Acton Institute PowerBlog - Entries tagged as risk

What is the root cause of the sub-prime crisis shaking the global economy? We need to know so we don’t allow it to screw up our economy even worse.

Many point to dishonesty and poor judgment on Wall Street. There was plenty of that leading up to the near-trillion dollar bailout, and even now the stock market is busily disciplining stupid, dishonest companies.

Others point to the many people who falsified loan applications to get mortgages beyond their means. That too played a role.

But dishonesty and poor judgment are as old as Adam and Eve. Something more was at work in the present crisis, a crisis of unprecedented scope. Why didn’t profit-minded loan companies run thorough credit checks? Why did they keep pumping out low interest loans to high risk borrowers, ignoring the risks?

It’s as if somebody spiked the financial system’s punch bowl with stupid juice, driving normally prudent financiers to dash, en masse, over the cliff.

It seems that way because it is that way. The brewers of the stupid juice were largely (if not exclusively) politicians in Washington who sought to redistribute wealth from the rich and middle class to poor people with bad credit. These politicians fostered various laws and institutions that directed, cajoled and legally bullied mortgage companies to extend big loans to people with little credit.

A case in point is a group called ACORN—Association of Community Organizations for Reform Now. Stanley Kurtz explains in an Oct. 7 essay at National Review Online:

“You’ve got only a couple thousand bucks in the bank. Your job pays you dog-food wages. Your credit history has been bent, stapled, and mutilated. You declared bankruptcy in 1989. Don’t despair: You can still buy a house.” So began an April 1995 article in the Chicago Sun-Times that went on to direct prospective home-buyers fitting this profile to a group of far-left “community organizers” called ACORN, for assistance. In retrospect, of course, encouraging customers like this to buy homes seems little short of madness.

… At the time, however, that 1995 Chicago newspaper article represented something of a triumph for Barack Obama. That same year, as a director at Chicago’s Woods Fund, Obama was successfully pushing for a major expansion of assistance to ACORN, and sending still more money ACORN’s way from his post as board chair of the Chicago Annenberg Challenge. Through both funding and personal-leadership training, Obama supported ACORN. And ACORN, far more than we’ve recognized up to now, had a major role in precipitating the subprime crisis.

Continue reading "The Credit Crisis: Who Brewed the Stupid Juice?"

An article in yesterday’s NYT, “Saving the World, One Video Game at a Time,” by Clive Thompson, gives a good overview of the current trend in the video game industry, especially by nonprofits and activist groups, to create “serious games,” a movement which “has some serious brain power behind it. It is a partnership between advocates and nonprofit groups that are searching for new ways to reach young people, and tech-savvy academics keen to explore video games’ educational potential.”

“What everyone’s realizing is that games are really good at illustrating complex situations,” said Suzanne Seggerman, one of the organizers of the third annual Games for Change conference in New York. “And we have so many world conflicts that are at a standstill. Why not try something new?"

One such game is Peacemaker, which is a political simulation based on the current situation in the Middle East. Another is the World Food Programme’s Food Force (which I review here).

Of course, serious simulations are nothing new in the gaming world, and even predate the advent of video media. An argument could be made, for example, that games like Axis & Allies and Risk, while focusing on military aspects, are in some sense serious (albeit limited) teachers about the realities of war policy and foreign affairs. And games like Shadow President, released in the early 1990s, are relatively complex and immersive political simulations.