2007/11/05/a-classic-example-of-the-problem-in-financial-markets/#comment-18933 Ron .. agreed, and it was exacerbated by the carving up and sell of of those loans, so that the end buyers (Citi, Merrill etc) had no sense of what they were buying apparently.

]]> By: rshevlin http://thebankwatch.com/2007/11/05/a-classic-example-of-the-problem-in-financial-markets/#comment-18909 Mon, 05 Nov 2007 13:40:46 +0000 http://bankwatch.wordpress.com/2007/11/05/a-classic-example-of-the-problem-in-financial-markets/#comment-18909 Here’s my disagreement with Mishkin’s analysis: That “the borrower is usually much better informed than the lender concerning the potential risks and returns associated with the investment projects to be financed.”

As borrowers, individuals only know their own situation, and their perspective is influenced by emotion. An individual can be unduly optimistic, or unrealistic about their financial situation.

The lender, on the other hand, has historical data and trends about the likelihood of the success of any one loan.

Despite my belief that many borrowers need to accept more personal responsibility for the situation they find themselves in, the lenders — thanks to short-term greed and poor portfolio management — are the primary contributors to the current situation.

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