With a Home Loan, Knowledge is Power

Banking and finance expert Alex J. Pollock had some pretty compelling testimony for the Subcommittee on Domestic Policy of the Committee on Oversight and Government Reform. He addresses five points, which are all interesting and I encourage you to read, but I really only want to focus on one today: Information Asymmetries. The situation, in a banking context, is explained as such:

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“Information asymmetries” is an academic way of describing a common problem in financial and other transactions when one party knows a lot more about the relevant matters than the other–or stated the other way, when one party is naïve and uninformed and the other is the opposite… To help address the shortcomings of the subprime market which have become evident, I believe a new, superior disclosure approach is needed, whether or not we do anything else. The key is to realize that complex, lengthy statements in regulatoryese and legalese do not achieve the goal.

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It’s a bit wordier than my point yesterday, but Mr. Pollock and I are on the same page. The more people really understand (in direct terms) about their loans, the less likely they are to end up in trouble. Knowledge is power.

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