Let us think for a second about acting out of self-interest. It can and will be different for everybody, because there are many facets of 'success'. We strive for many things: money, happiness, friends, respect, etc. We each have our own values assigned to each of those rewards, and based on those values, we make our decisions. This is where I believe opportunism comes into play. I define opportunism as a case of extreme self-interest: You pick one facet of success and maximize it, sometimes to the detriment of the other facets. For example, an opportunistic lawyer may have a lot of money, but may not be respected in his field due to his practices. Or lets take a look at the housing bubble that burst back in '08. The opportunistic mortgage brokers who were raking in piles of cash were maximizing their own financial gain at the expense of the economy in aggregate. While they probably knew at the time that they were plunging unassuming Americans into debt, they at least got their bonuses.
I would like to spend some time talking about the mindset of "good things come to those who wait" and how it relates to opportunism. At face value, it seems as if this quote is an example of how someone could pass up the chance to be opportunistic, but after some pondering, is this not also an example of someone with the patience and discipline to wait and observe the things around them before they act? How long is the 'wait' referenced in the quote? Are we waiting and doing nothing, or waiting and thinking, planning.
Overall, I think the entire concept of opportunism is very vague and does not have a solid enough foundation in order to be used in any kind of economic models.
Image credit: ska-studios.com
It is okay to be philosophical in a post. But ti should be buttressed with some actual experience on which to base the reflection. This post seemed entirely devoid of your own experience.
ReplyDeleteI did like that you included the picture, but perhaps it didn't help you in coming up with a good example, in part because it painted the extremes with idealism on one end, while in class I said that responsibility was the antonym. I don't believe that idealism and responsibility are the same.
Even if you focused on the mortgage broker example, whether you had experience with that or not, it would be have been helpful to drill down more and explain where the opportunism is in predatory lending. Just to illustrate, I have a mortgage on my house. Is there predatory lending involved there? (The answer is no. It is perfectly reasonable for Americans with a decent income to have a mortgage on their home without there being anything untoward about about the lending practices.)
Then expand on the nature of the sort of mortgages that were called into question. Many required no equity of the borrower to be put into the house up front. Many had early teaser interest rates that would balloon down the road. Many had a high principal for the mortgage that couldn't be justified by the borrower's income - it was more house than would be prudent to purchase. The only way it could make sense for the borrower to take out such a loan is if it was reasonable for house prices to continue to escalate. If that actually would happen, the capital gain on the house could cover the balloon interest payments. But the risk of that note happening was borne entirely by the the borrower.
Then add to this that fees collected by the mortgage broker were higher than they would be from making a more traditional loan for a more modestly priced home. All of this taken together amount to the financial equivalent of selling snake oil.
If you had worked through this example, as suggested above, you wouldn't be able to claim that you don't know what opportunism is. You can only be philosophical, in this particular case, by not drilling down on something that illustrates the meaning.
The prompt actually asked for an instance where such opportunism was possible but didn't happen. The predatory lending example doesn't quite fit that. So then you might ask were there scrupulous lenders during that time, or do you need an entirely different example to satisfy the prompt. On this question you might be interested in the book, How Markets Fail, which argues that the scrupulous lenders were driven out of business because they couldn't offer interest rates high enough to attract borrowers.