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An argument For Regulation in the Mortgage Industry

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amosknows
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As person with some first hand knowledge of the mortgage meltdown, I am going to say that some regulation is a necessity. Here's why:

The parties involved were the Originating Lenders, Mortgage Brokers, Appraisers, Real Estate Brokers and the Secondary Mortgage Market.

Originating Lenders (like Countrywide) made money in points - that is a % of the loan they wrote. They only made money if they wrote and closed the loan. The bigger the loan the bigger the points.

Mortgage brokers also made money if the deal closed. Also on a % of the loan (or a share of the points). So they too made more money at a higher sale price. Mortgage brokers also made more money based upon a higher interest rate - 1/4 % point increase in the rate could equate to a 1% fee from the originating lender. So there was incentive for the sale of loans with higher interest rates.

Appraisers worked with mortgage brokers to make sure that appraisal values were in line with the amounts of the loan (it's implied by the loan amount and appraisers that wanted to get referrals from mortgage brokers necessarily had to appraise homes at or above the loan amount).

The CEO's of the originating lenders (and the management) made money by bundling and selling their mortgages on the secondary mortgage market. As a result the quality of the loan was irrelevant to them - they needed volume to make money. The parties buying bundled mortgages were relying on the quality of the work of the people below (including the appraisers who were motivated to appraise at levels above actual value). When the Originating Lenders sold the loans they transferred any exposure they had and got to keep the points they obtained at the closing. So it really didn't matter what they wrote - as long as the loans closed. What's more the CEO's were getting huge bonuses based upon volume - and they knew when the bubble burst they could walk away (and they did).

Real Estate Brokers intentionally set the prices high to get a bigger commission - driving demand when otherwise unqualified buyers got loans and driving up the home prices artificially.

As a result of all of the above, the originating lenders were able to close more loans at a higher interest rates. They sold many loans that they knew people could not maintain to make a higher profit. Also, no income verified loans and no money down loans with closing costs built in were becoming common place

For all the reasons above it didn't matter what the Originating Lenders were writing - all the parties simply required the loans close.

In essence a lot of people made a lot of money and these are the same people who caused the real estate bubble and the collapse.

The only way to stop what happened from happening again is to somehow change this system so that the risk is tied to the reward and the people who are borrowing are actually qualified - both of which require regulation. Unregulated the industry will do what it just did all over again.

Comments?

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This is an extremely incomplete picture because all of the above functioning as you describe still required an element that you don't mention at all: it required someone to be willing to BUY the OBVIOUSLY poor securities. Ask yourself who and what was responsible for *that*.

I'll tell you who: the government, by "guaranteeing" that those securities would be bought by Fannie Mae and Freddie Mac and thus turning them into theoretical "no risk" investments backed by tax revenues. It all looked fine and dandy until Fannie and Freddie collapsed under the weight of the bad loans they'd taken on, leading inevitably to the collapse of everything else built on that foundation.

Yes, the private firms were guilty of shortsightedness by not comprehending the inevitable results of such government programs and running like rats from a sinking ship--but they were, at least in part, tied by numerous other gov't programs that threatened them with the loss of their licenses (which would put them out of business) if they did NOT take on a certain number of high-risk loans.

The solution is to get the government out ENTIRELY. Without their influence there could be none of these fraudulent guarantees and false incentives: businessmen who indulged in wishful thinking would fail and be replaced by successful ones. The profit motive would serve to keep companies solvent, not send them toppling like dominoes. All the government does or has ever done via "regulation" of any industry is incentivize destruction. There is nothing in the free market that does this.

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The only way to stop what happened from happening again is to somehow change this system so that the risk is tied to the reward and the people who are borrowing are actually qualified - both of which require regulation. Unregulated the industry will do what it just did all over again.

No. It was regulations that led mortgage brokers to take a bigger risk than they otherwise would. Given the manipulation of interest rates by the Federal Reserve and regulations such as the Community Reinvestment Act, banks and other loaners had to deal with borrowers who could not actually afford to pay back the loans. In other words, it was not the profit motive that led mortgage brokers to take the risk that housing prices would always go up in value, it was regulations that led to the increase in demand that would not have been there had those regulation not existed. In a capitalist system, the profit motive is good, but all markets reach a saturation point where the industry is no longer as viable as it had been in the past. That is, due to the artificial demand brought about by regulations, far more houses where built than could be sold on the market, which led to the downturn in the real estate markets. Had the government not interfered, this supply meets demand ration would have happened more gradually, and home owner and builders could have taken account of the fact that their homes would not always increase in value over time.

As in your other posts, you are trying to take the position that selfishness and the profit motive are bad. They are not. It is the glory of man that he can earn more money year over year if he has the right skill set, and if he can find people to pay him. In other words, greed is good -- it is good, virtuous even, to want more and more out of life.

Again,you are coming from your altruist background and claiming that living and acting for profit is immoral, and that the bursting of the housing market proves this. You are wrong about altruism and you are thus wrong about greed. You've got it backwards, as no regulations would mean that the market would stabilize on its own; with regulations, especially their attempts at keeping housing prices higher than the market will bare, the housing market will take a very long time to level out where supply and demand can function properly.

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Hey, Tom, I don't think I've seen any evidence in favor of accusations of altruism, just misunderstanding based on poor information sources--given just the info listed in his post, it's not surprising he drew the conclusion he did. So restrict yourself to correcting facts and method rather than assuming he's being a proponent of something he hasn't mentioned.

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So restrict yourself to correcting facts and method rather than assuming he's being a proponent of something he hasn't mentioned.

Point taken. I was referring to his blog where he is definitely promoting altruism. That blog was mentioned in one of the threads he started.

However, in this post he has not said that regulations are needed in order to curb greedy mortgage brokers. So, perhaps I ought to ask him that question: Do you think greed needs to be regulated, and why or why not?

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The only way to stop what happened from happening again is to somehow change this system so that the risk is tied to the reward and the people who are borrowing are actually qualified - both of which require regulation. Unregulated the industry will do what it just did all over again.

Comments?

Let's imagine we are a free country: these companies would've failed, and all the people who made those bad decisions would've been left unemployed. The companies which did not make those decisions, or did it to a lesser extent, would have survived, and eventually they would have taken over most of the business that belonged to the failed companies.

Do you agree so far?

If you do, what makes you think that these companies, which survived precisely because they haven't made the same mistakes, would now suddenly start behaving exactly like the ones that failed?

As far as your statement that "Unregulated the industry will do what it just did all over again.", are you really ready to stand by the assertion that the market is "unregulated"? What if I mention a single regulation, which by definition would negate your statement?

And finally, and more importantly than anything else: Who should regulate this industry (made up of free individuals trading voluntarily), and by what right?

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No. It was regulations that led mortgage brokers to take a bigger risk than they otherwise would. Given the manipulation of interest rates by the Federal Reserve and regulations such as the Community Reinvestment Act, banks and other loaners had to deal with borrowers who could not actually afford to pay back the loans. In other words, it was not the profit motive that led mortgage brokers to take the risk that housing prices would always go up in value, it was regulations that led to the increase in demand that would not have been there had those regulation not existed. In a capitalist system, the profit motive is good, but all markets reach a saturation point where the industry is no longer as viable as it had been in the past. That is, due to the artificial demand brought about by regulations, far more houses where built than could be sold on the market, which led to the downturn in the real estate markets. Had the government not interfered, this supply meets demand ration would have happened more gradually, and home owner and builders could have taken account of the fact that their homes would not always increase in value over time.

As in your other posts, you are trying to take the position that selfishness and the profit motive are bad. They are not. It is the glory of man that he can earn more money year over year if he has the right skill set, and if he can find people to pay him. In other words, greed is good -- it is good, virtuous even, to want more and more out of life.

Again,you are coming from your altruist background and claiming that living and acting for profit is immoral, and that the bursting of the housing market proves this. You are wrong about altruism and you are thus wrong about greed. You've got it backwards, as no regulations would mean that the market would stabilize on its own; with regulations, especially their attempts at keeping housing prices higher than the market will bare, the housing market will take a very long time to level out where supply and demand can function properly.

Thomas,

I have no idea what my post has to do with altruism or my blog - can you please spare us all and beat that dead horse in private?

In the example I gave above, risk was clearly not tied to reward because of the secondary mortgage market and the ability to write bad paper and then sell that paper which eliminated (and transferred) the initial risk. Can you explain how this system unregulated would correct that? Or are you saying that a failure to tie risk and reward in a capitalist system is acceptable?

Additionally, you entirely fail to address the built in incentives to raise interest rates and prices on the part of the real estate and mortgage brokers. These both increased value artificially and decreased the likelihood people who took the loans could pay them back. The artificial demand is also created in my example by an ability to lend to people who should not otherwise qualify for a loan - i.e. writing bad loans intentionallty with the understanding that the originators did not have to maintain the risk. How does a lack of regulation fix this? Or does it not need to be fixed?

Amos

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Let's imagine we are a free country: these companies would've failed, and all the people who made those bad decisions would've been left unemployed. The companies which did not make those decisions, or did it to a lesser extent, would have survived, and eventually they would have taken over most of the business that belonged to the failed companies.

Do you agree so far?

If you do, what makes you think that these companies, which survived precisely because they haven't made the same mistakes, would now suddenly start behaving exactly like the ones that failed?

As far as your statement that "Unregulated the industry will do what it just did all over again.", are you really ready to stand by the assertion that the market is "unregulated"? What if I mention a single regulation, which by definition would negate your statement?

And finally, and more importantly than anything else: Who should regulate this industry (made up of free individuals trading voluntarily), and by what right?

Jake - the originating lenders (like Countrywide) did not fail. The secondary market (which was relying on the information from the originating lenders and the appraisers and the industry at large) is where the failures (could have) occurred (had the bailouts not occurred). Do you not see this an an inherent flaw in the system?

The regulations that are required involve lending standards (to prevent the originators from writing bad loans - for example a standard % for every loan to value ratio).

Amos

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Do you not see this an an inherent flaw in the system?

No, because there is no inherent flaw in the system. That is because the system has a mechanism for addressing money obtained fraudulently IF people pursue the part of the system. IF a party intentionally or negligently misrepresented information in order to profit from another party that can be grounds for a civil suit. Regulation is not needed. What is needed is for buyers to held responsible for their buying decisions or if they breach a contract, and for sellers to be held responsible IF the misrepresent the good or service or if they breach a contract.

On the other hand, if the secondary market that failed did so on their own accord because they speculated or gambled with their investments, that IS NOT the system's fault. That is the fault of those in the secondary market who made the decisions to assume such risks. Capitalism inherently has a system of checks and balances IF the government stays out of the picture.

You are not considering all the parts of the "system" in your evaluation.

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In the example I gave above, risk was clearly not tied to reward because of the secondary mortgage market and the ability to write bad paper and then sell that paper which eliminated (and transferred) the initial risk. Can you explain how this system unregulated would correct that? Or are you saying that a failure to tie risk and reward in a capitalist system is acceptable?

I'll leave your blog out of it for the time being, however your story about Amos saying the people will be punished for their greed ties in with your stance on this issue.

Sticking with what you wrote here, the initial break between risk and reward was set up by Freddie Mac and Fannie Mae in that those mortgages could be sold to a secondary source, thus cutting out the risk. The problem with your stance is that you evidently don't realize that those secondary mortgage transfers were only made possible by government run agencies. So, it was not a failure of capitalism, but rather a built in failure scheme set up by the government.

As to the profit motive and the incentive to sell as many products as possible, there is nothing morally wrong with that and incentives to sell is what makes capitalism work so well. That is, as a sales person, which I am, selling as much as I can so I can get a raise or get a bonus is one reason I do what I do. If I had a static pay scale, and got paid the same no matter what, then what is my incentive to sell as much as possible with all of my hard work benefits going to my boss instead of to me? I once had a job whereby I would get a 3% commission in addition to my regular pay, and while that doesn't seem like much, it meant a few hundred dollars more per month for me, so yes, I sold as much as I could. The point is that if you take away the incentives, you will just get par and nothing else.

And as I and others have pointed out, selling to high risk borrowers was set up by the government -- that was the regulation that broke the camel's back. Ordinarily, no, the banks are not going to loan to high risk borrowers, but by law they had to.

In other words, the failure was one of regulations and government interference in the economy. If someone else can shoulder all of your risks -- i.e. Fannie Mae and Freddie Mac -- then, sure, why not sell as if there is no tomorrow and as if the market will always rise? That was the incentive to create those mortgage backed securities -- and the fault rests on the government, not on those companies who did that.

By the way, you didn't answer my question about whether on not greed ought to be regulated.

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... all the parties simply required the loans close.
This is false. The shareholders of Countrywide (to take one example) had other interests than simply seeing that the loans close. The various people who bought Fannie/Freddie paper (to take another example) without a full guarantee from the U.S. government (at that time) also had other interest than simply seeing that the loans close.

In other words, some of the private parties in the "pipeline" had other interests and either misjudged or were slack. The obvious solution is to learn from that and not to repeat the mistake.

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I'll leave your blog out of it for the time being, however your story about Amos saying the people will be punished for their greed ties in with your stance on this issue.

Sticking with what you wrote here, the initial break between risk and reward was set up by Freddie Mac and Fannie Mae in that those mortgages could be sold to a secondary source, thus cutting out the risk. The problem with your stance is that you evidently don't realize that those secondary mortgage transfers were only made possible by government run agencies. So, it was not a failure of capitalism, but rather a built in failure scheme set up by the government.

As to the profit motive and the incentive to sell as many products as possible, there is nothing morally wrong with that and incentives to sell is what makes capitalism work so well. That is, as a sales person, which I am, selling as much as I can so I can get a raise or get a bonus is one reason I do what I do. If I had a static pay scale, and got paid the same no matter what, then what is my incentive to sell as much as possible with all of my hard work benefits going to my boss instead of to me? I once had a job whereby I would get a 3% commission in addition to my regular pay, and while that doesn't seem like much, it meant a few hundred dollars more per month for me, so yes, I sold as much as I could. The point is that if you take away the incentives, you will just get par and nothing else.

And as I and others have pointed out, selling to high risk borrowers was set up by the government -- that was the regulation that broke the camel's back. Ordinarily, no, the banks are not going to loan to high risk borrowers, but by law they had to.

In other words, the failure was one of regulations and government interference in the economy. If someone else can shoulder all of your risks -- i.e. Fannie Mae and Freddie Mac -- then, sure, why not sell as if there is no tomorrow and as if the market will always rise? That was the incentive to create those mortgage backed securities -- and the fault rests on the government, not on those companies who did that.

By the way, you didn't answer my question about whether on not greed ought to be regulated.

First - I never said anyone was punished for their greed. The greedy people (like the CEO of Countrywide), the fraudulent appraisers. the high interest writing mortgage brokers, and the over-inflating real estate brokers, got off free and clear (in fact they made a lot of money). Again stop mixing apples and oranges and making outlandish assumptions based upon your own preconceived prejudices about me.

Second - the secondary mortgage market is not limited to Freddie and Fannie (they hold 90%). CMOs are also purchased by commercial banks. If government did not set up the secondary market - what makes you think the private industry would not as a way of bundling (and therefore reducing) risk and increasing available capital? You think if Freddie and Fannie disappeared so would the secondary market? Also, Fannie was privatized - therefore in essence since that time it's operated as a free market vehicle. Freddie and Fannie compete in the market as do other Commercial Banks.

Third - you totally discount (nor offer any solution to) the misuse of over-inflated appraisals, the fundamentally flawed products (no money down, no income verified loans), and the motivations to write bad loans at high interest rates inherent in a system with no regulation. Why? Because if you believe it's blue it has to remain blue. Like so many people your views and beliefs are unquestionable - even in the face of historical and factual shortcomings. We might agree that it's possible the an unregulated system would work and correct itself if in fact risk was tied to reward and there was accountability. Unfortunately, not only was the risk transferred, there was no accountability at the primary level, and the secondary level was bailed out. Nothing capitalist about any of that.

Ultimately the taxpayers got stuck with the bill for all the misuse of an unregulated system without accountability at the primary level. And the debt of the country is a trillion dollars more than it was. It's essentially a transfer of wealth from from the country and it's taxpayers to the participants.

Amos

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Point taken. I was referring to his blog where he is definitely promoting altruism. That blog was mentioned in one of the threads he started.

However, in this post he has not said that regulations are needed in order to curb greedy mortgage brokers. So, perhaps I ought to ask him that question: Do you think greed needs to be regulated, and why or why not?

Greed needs to be regulated by the individual via morality and then (if not) by any mutual agreement between the parties toward subsistence and survival. Most of these agreements are made under the threat of force and/or punishment.

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Greed needs to be regulated by the individual via morality and then (if not) by any mutual agreement between the parties toward subsistence and survival. Most of these agreements are made under the threat of force and/or punishment.

I'm not really sure what you mean by this. Having an insatiable desire for something (i.e. greed) -- Dr. Peikoff recent broadcast led to this definition -- is not a moral wrong, and under Objectivism, it is not something that needs to be curbed. I have an insatiable desire to discuss Objectivism and its applications, which is why I participate on this forum. If someone has an insatiable desire for money, there is nothing morally wrong with that, so long as no force or fraud are involved in him earning his money.

You see, there are really two issues involved in this financial mess -- the purely economic assessment, and the moral assessment.

On the economic side, some of us have pointed out to you that the break between risk and reward was brought about by governmental interference; primarily Fannie and Freddie and the Community Reinvestment Act. There was an implicit -- and perhaps wrong -- assumption that since the government was demanding that banks deal with otherwise unsavory borrowers and provided a way for mortgage brokers to dump their risks, that the government was assuming all of those risks. Under capitalism, there may or may not have formed a company that was willing to assume the risk of most mortgages, in which case they would have had to declare bankruptcy once the market broke to the downside, which means mortgage brokers would once again have to assume their own risks. Unfortunately, Fannie and Freddie were bailed out, and Objectivists are against all of these bail outs.

On the moral side, Objectivism is all for greed, understood rationally. In other words, so long as one acts to gain and / or keep the values he is greedy about in a rational manner, then there is nothing wrong with that. In fact, it is a virtue to want to live as much as you can while you are alive, and insofar as some people were willing and able to sell real estate at great benefits to themselves -- i.e. they were able to get rich -- then we don't have any problem with that morally whatsoever.

What we are against is people coming to the conclusion that the free market and the pursuit of greed led to this market crash, when we know that it was governmental interference in the economy. We would agree with you that risk and reward were sundered, but it wasn't the capitalists who did this, it was the government. And had there been that connection between risk and reward, then at some point the fury over selling real estate would have abated with few people getting hurt. But since the government was involved in many more ways that has been indicated in this thread, the entire economy of the United States and of the world was hurt -- hurt by bad decisions on the part of the government who thought they could regulate the market with no harm done.

To regulate greed means to regulate life, and Objectivism is against this -- in fact, we consider it to be evil to use force to come between a man's desires and his means of achieving that desire through legitimate means (free trade). So, the economic argument is insufficient in fighting for capitalism -- capitalism can only be fought by realizing that greed is good, and in man, is a foundation for having a higher and higher standard of living. A man has the moral right to be greedy and to live as well as he can, so long as no force or fraud are involved in his dealing with other men.

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I'm not really sure what you mean by this. Having an insatiable desire for something (i.e. greed) -- Dr. Peikoff recent broadcast led to this definition -- is not a moral wrong, and under Objectivism, it is not something that needs to be curbed. I have an insatiable desire to discuss Objectivism and its applications, which is why I participate on this forum. If someone has an insatiable desire for money, there is nothing morally wrong with that, so long as no force or fraud are involved in him earning his money.

You see, there are really two issues involved in this financial mess -- the purely economic assessment, and the moral assessment.

On the economic side, some of us have pointed out to you that the break between risk and reward was brought about by governmental interference; primarily Fannie and Freddie and the Community Reinvestment Act. There was an implicit -- and perhaps wrong -- assumption that since the government was demanding that banks deal with otherwise unsavory borrowers and provided a way for mortgage brokers to dump their risks, that the government was assuming all of those risks. Under capitalism, there may or may not have formed a company that was willing to assume the risk of most mortgages, in which case they would have had to declare bankruptcy once the market broke to the downside, which means mortgage brokers would once again have to assume their own risks. Unfortunately, Fannie and Freddie were bailed out, and Objectivists are against all of these bail outs.

On the moral side, Objectivism is all for greed, understood rationally. In other words, so long as one acts to gain and / or keep the values he is greedy about in a rational manner, then there is nothing wrong with that. In fact, it is a virtue to want to live as much as you can while you are alive, and insofar as some people were willing and able to sell real estate at great benefits to themselves -- i.e. they were able to get rich -- then we don't have any problem with that morally whatsoever.

What we are against is people coming to the conclusion that the free market and the pursuit of greed led to this market crash, when we know that it was governmental interference in the economy. We would agree with you that risk and reward were sundered, but it wasn't the capitalists who did this, it was the government. And had there been that connection between risk and reward, then at some point the fury over selling real estate would have abated with few people getting hurt. But since the government was involved in many more ways that has been indicated in this thread, the entire economy of the United States and of the world was hurt -- hurt by bad decisions on the part of the government who thought they could regulate the market with no harm done.

To regulate greed means to regulate life, and Objectivism is against this -- in fact, we consider it to be evil to use force to come between a man's desires and his means of achieving that desire through legitimate means (free trade). So, the economic argument is insufficient in fighting for capitalism -- capitalism can only be fought by realizing that greed is good, and in man, is a foundation for having a higher and higher standard of living. A man has the moral right to be greedy and to live as well as he can, so long as no force or fraud are involved in his dealing with other men.

So consequences are not an inherent part of either greed or objectivism? I asked this elsewhere but it morally okay for someone to have a hyper-abundance (unnecessary) amount of food while a child (or anyone) in arms reach starves? What I am trying to say is: Is greed which results in unnecessary affluence something that objectivism would view as morally wrong? Or does actual need also not play a part in your analysis?

I appreciate your responses so please, if you choose to answer this question, please provide a detailed explanation.

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Greed needs to be regulated by the individual via morality and then (if not) by any mutual agreement between the parties toward subsistence and survival. Most of these agreements are made under the threat of force and/or punishment.

Agreements made under the threat of force are not agreements.

If you replace the word agreement with tyranny, your sentence will make your position quite clear. That is the altruist's position: greed is inherently evil, and anything can be used to fight it, even lesser evils such as siberian labour-camps, mass starvation or genocide.

I'll grant you, some altruists believe that a little greed has to be allowed, because history has shown that without it people tend to drop dead. But once enough is produced to allow substinence and survival, that's it. No more greed.

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Ultimately the taxpayers got stuck with the bill for all the misuse of an unregulated system without accountability at the primary level.

This is not a fault of the Capitalist (unregulated) system. It's the fault of the government NOT allowing the Capitalist system work. In fact this seems to be what your argument amounts to; the government is wrong to bail out companies so to "fix" that wrong, it should institute another wrong by regulating the mortgage industry. In other words, your argument is "two wrongs make a right."

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So consequences are not an inherent part of either greed or objectivism?

No, they are an inherent part of reality. However, what consequences are you referring to and whose consequences are they?

I asked this elsewhere but it morally okay for someone to have a hyper-abundance (unnecessary) amount of food while a child (or anyone) in arms reach starves?

That depends. For instance, does the greedy party owe the child any food?

Is greed which results in unnecessary affluence something that objectivism would view as morally wrong?

First, whose determination of "unnecessary" are you using? Otherwise, no. Unearned affluence would probably be viewed as morally wrong though.

Or does actual need also not play a part in your analysis?

Again, who is determining this "actual" need?

Your questions are laden with the idea that the greedy man (or any man really) has some unchosen obligation to another person, be it a starving child or whatever. That is not the case. Men DO NOT have unchosen moral obligations.

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So consequences are not an inherent part of either greed or Objectivism? I asked this elsewhere but it morally okay for someone to have a hyper-abundance (unnecessary) amount of food while a child (or anyone) in arms reach starves? What I am trying to say is: Is greed which results in unnecessary affluence something that Objectivism would view as morally wrong? Or does actual need also not play a part in your analysis?

I'm not sure I can do justice to the entirety of the Objectivist ethics in one reply, so it would be better for you to read The Virtue of Selfishness by Ayn Rand if you want to understand it. However, a man is responsible for his own life and to live as well as he can, and has no moral obligation to others, except insofar as they are of value to him by his own rational personal standards. In other words, no one in the United States is responsible for the plight of the Africans who are starving; and what they need is capitalism anyhow, not a hand-out.

There are a few circumstances where a man is in a position to be concerned with strangers and ought to take appropriate action -- such as one is a witness to an accident or a crime -- because part of living in a civilized area is to recognize that sometimes a man is in danger through no fault of his own, and one ought to call either an ambulance or the police. But even this is done selfishly, in the sense of realizing it could happen to you and everyone benefits if crime is resolved via police action. Likewise for an accident, say on the road, one doesn't know the value of that stranger, but the potential is there that he could be of benefit to you, the witness, and therefore one takes the chance of getting him help.

As to things like "hyper-abundance," if it is earned then it is his, and no one else has any right to it or any moral claim to his goods, regardless of how less well off he is in comparison. The rich man in the neighborhood is not responsible for the kid down the street who's parents have not feed him. He is also not obligated to buy him a bike or a car or anything like that.

If you are asking what obligation a businessman has to the rest of society while he is making his millions, the answer is none. He is not even obligated to insure that the economy is functioning well. He is morally responsible to earn his keep, just as everyone else is, but it is not up to him to prevent speculative bubbles (which wouldn't exist much under capitalism anyhow). He is obligated to trade value for value and to act justly in his dealing with others, but he has no moral obligation to throttle his greed for the sake of the next guy who doesn't know how to make a buck.

And actually, the purpose of Atlas Shrugged was to present this new moral theory, so you might want to read it as well.

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So consequences are not an inherent part of either greed or objectivism? I asked this elsewhere but it morally okay for someone to have a hyper-abundance (unnecessary) amount of food while a child (or anyone) in arms reach starves? What I am trying to say is: Is greed which results in unnecessary affluence something that objectivism would view as morally wrong? Or does actual need also not play a part in your analysis?

I appreciate your responses so please, if you choose to answer this question, please provide a detailed explanation.

Consequences are a part of any action.

One person having a hyper-abundance of food does not cause the consequence "child starving"

Is greed wrong? What is greed?

Most definitions of greed follow in line with this one:

greed

noun

1. excessive desire to acquire or possess more (especially more material wealth) than one needs or deserves

2. reprehensible acquisitiveness; insatiable desire for wealth (personified as one of the deadly sins) [syn: avarice]

Both definitions rely on the idea that it is "more than one needs or deserves". The only difference with the second one being that it bears the seal of approval of the great cosmic leprechaun.

Who gets to decide what constitutes "more than one needs or deserves"? What objective measure is used to decide how much is too much? Does the fact that I have 3 loaves of bread in my freezer constitute greed if John in Africa has never seen a loaf of bread?

Are we to divide all of the worlds resources equally?

How about your resources? Are you willing to open the doors of your home and have the homeless divide up your possessions? One shirt for you, one for the Meth addict, one for the drunk and the rest to charity. Surely the fact that you own a computer when they have none is a blatant example of your greed.

Need? Who's need?

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To elaborate even more on the "hyper-abundance" concept.

The popular and erroneous belief about hyper abundance is that somehow by one person having more of X (food, money, clothing), someone else has less.

In early society, the very first farmer had more food at the end of the growing season than others in his area. The first farmer discovered that if he plowed the land and planted seeds and weeded and tended crops, he ended up with much more food than if he gathered it in the wild.

As a result, he had more food than those of his tribe who gathered or hunted in the wild. Those who hunted and gathered had no claim to his produce - they had no hand his growing it. They had exactly the same amount of food they would have had, had the farmer not discovered farming. The farmer increased the overall abundance of food by his discovery.

Nobody else was worse off. He was simply better off than he had been. Those who produce, produce abundance. They create wealth by the effort of their mind - they do not take wealth from others.

So long as wealth is accumulated rationally, with no coercion, no exploitation, no fraud, etc., such wealth is rightfully the producers.

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