How to Know When Something Makes No Sense

I'm going to start posting some examples of using reason and common sense to understand important events and issues, consistent with our new focus in 2012.

We’ll use “Liar Loans” as our first example. If you remember, in the late 1990s and early 2000s, some people obtained mortgages to purchase a home by lying. They filled out loan applications and put down whatever income, assets and debts that the loan salesmen (aka “loan officers”) needed to get them a loan.

These liar loans were the straw that broke the “sub-prime” mortgage camel’s back. They piled up until the whole sub-prime messed collapsed, which almost took the world’s financial system with it in 2008.

It’s hard to understand now that this continued as long as it did – but it did. The reason it’s hard to understand is that anyone who used their brain – their reason and common sense – could see what was going on and could figure out that it would all end in some sort of disaster…which it did.

Anyone who knew that people were lying on their applications – and that banks were letting them lie by not requiring them to provide any documentation to back up what they claimed was their income, assets and debts – could have figured out that this sort of dishonesty and greed would end in tears.

You didn’t need to know anything about banks, credit, or mortgages. You didn’t have to understand how Wall Street packaged these loans into toxic products that they sold to mostly unsuspecting customers. A little reason and common sense - along with a basic sense of right and wrong - was all you needed.

Simple enough. Next time we'll look at Medicare through the same prism of reason and common sense.