The Bankwatch

Tracking the consumer evolution of financial services

Sometimes friction has a purpose

America has introduced a JOBS act designed to remove many of the truth and informational requirements that funding requests must address under securities law.  The title here is the final phrase in Esthers piece and it is a deep one.

This article is a highly insightful piece from Esther that captures the essence of the role and responsibility of government as it applies to the free marketplace.  The words “unintended consequences” leap off the page here.  It is far to easy to design a solution that apparently attacks the problem directly but in fact has effects that were not even considered.

The reference to the US mortgage crisis driven by the apparently common sense desire for pervasive home ownership is an example of clear thinking that is lacking in government.

Markets of Magical Thinking | Project Syndicate – Esther Dyson

Unfortunately, the JOBS Act is as likely to be successful as the US government’s earlier attempts to ensure that American families could buy their own homes. Low down payments, deferred interest, and other enticements made it attractive for people to buy their own homes (or to speculate with second homes) whether they could afford to or not.

Mortgage brokers were happy to get in on the act. Some were driven by an honest mission to expand property ownership; others were driven by greed. Some knew that the people to whom they were selling houses could not afford it; others simply did not want to know. Some played by the rules; others forged documents. The banks that originated mortgage loans sold their portfolios to investors who didn’t really understand what they were buying.

In the same way, the JOBS Act will ease life for some deserving people – and most likely attract many more who are less deserving.

Written by Colin Henderson

May 7, 2012 at 00:35

Posted in Uncategorized

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