Michael Heller on Gridlock and the Financial Crisis

Question: How does gridlock play into the current financial crisis?\r\n\r\nHeller: So, once you begin to see the gridlock as everywhere, you begin, you ask about the current crisis is there a gridlock story here? And it turns out the answer is, “Wow! There really is.” The financial crisis today is, in a substantial measure, based on a subprime mortgage crisis, and that subprime mortgage crisis is based on a fundamental shift in America and how it is that we structure the ownership of mortgages. It used to be that you went to a bank and they evaluated you fairly carefully because if they lent you money and you didn’t pay them back, they would lose money, and if you had a problem paying your money, paying the mortgage back, you knew who to call. So, there was a system that was a pretty strong link between the borrower and the lender and it was one that served this country well for generations. But in the recent years, we’ve radically shifted the way mortgages are issued and owned. So, now, mortgages are pooled into pools of thousands, and then those pools are chopped up into bonds and then those bonds are sold to investors all over the world. So now, if you’re a homeowner today, who do you call? Because the link between the borrower and the lender has been broken. We now have too many owners of fractional interest of mortgage, of underlying mortgages, which makes it impossible to renegotiate, to have a conversation when borrowers get into trouble. And when the banks have to foreclose, everybody loses. The borrower loses, for sure. They lose their home. The banks also always lose when they foreclose. There’s much less value there than the loan. So, what we’ve done is we’ve shifted the ownership system, created some value, reduced interest rates to let poor folks with [worse] credit get access to housing markets and that’s great, but, again, there was a hidden gridlock story, one that really hasn’t been in the news but is the causal, is the underlying cause for why we have the meltdown today, which is that once you break up mortgages into these tiny little ownership fractions, mass foreclosure becomes inevitable, became inevitable whenever the market began to do a downturn, and markets always go up and down.

Breaking the link between the borrower and the lender by dividing mortgages into bonds led to a serious crisis of investments, according to Michael Heller.

​There are two kinds of failure – but only one is honorable

Malcolm Gladwell teaches "Get over yourself and get to work" for Big Think Edge.

Big Think Edge
  • Learn to recognize failure and know the big difference between panicking and choking.
  • At Big Think Edge, Malcolm Gladwell teaches how to check your inner critic and get clear on what failure is.
  • Subscribe to Big Think Edge before we launch on March 30 to get 20% off monthly and annual memberships.
Keep reading Show less

Trauma in childhood leads to empathy in adulthood

It's not just a case of "what doesn't kill you makes you stronger."

Mind & Brain

  • A new study suggests children who endure trauma grow up to be adults with more empathy than others.
  • The effect is not universal, however. Only one kind of empathy was greatly effected.
  • The study may lead to further investigations into how people cope with trauma and lead to new ways to help victims bounce back.
Keep reading Show less

Is this why time speeds up as we age?

We take fewer mental pictures per second.

(MPH Photos/giphy/yShutterstock/Big Think)
Mind & Brain
  • Recent memories run in our brains like sped-up old movies.
  • In childhood, we capture images in our memory much more quickly.
  • The complexities of grownup neural pathways are no match for the direct routes of young brains.
Keep reading Show less