
Eliezer Yudkowsky: Is That Your True Rejection? - rms
http://www.cato-unbound.org/2011/09/07/eliezer-yudkowsky/is-that-your-true-rejection/
======
DanielBMarkham
Interestingly enough, my own small-l libertarianism has nothing to do with the
innate properties of people. It's about how those properties come together
into groups. I have found, again and again, that when people organize into
large groups and form systems of getting along it never works. The larger the
group, the more complex the system, the longer the system has been in place,
the worst the results are. I don't think there is any intervention, nature or
nurture, that would change this. To feel otherwise, to me, would be to say
that there is a perfect person. That seems more than a little scary. I find
our defects, when working together, give us adaptability. Counter-intuitively,
I believe that the properties most of us would desire in a population are
probably reverse-correlated to growth and evolution. [insert long explanation
about the value of variance across multiple dimensions here]

Representative democracies are kind of a hack to this law. You try to pick
somebody to represent you and make decisions, you split up powers among
various competing branches of government, etc. What is happening in the west,
though, is the idea of a "restart" is mostly gone. It's just the same guys
wearing different hats that take turns ruling.

But to me these are properties of how systems of people operate. The word
"government" has little to do with it. The reason to fight as hard as possible
for individual freedom has nothing to do with selfishness: the more freedom
the individual retains, the less the stakes are, and the slower the process of
system corruption becomes. My ultimate rejection would be a demonstration of a
stable, creative, dynamic, adaptive, and productively chaotic society of non-
trivial size that had been in existence for more than a century or so. Hate to
set the bar that high. Need to think about that some more to see if I could
make my position more logically approachable.

~~~
josephg
I totally agree with your premise. I used to work at google, and every time I
go back there / talk to my old friends it breaks my heart a little.

That said, you've made two claims in your post:

1\. All groups will get worse over time

2\. Therefore, we should keep government as small as possible

The refutation to the argument is that many other modern democracies have
(proportionally) bigger governments than the US. These countries certainly get
advantages from big governments (like social welfare, decent education
systems, state sponsored medical attention, etc) but don't _seem_ to pay much
of a cost for it.

As an Australian citizen, I will get paid a dole if I can't find work, all my
important medical expenses are covered or heavily subsidised, our schools are
decent everywhere, and so on. My taxes are a bit higher than yours, but not
unreasonably so.

I suspect the important difference might just be scale - Australia has just
20M people. Most European countries have similar sizes. Maybe if the US were
lots of small countries instead it would work better? Its hard to tell...

~~~
yummyfajitas
_These countries certainly get advantages from big governments (like social
welfare, decent education systems, state sponsored medical attention, etc) but
don't seem to pay much of a cost for it._

Most countries with systems more extensive than those of the US tend to be
poorer than the US.

[http://super-economy.blogspot.com/2010/03/super-economy-
in-o...](http://super-economy.blogspot.com/2010/03/super-economy-in-one-
picture.html)

[http://super-economy.blogspot.com/2010/03/income-
distributio...](http://super-economy.blogspot.com/2010/03/income-distribution-
in-us-and-sweden.html)

[http://super-economy.blogspot.com/2010/01/dynamic-america-
po...](http://super-economy.blogspot.com/2010/01/dynamic-america-poor-
europe.html)

Also, we have social welfare, stated sponsored medical attention, and decent
education systems in the US. Where did you get the idea we lack these things?

~~~
tmeasday
> Also, we have social welfare, stated sponsored medical attention, and decent
> education systems in the US. Where did you get the idea we lack these
> things?

As an Australian who has spent a fair amount of time in the states I would
argue with those points. Sure, you have those things, (not sure about 'decent'
education system) but they certainly don't function as efficiently as ours do,
as far as I can tell..

~~~
yummyfajitas
If the USA doesn't have a decent education system, then neither does
Australia. At least according to demographically adjusted PISA scores.

[http://super-economy.blogspot.com/2010/12/amazing-truth-
abou...](http://super-economy.blogspot.com/2010/12/amazing-truth-about-pisa-
scores-usa.html)

------
tokenadult
I'm not sure if Eliezer (who participates here) has seen either of the links
below before.

[http://people.virginia.edu/~ent3c/papers2/Articles%20for%20O...](http://people.virginia.edu/~ent3c/papers2/Articles%20for%20Online%20CV/Turkheimer%20\(2008\).pdf)

[http://people.virginia.edu/~ent3c/papers2/Articles%20for%20O...](http://people.virginia.edu/~ent3c/papers2/Articles%20for%20Online%20CV/Johnson%20\(2009\).pdf)

I post these links to HN from time to time, because they are from top-notch
authors on heritability research and join issue directly with a very common
misconception about what heritability figures show about human behavioral
traits. Simply put, whatever the numerical figure is for heritability of this
or that human behavioral trait says NOTHING about how malleable (changeable or
controllable by environment) the trait is. Let me be clear: all human
behavioral characteristics are heritable, with heritabilities above the
theoretical minimum of 0 and always strictly less than the theoretical maximum
of 1. But no matter what the calculated heritability is of a specific trait,
we know NOTHING about how subject that trait is to change under the influence
of carefully planned environmental interventions. That is a separate line of
investigation, not logically or factually related at all to the heritability
calculated by the usual methodologies in studies of correlations of traits
among closely related and less closely related individuals. The references
provide more details.

From the article: "When I ask myself this question, I think my actual
political views would change primarily with my beliefs about how likely
government interventions are in practice to do more harm than good. I think my
libertarianism rests chiefly on the empirical proposition—a factual belief
which is either false or true, depending on how the universe actually
works—that 90% of the time you have a bright idea like 'offer government
mortgage guarantees so that more people can own houses,' someone will somehow
manage to screw it up, or there’ll be side effects you didn’t think about, and
most of the time you’ll end up doing more harm than good, and the next time
won’t be much different from the last time." Similarly, my views on politics
and economics are heavily influenced by real-world experience, particularly
the real-world experience of living in Taiwan, and visiting Hong Kong and
China, in the early 1980s when those three culturally similar areas lived
under very different government policies. Government policies make a
difference. Actuality trumps theory in political science and economics.

~~~
ellyagg
Turkheimer by no means represents a consensus view in genetic research.
Moreover, I find some of his positions to be quite at odds with my view of
what scientific philosophy should be. For example, he believes that the study
of race and IQ is not a "legitimate matter for scientific inquiry". You can
spin all the pseudoscientific rationalizations you want to make that claim,
but as soon as you say that some subject is off limits, and that subject just
happens to be very related to a taboo social and political topic, your
motivations become suspect in my opinion. But then that's why, apropos of the
linked article's ending, I'm a libertarian.

~~~
lukeschlather
Race and IQ are not scientifically precise tools. Both are fundamentally
subjective. Why do we say that Barack Obama is a black man and not a white
man? If we are to have a logically precise definition of race, both statements
are true or neither is. In a genetic context, most African-Americans are just
as much white as black. But in a study comparing disease rates among ethnic
groups, African-Americans and Caucasians are treated as disjoint sets.

IQ is just plain subjective. You would likely get similar results by sitting
the designers of the IQ test one on one in a room with someone, and then
having them rate the people they talked to by how much they were interested in
the conversation.

I don't think that Turkheimer is saying that you can't look at race and IQ in
a scientific context. What he's saying is that the concepts of race and IQ are
more grounded in opinion than fact, and when we see them in scientific studies
we should be wary if they are not mentioned in the same breath as other
subjective classifications like religion or political affiliation.

~~~
barry-cotter
_Race and IQ are not scientifically precise tools._

Genetic Structure, Self-Identified Race/Ethnicity, and Confounding in Case-
Control Association Studies

We have analyzed genetic data for 326 microsatellite markers that were typed
uniformly in a large multiethnic population-based sample of individuals as
part of a study of the genetics of hypertension (Family Blood Pressure
Program). Subjects identified themselves as belonging to one of four major
racial/ethnic groups (white, African American, East Asian, and Hispanic) and
were recruited from 15 different geographic locales within the United States
and Taiwan. Genetic cluster analysis of the microsatellite markers produced
four major clusters, _which showed near-perfect correspondence with the four
self-reported race/ethnicity categories._

<http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1196372/>

~~~
tokenadult
One of the co-authors of that paper has withdrawn some of the strong
conclusions once based on it in his subsequent co-authored article in the
latest edition of Vogel and Motulsky human genetics textbook (cited in my link
to a Wikipedia user page in another comment in this thread). Anyway, what the
article shows in relation to this thread is not the point the participant
above was relying on. It is occasionally possible, with a sample of genetic
information about genes not under strong selection pressure, to make a
reasonably accurate rough guess of the "race" categorization of many
individuals. (I have read the article, and I see that that is the claim, as in
the excerpt you kindly quote, but the article also notes exceptions in the
sample it examined who were miscategorized.) But those study authors, and all
competent human geneticists, do NOT argue the converse: that if you know an
individual's race categorization, you know to a reasonable degree of accuracy
what specific genes that person has of interest to human behaviors. In fact,
we generally do not know that at all about any individual. There are still few
genes significant behavorial effect that have been even tentatively identified
in a first sample, and the widely replicated result is that ANY "race" group
defined by the varying social definitions around the world will still be
highly diverse as to any genetic characteristic of interest.

~~~
m-photonic
>It is occasionally possible, with a sample of genetic information about genes
not under strong selection pressure, to make a reasonably accurate rough guess
of the "race" categorization of many individuals. (I have read the article,
and I see that that is the claim, as in the excerpt you quote, but the article
also notes exceptions in the sample it examined who were miscategorized.) But
those study authors, and all competent human geneticists, do NOT argue the
converse: that if you know an individual's race categorization, you know to a
reasonable degree of accuracy what specific genes that person has of interest
to human behaviors.

I don't think the comment you're replying to purported to argue that in the
first place. He was just trying to refute the notion that race is merely a
matter of social labels; the fact is those labels refer to something real in
terms of a person's ancestry that can be detected by genetic tests.

Like you say, it has never been demonstrated that racial groups differ in
their genetic propensity for intelligence, but it has also never been
demonstrated that they don't. Given the observed IQ differences between racial
groups and the fact that these groups differ genetically, a genetic basis for
these differences seems like a reasonable thing to hypothesize about, and
apply scientific methods of inquiry into. This is why I have a problem with a
statement like "race and IQ is not a legitimate matter for scientific
inquiry."

~~~
klenwell
_This is why I have a problem with a statement like "race and IQ is not a
legitimate matter for scientific inquiry."_

But both are social-political constructs. They are labels. What do you gain by
correlating some feature of human behavior under examination with them? (I
provide one answer in another comment: the effective distribution of useful
information through existing social channels.)

Yes, racial labels refer to something real. But it's like correlating
geological data with the state of California. California refers to something
real. But as a scientist why would I want to correlate seismic activity with
the state borders of California as opposed to, say, some fault-line that runs
out into the Pacific or up into Oregon?

------
mkopinsky
The article he's responding to is at [http://www.cato-
unbound.org/2011/09/06/michael-shermer/liber...](http://www.cato-
unbound.org/2011/09/06/michael-shermer/liberty-and-science/)

~~~
pjscott
And the rest of the discussion is playing out on their main site this month:

<http://www.cato-unbound.org/>

------
nazgulnarsil
There is variance within the libertarian community and this confuses a lot of
people. The many viewpoints are united by a respect for contract law and
property rights. The main split is down to people who believe these two things
are an ethical imperative and those who believe them to be pragmatically
optimal. Many believe in a jumbled mix of the two. That is, they are a little
shaky on the differences between normative and positive statements, and thus
have difficulty clarifying their position.

------
carbocation
In a community where everyone is genetically and epigenetically identical,
variance attributable to additive genetic factors (heritability) is zero.

In a community where everyone is genetically diverse but their living and work
situations are exactly identical (a very hard scenario to imagine), all
variance is attributable to genetic factors. (The heritability is potentially
1, but since the definition of heritability is that it pertains to additive
genetic factors, it may not be 1 in this case.)

A few things flow from this.

The first is that population-level estimates of heritability may change over
time, even if only because environments change, sometimes wildly, over time.

The second is that estimates of heritability for one population may not tell
you about another population, and the population-level estimate itself is a
blend of the community-level constituent values. (Even when you derive your
estimates from twin studies, you can imagine how this is true.)

The third is that even if you drive heritability to 1 because you have made
everyone's environment uniformly awesome, this does not mean that you cannot
make everyone's environment even more awesome and thereby increase
productivity/output/whatever. Say that Trait X is one's "widget production
ability." If Trait X's _variability_ is now 100% genetic, it does not at all
follow that Trait X's _mean_ cannot be increased by changing the environment.
(It merely follows that Trait X's variance, not its mean, is currently
completely explained by genetic differences.)

The fourth is that with substantial state intervention, you can probably
manipulate the heritability of any human behavioral trait to whatever value
you want it to be, given enough dedication of resources and willingness to
flout norms.

------
ChuckMcM
I found the concept of being 'logically rude' insightful. I have been on both
sides of that.

~~~
aangjie
Yep, i would be satisfied it if we all can take away only that lesson from
that article. And i think we may all be better off as a society. I am willing
to abandon that belief, if empirical evidence shows the delay in decision-
making resulting from that change will minimize impact of the decision.
Ofcourse, testing it is a lot harder. But still.

------
guelo
I always find it weird about libertarians how they're so skeptical of big
institutions in the form of government but don't seem to worry about big
institutions in the form of corporations when it is obvious to everyone how
dysfunctional big corps can get. And how much damage big corporations can do.
The magical belief in the "free market" fairy is incredibly naive. Anyone that
has ever run genetic algorithms knows how easy it is for even a moderately
complicated system to get stuck in obviously inefficient local maxima. A
nation's economy is much more complicated.

~~~
chwahoo
Exactly. I really liked Yudkowski's framing of the rationale behind his
political beliefs and agreed with his progression of ideas until he reached
his conclusion. In particular, I liked his stating the issues in terms of
pragmatism rather that principles because it allows for some consideration of
"the public good" (which idealistic libertarians bristle at), even though that
idea is admittedly hard to pin down.

I won't hesitate to acknowledge the (seemingly inherent) problems with
government. However, laissez-faire capitalism has it's own inherent failings:
every non-libertarian has their own list but they tend to include
externalities (environment, public health, ...), ideas of "fairness" (large
income inequality, valuing lives in terms of income, opportunity, ...),
commons (turning things that are naturally shared---public spaces, roads,
ideas, water---into private monopolies). There are well-worn libertarian
responses to all of these concerns, but each issue is complex and I've not
generally been satisfied with purely laissez-faire approaches (so far).

I like the idea of government serving as an (imperfect) check-and-balance on
corporations, just as voters and separate branches are imperfect checks on
government. As broken as government tools like regulation can be, I suspect
the threat of their use is government's most effective tool.

------
flourpower
I think he should have treated the set of all government actions with more
granularity. Imagine that you partitioned that set into two subsets. The first
subset would be actions on policy issues that libertarians find it necessary
for governments to act on. The second subset would be actions on policy issues
that they don't think it's necessary for governments to act on. It could
simultaneously be true that 99% of actions in the second subset will tend to
have bad results and only 1% of actions in the first subset will have bad
results depending on the relative size of the sets. If you're not clear about
which subset you're talking about, you'll get people saying things like "you
must be wrong that most government policies have a bad results, this country
(that mostly performs actions in the first subset) tends to have very good
results."

------
aufreak3
For reference - Eliezer's Dec 2008 post on this -
<http://lesswrong.com/lw/wj/is_that_your_true_rejection/>

------
wybo
A very thoughtful article, especially the notion of something being ones true
reason, and variance as causal impact, but isn't what he describes as
libertarianism with a small 'l', what has been known as the Social Democrat
way in Europe for decades...; only have the state be involved in those things
where the market and other societal provisions (charity, etc.) fail. Not much
new here, except for the content of it being quite reasonable... :)

~~~
speleding
Quite the opposite. Social Democrats in Europe are a diverse bunch from one
country to another and even within countries, but all most all of them believe
in the governments ability to improve society. (Because of this many European
countries have a ministry of Culture, a ministry of Sports, etc.)

Europe does have liberal parties that look like the discussed libertarians
with a small "l", especially in Northern Europe, but they usually take third
place behind the socialist and christian democrats.

------
araneae
Interesting perspective, but it does ignore
<http://en.wikipedia.org/wiki/Balancing_selection>. It's possible that a
certain amount of variation in the population is kept around through
evolutionary processes.

On the whole, though, I do agree that humans are basically the same.

------
doomlaser
The hospital example he ends with is strange. It's my understanding that under
libertarian philosophy, children would not have access to _any_ care in that
society unless their parents happened to be able to afford it.

~~~
tokenadult
_It's my understanding that under libertarian philosophy, children would not
have access to any care in that society unless their parents happened to be
able to afford it._

Libertarians are very happy to see philanthropists devoting their own money to
helpful causes. They are also happy for voluntary private associations to work
for their mutual benefit. They can point to many examples of people doing just
that in history.

[http://www.amazon.com/Market-Education-History-Studies-
Philo...](http://www.amazon.com/Market-Education-History-Studies-
Philosophy/dp/1560004088/)

Indeed, historically, most hospitals that treat poor children and most schools
that educate poor children were founded without government support, all over
the world.

~~~
doomlaser
OK, so a poor child in a libertarian society would only receive care if his
parents could afford to pay for it at a private hospital, or if he happened to
have access to a theoretical charity hospital that a theoretical
philanthropist may or may not have chartered.

You can't get around the fact that the basic tenets of libertarianism rank the
right for the rich to live in luxury above the right of poor people to obtain
basic needs.

~~~
JoshTriplett
Ignoring your choice of phrasing for the moment, you've still missed half the
story there: they also want to remove all the barriers that make it difficult
for the poor to become rich, as well as eliminating the existing programs that
remove all motivation to _want_ to. (Consider, for instance, the common case
where unemployment pays more than getting a job; people have learned how to
satisfy the unemployment office without actually trying to get a job. Beware
what you incentivize.)

Regarding your choice of phrase: "the rich" versus "poor people" makes the
former impersonal and the latter "people". Similarly, "live in luxury" versus
"basic needs" misses the entire point.

~~~
danssig
>remove all the barriers that make it difficult for the poor to become rich

So... they want to remove barriers to market entry and the overwhelming power
of corporations?

------
danielson
"Over to you, Carter." <http://www.youtube.com/watch?v=fEegK7Df1tQ>

------
nknight
I think the main problem I have with this is that it's not internally
consistent. He talks about the evolution of a complex system by incremental
improvements, but apparently maintains the libertarian instinct of "This is
broken, throw it out." instead of "This is broken, how do we improve it?".
There are an enormous number of governance models that have never been
seriously tried on a large scale. There is no fundamental reason to believe
that the libertarian value of "shut it all down" is going to produce better
results than any of the other possible models.

~~~
jerf
I think you are putting words into his mouth with the "this is broken, throw
it out". The reason why unconventional governance models are treated with
general skepticism is one of the major points of the essay, which is that if
the unconventional governance models are being designed and implemented by the
same crew of people with the same basic beliefs that are dominant today,
there's no particular reason to believe the outcome is going to be any
different in the end. "What makes me a libertarian is that the prospect of
having that reconfiguration done by the same system that managed to ban
marijuana while allowing tobacco, subsidize ethanol made from corn, and turn
the patent system into a form of legalized bludgeoning, makes me want to run
screaming into the night until I fall over from lack of oxygen."

Also, characterizing the libertarian answer as "shut it all down" is a
strawman in its own right. I daresay one of the major ideas that prevents
people from understanding libertarianism is understanding that "let the market
deal with it" is _not_ anything remotely resembling "shut it all down". The
market provides very sharp constraints on what actions one may profitably
take, and one of the advantages of the market system is that said constraints
are much more closely connected with reality than any other commonly proposed
system is. As an also-little-l libertarian I don't deny that some further
regulation may be necessary, but defying the market is less like defying
people and more like defying _physics_. You will pay the price. (In fact, we
are, right now.) In particular I strongly believe in the need for regulations
that ensures that the market _stays_ free, so I'm very in favor of regulations
to prevent monopolies from forming, and very hostile to government-granted
market monopolies.

If you understand the market as "it's all, like, greed man, and greedy people
abusing other greedy people, and, like, evil, man", you really ought to spend
some time understanding the theory of the market as an actual existing entity,
rather than a politically-oriented strawman designed cognitively innoculate
you against ideas that may actually change your mind if you were to truly
learn about them. Perhaps it won't change your mind, but I'll say that most
people online's efforts to pry me away from my libertarianism fails on the
grounds that almost nobody actually _understands_ it in the first place, which
puts them at a bit of a disadvantage.

(Remember, almost nobody is _raised_ libertarian. Few libertarians hold their
beliefs unexamined, the way that those who were simply _raised_ liberal or
conservative can, though of course not all do.)

~~~
yequalsx
You appear to have a sentiment that is roughly equivalent to the "market is
right". The problem with this is that I don't think it scales. One person who
buys a house they can't really afford is not a big deal. Let such a person
make that bad decision if this is their inclination is a libertarian attitude.
But millions of people make a similarly bad decision affects us all.

The market isn't always right. Imbalances can and do occur. The effects can be
devastating to nonparticipants. Cartels, monopoly rents, etc. are some other
types of bad effects that markets can devolve into.

~~~
jerf
The market did not create the housing crisis. The government fiddled with the
market all to hell, with the Community Reinvestment Act, the regulations
surrounding the ratings agencies, Fannie Mae and Freddie Mac's unmarket-like
backings of loans, and a hodge-podge of other lesser interventions.

When the market was allowed to make decisions about who should get loans, the
standards were a lot higher. But it wasn't "right" for people to have to put
20% down and have a very solid credit rating, because it discriminated against
poor people (and Democratic voters), so the government fiddled until it
produced the result it (thought it) wanted, forcing banks to lower mortgage
standards until we eventually worked our way down to no-money down ARMs.

(BTW, the claim the government had nothing to do with it is to claim that all
the regulation like the CRA and Fannie Mae and anti-discrimination all had
absolutely no effect at all, in which one must answer the question, if
regulations like that are so ineffectual that you can't lay any responsibility
for the current crisis at their feet, then why do you think government
regulations are the answer to anything? Either they are effective or they are
not, but you can't flip back and forth depending on whether you _like_ the
effect or not.)

The problem is that people think of "the market" as a fundamental property,
but in fact it is a _derived_ property. The reason why the market tended to
correctly allocate mortgages prior to the government's heavy-handed decades-
long intervention is the incentive structure. Always look at the incentive
structure. If my bank is going to issue me a mortgage, and the government
leaves them alone, they are going to take a lot of steps to protect
themselves, such as setting the requirements for your credit strength very
high, and requiring large downpayments, and generally ensuring they aren't
going to be left holding the bag when the mortgage falls through.
Alternatively, if they're going to sell that risk, the receiving party is
going to want the same due diligence. The government interventions basically
systematically tore than incentive structure apart, by allowing them to just
dump the mortgage off on Fannie Mae/Freddie Mac, by requiring them to make
loans that they basically knew would fail but the government held guns to
their head to do it, etc. If I had to pick one thing that really enabled the
housing crisis, it was the ability to dump mortgages off on the FMs for what
were in actuality above-market rates, then for the seller to be free-and-clear
of the responsibilities. Other things may have accelerated it, but that
structure guaranteed disaster on its own.

No, the market isn't "always right", but that's not really the question.
_Nothing_ is "always right". The question, which is more likely to be right,
the market system or the government system? One of the big reasons I tend
libertarian is that I empirically observe that the government almost
inevitably creates incredibly broken incentive structures where the market
_tends_ to create ones that are much more connected to reality. In this
particular case, the "reality" that the market is much more connected to is
the question of "will X be able to pay their mortgage back?" I have to use the
broad term "reality" when discussing it in general, but it actually comes back
down to specifics like this.

One much also distinguish between "the market" being broken, and _reality_
being "broken". Yes, mortgage requirements were quite high; that's because in
reality it's a huge risk. It turns out the market wasn't broken here, and the
efforts to "fix" it were the true brokenness.

~~~
yequalsx
I was only providing an example of how libertarian principles don't always
scale. I said nothing about the housing market in the U.S. and I don't know
why you bring up the U.S. housing market.

~~~
jerf
"One person who buys a house they can't really afford is not a big deal. Let
such a person make that bad decision if this is their inclination is a
libertarian attitude. But millions of people make a similarly bad decision
affects us all."

I don't think it's exactly a stretch to assume that such a (putatively)
topical example was related to current events.

Besides, in the process of describing why the crisis wasn't caused by markets,
I answered your objection anyhow. When the free market was making the
decisions about mortgages, they did in fact make it in a sustainable way. Once
the lenders were detached from the consequences of their decisions by the
government, that broke. There's no better way to ensure that we don't have a
housing crisis than to use those market mechanisms.

Note carefully I didn't say "if we use those mechanisms, we'll never have a
housing crisis". I said there's no _better_ way. It's basically impossible to
completely prevent periodic crises.

~~~
yequalsx
I did write, "The problem with this is that I don't think it scales." before
the quoted line. It was a stretch.

Lenders weren't detached from the consequences of their decisions by the
government. They were detached from the consequences of their decisions by
selling securities based on the loans they made to dupes. That it was done at
a massive scale without the dupes properly pricing in the risk caused a
meltdown.

~~~
jerf
The fundamental underlying reason they could sell those securities was that
they were exploiting the arbitrage from being able to dump the mortgages off
on the FMs, at which point everybody knew they were unrealistically guaranteed
by the Federal Government. I would point out that here in 2011, that's no
longer a theory or mere rhetoric; it is now historical fact that the mortgages
are in fact being covered by the Feds, as manifested by all the bailouts.
Check out the FM's current financial situation if you need more proof. Without
that risk sink in the system, they would never have been able to fly as far
off the handle as they did. The securities were just ways of slicing up the
stuff that was broken by the government-created risk sink.

~~~
scott_s
I think you're ignoring the big investment banks, which also had many (most?)
of these loans. I don't see how Fannie and Freddie factor into for, say,
Lehman Brothers, which collapsed because they backed so many MBSs that were
becoming losses.

