In software, we can generally agree that too many layers of abstraction introduces many issues since it is difficult to ensure each layer is perfect. For this imperfection we often pay a price: performance, maintainability, etc. However I think that often this imperfection is unintended and is a consequence of trying to make things better.

In the finance world, and particularly with mortgages, there are similarly many layers of abstraction but each layer has an imperfection built in: money.

Your mortgage, after its gone through all these layers and after everyone had extracted their pound of flesh from its value along the way ends up looking nothing like the original product. It might end up as a resecuritized security based on only the interest portion of a pool of loans or some other abomination. Just like a JavaScript application is a completely different beast from the the x86 asm executing on your CPU.

However, in software these layers exist to try to make things better. In the finance world these layers exist to only make money. To extract value from one place and move it to another. These layers don’t need to exist in this form but they do because they make people money. This is the lie.

Despite this, we can’t just remove all these layers at once but maybe we can remove one layer. Just like you wouldn’t rewrite your nodejs server in asm but might drop down to Go or something.

Alternatively you can say, “hey I don’t need this website so badly so I’m just going to not build it” and not play. Or maybe you have the time and inclination to build it “from scratch” from assembly.

Starting with a plot of land and only the money in your pocket reminds me of the true hacker spirit! :)

This brought all my thoughts on the absurdity of the debt system out in a clear and understandable light. Thank you for expressing what I could not put into words. I wish I had sockpuppets to upvote you extra.

Layers exist in finance for the same reason layers exist in programming: because value is being provided. Or, at least, that’s what the Efficient Market Hypothesis would say. Maybe you can’t see the value as an outsider, but you know, Chesterton’s Fence. Only when you see the value of the current system should you be allowed to change it.

Using the example of mortgage backed securities, they were created to solve real problems. Mortgages carried risk, were too unique. Also money had a hard time reaching those who needed mortgages. Most mortgage providers were local and often there were too many people who wanted mortgages and not enough money, or the other way around. By packaging mortgages together, you could reduce risk and sell traunches nationwide.

TLDR: understanding is a prerequisite of change. And just like software, if you can’t find a reason for why something exists you should probably look harder. More likely than not, you are the one who doesn’t understand, not the person who created the thing in the first place.

Layers of understanding. That's what we are talking about. How many Layers must be understood to know something is broken? Or what's broke about it?

It's broke. I know that. I don't think continuing down a broken path is gonna fix it.

I traded CMO derivatives for several years at a broker dealer that specialized in MBS and other fixed income products. I’m intimately familiar with the system and stand by my analogy.

I work as a derivative quant/trader in EM (mostly fx swaps and such) and think that the broker-dealers I transact with provide value. Otherwise, obviously, I wouldn’t need them! This may be a little controversial, but in most cases, being paid means you provide value. And when this isn’t true, it almost always has to do with government regulation.

Anyways, while I don’t have any experience with MBSs, you were probably providing value even if you didn’t think so.

It almost made me cry to read that. You get it. You exactly get it. Thank you for writing that because it helps to keep me motivated. It's really hard.

Banks used to serve as simple intermediaries that provided cash for the economic system to continue to function. Starting around the turn of the 20th century, during the rise of the robber barrons, a pattern of increasing consolidation created financial capital that became central to the system and so powerful that the planners inside of the banks can essentially control the economy by deciding or not deciding whether to fund a project or to fund a competing version.

The only way to get away from the banks is to have government funding or independent wealth. Independent wealth of sufficient magnitude will nearly inevitably be socially tied to banking circles as is government. We all know how the revolving door works in government.

Of course, it's not a secret what their aims are: squeeze as much money and power out of the economy as possible and arrange the world economic system to continue that process. It doesn't matter what figures actually head the banks, the system drives them to take the same actions. However, they do tend to be white dudes from the west with their thumb on the global south.

This is not a new pattern, and definitely existed before bank consolidation. Rich, powerful families dictated for centuries who and what to fund and controlled the economy of their fiefdom.

You're right of course, but I think after the monarchies were overthrown, people thought that OKAY now we can have a more equal economy with lots of small independent producers competing with each other. Consolidation showed that this story is (at least now) completely untrue.

It's not even banks as we know it, it's trusts that hold bundles of mortgage loans and are insulated from the mortgagors whose loans are serviced by entities with incentives that aren't aligned with either the trust investors or the mortgagor.

In the 08 meltdown we saw fee-based servicers incentivized to hang onto badly performing mortgages and the fees the servicing thereof generated rather than enter into workouts that 40 years ago the S&L down the street would have rushed into. The experience taught us nothing other than homeowners make great runway foam.

What's up with the throwaways? You and the gp aren't even saying anything that controversial.

I value my privacy. Throwaway is my way to indicate my lack of desire for any personal gain and also repercussion from what I say. I have no reputation to protect or desire to increase credibility or other gain.

I just say what I believe.

The implication is that the banks are breaking up families because they can't afford to live close to each other any more.

Think about that. They are profiting by coming between a human being and their basic human needs.

They've pushed up the cost to acquire those basic human needs by 7x in the past 80 years.

I think it's breaking our society. The lie is they are enabling people to afford a home, when in fact it is because of them that the younger generations may never be able to afford one at all.

> They've pushed up the cost to acquire those basic human needs by 7x in the past 80 years.

That's ~2.6% per year inflation, hardly the stuff of crippling hyper-inflation.

Chart median home cost vs. Median salary and you'll see the problem. Salaries have declined since the 1970s while home costs have doubled.

In 1970 about 1 year of earnings could buy a house. Today it takes 4 years salary.

> In 1970 about 1 year of earnings could buy a house. Today it takes 4 years salary.

That 1970 ratio seems wildly low compared to the data I found. Historical ratios seem to be 3-4x, with periods in the 1950s, mid-2000s, and perhaps soon [but not yet] of 4.5-5x. Housing seems slightly (~5%) cheaper now than in the 1950s and about 30% more expensive than the 1970s based on this ratio calculation.

https://www.longtermtrends.net/home-price-median-annual-inco...

House purchase prices were lower in 1970 in part because mortgage rates (and therefore housing monthly payments per $100K borrowed) were dramatically higher.

That doesn't mesh with housing prices increasing while salaries have remained flat. The 7x increase in price I mentioned above was inflation adjusted, so your 2.6% cagr was above inflation.

https://www.cnbc.com/2017/06/23/how-much-housing-prices-have...

You asked me to chart house prices vs income. I did and that was the first data source I found.

I shared it because it didn’t mesh with what you were saying.

Median salary seems a strange figure to use instead of, say, median household income. Way more two-earner households in 2019 than 1970, and at least some fraction of that extra income is being used to bid up home prices.

Because a household must have two incomes now to afford a home. This comes at the expense of what is best for the family, especially the children. I think you're agreeing. Home prices are out of control.

I think you have that backwards: Women choose to enter the workforce in much higher numbers than 50 years ago at least partially because it's much more rewarding than the equivalent time spent in domestic labor. The result is higher earning households and thus higher demand for the less elastic supply of housing in some markets.

It's also almost certainly the case that dramatically lowered costs in other areas (food, telecommunications, household appliances) has freed up spending power which, again, has bid up prices in desirable markets.

Cheaper credit has greatly magnified the same effect, without necessarily driving up true costs.

As you've pointed out, housing isn't particularly expensive everywhere, just places where they're not building to keep up with rising demand.

Oh, and we haven't even mentioned that comparing the median home in 1970 to the median home in 2019 is not exactly apples-to-apples, starting with square footage.

I believe, as did my single mother, that women going to work hurt families also. She said before she died, women "shot themselves in the foot and made it much harder on single incomes to support a family. Women always had a choice to work. Now they don't."

Maybe you have something wrong. Maybe it wasn't more rewarding to go to work. People on their death beds don't say I wish I'd gone to work more. No. They say they wish they'd spent more time with family.