Sabine Hossenfelder,
I like your essay very much; however, I have held off rating it. Here is one reason why? Could you please say more about your analysis of the mortgage crisis with respect to measuring emotions?
"Moreover, emotions can capture problems that do not result in actions at all (are not "revealed"). Take the 2008 mortgage crisis as an example. If you read reports from back then, many people clearly felt something was wrong. "Something about that feels very wrong," a banker said, "It makes me sick to my stomach the kind of loans that we do," a mortgage broker was quoted with [6]. But these feelings didn't register in the system. Imagine we could have measured the tension in priorities between, say, keeping their job and acting morally right. This could have been an early warning sign. How many warning signs do we currently miss?"
If feelings were measured, who's would we choose to side with? There was a vast number of others who were available to be tested at the time. What would their responses have registered? It is not my intent to pin blame. My question has to do with the difficulty of relying upon emotions ahead of an event. Who would you have relied upon for emotional guidance before the collapse?
"...on Oversight and Government Reform
Darrell Issa (CA-49), Ranking Member
The housing bubble that burst in 2007 and led to a financial crisis can be traced back to federal government intervention in the U.S. housing market intended to help provide homeownership opportunities for more Americans. This intervention began with two government-backed corporations, Fannie Mae and Freddie Mac, which privatized their profits but socialized their risks, reating powerful incentives for them to act recklessly and exposing taxpayers to tremendous losses. Government intervention also created "affordable" but dangerous lending policies which encouraged lower down payments, looser underwriting standards and higher leverage. Finally, government intervention created a nexus of vested interests - politicians, lenders and lobbyists - who profited from the "affordable" housing market and acted to kill reforms. In the short run, this government intervention was successful in its stated goal - raising the national homeownership rate. However, the ultimate effect was to create a mortgage tsunami that wrought devastation on the American people and economy. While government intervention was not the sole cause of the financial crisis, its role was significant and has received too little attention.
In recent months it has been impossible to watch a television news program without seeing a Member of Congress or an Administration official put forward a new recovery proposal or engage in the public flogging of a financial company official whose poor decisions, and perhaps greed, resulted in huge losses and great suffering. Ironically, some of these same Washington officials were, all too recently, advocates of the very mortgage lending policies that led to economic turmoil. In a number of cases, political officials even engaged in unethical conduct, helping their political allies, family members and even themselves obtain lucrative positions in the mortgage lending industry and other benefits. At a time when government intervention in private markets has become alarmingly common, government "affordable housing" initiatives offer important lessons about the dangers of government efforts to manipulate or conjure outcomes in the market. ..."
There is much more that could be said about who played what role. However, my point still has to do with emotions. I don't remember the date, but, President Bush, in a speech to the nation, mentioned with pride the high rate of home ownership. I recall feeling that that was a good result. I knew that mortgages were very lenient compared to any that I had received in earlier years. But it felt good to think that the government was making it possible for more people to own homes.