Dunning-Kruger my a*se
This dates back to Socrates: As for me, all I know is that I know nothing.
By Jove, I think we've finally got an explanation for the unremitting horrors of so much of modern life - the way in which anything touched by politics, bureaucracy or officialdom simply turns to shite. No, it's not simply the current shower of authoritarians who are in power, and it's not that they're all paid too much/too …
I often rant at the news and think I could do better than the current shower, but at work I'm always paranoid that I've missed something, forgotten to allow for some variable satisfy a particular requirement. I'm not sure which category that puts me in!
Question: I'm thinking of contracting as the economy picks up - anyone have a view on the likelihood of the self-cert ban going through?
And of course, the ultimate proof of Dunning-Kruger, the author of this article, no doubt someone involved in I.T. who assumes he knows more about economics than the FSA, the banks and the government put together, who would of course have ensured we never got into this mess.
And then... the second proof of Dunning-Kruger, my own post, assuming I know better about Dunning-Kruger than the author.
That's what we did in the end. Even before this self-cert nonsense it was a nightmare to organise mortgages as company accounts are obviously arranged to minimise taxes on profits.
Your bank on the other hand KNOWS how much you spend and how often you overspend. Our mortgage is what used to be called an "Australian Mortgage" and is now more commonly called an offset mortgage.
Not going to bang the drum for any one bank but you may find that the only bank in the UK that DIDN'T take taxpayers cash has just what you need. Oh and its a hell of a lot cheaper and more flexible than a standard mortgage.
PS - nor does it require self-cert provided you've used them for a while.....
It requires some new thinking, but the people I've spoken to so far are extremely taken by it and I have every confidence it will progress. However, it requires new thinking and a bit of courage (and investment, but I think that's addressed now) so I cannot believe the current Government will want to go near it.
The nice thing is that the incumbents are exactly looking for this: a chance to clean up the mess, and maybe expose some of the stuff under the carpet - the first 4 years will always see New Labour take the blame, probably correctly. When they have cleaned up they will be credited with cleaning up politics, which will lock the door for good on New Labour. Maybe not Old Labour, but New Labour, yup.
So I hope I'll get this going. You'll know in a good 4 months from now - just in time for the election.. Now *that* is timing (take my word for it that that was actually a coincidence).
Attracting large numbers of savers counts as capital backing too.
Mind you, those in charge have scuppered that one too by lowering base rates to near zero.
Thinking of anarchists:
Proudhon was quite an influence on the Cooperative and Building Society movements. His attempts to create a people's bank in France failed due to lack of saving capital.
Silvio Gesell proposed a scrip system around the turn of the 20th Century that would remove privilege and banking entirely while maintaining a vibrant economy based on merit and hard work. The sole implementation of his ideas, in Wörgl, Austria during the great depression, was pretty successful until it was shut down by the national bank. Funny how Keynes gets shedloads of mentions these days as his methods are wheeled back out, while one of his primary influences is rarely mentioned...
I often reflected on this very phenomenon when asked by some recruitment companies to rate my expertise on various technologies in a tick-box grid. Despite in-depth and extensive experience in a number of areas I rarely felt that I should tick the 'Expert' box being, perhaps overly, aware of the bits I didn't understand or had direct experience of.
I also often wondered how many people with no experience but clutching their base certifications were not similarly encumbered.
DON'T DO IT!!
The economy is going to tank again next year once all the government-funded euphoria goes away and everyone realises that companies aren't actually making profits. This means that the companies will try to screw the contractors again. Which in turn means that even if the self-cert stuff doesn't go through, you won't have enough cash to repay the mortgage anyway.
The Dunning-Kruger effect is an example of cognitive bias in which "people reach erroneous conclusions and make unfortunate choices but their incompetence robs them of the metacognitive ability to realize it"
Unfortunately Tim;s incompetence robs him of the inability to see past his own nose and writes accordingly. Take a sound theory apply it inappropriately and then come to some conclusions.
To start, assume everyone is solely motivated by money. I know plenty of highly motivated PhD's working for charities and in academia on not big salaries. Perhaps smart people might want to join the FSA because they don't want to play Roulette in the City. There's plenty enough money there to have a comfortable life, just not as millionaires.
The prime reason for the banking collapse was the complete breakdown in trust between banking institutions. If you think someone else might be bust you aren't going to risk lending them your money. The housing bubble was caused by cheap credit from poor risk assessment. Forcing the originators to keep a portion of their loans means that they are more likely to be focussed on getting the risks assessed correctly rather than dumping it on the next sucker until the music stops. It's true the collapse came when they couldn't sell the bonds, but they would have been much keener on ensuring they were worth something if they hadn't got away with passing all the risks on before, and others are more likely to trust you've done your job if your neck is on the line. If they want to be mortgage brokers - fine. But don't expect to get the advantages of being a banker as well.
Hedge funds didn't have anything to do with the crash or the recession. No, but when they crash and burn (and several did) it's our money (via Pension funds) they lose. None of us has the time to work out the implication of staff changes at pension firms or which hedge funds they prefer which might drastically affect our future. The cost of regulatory compliance will be trivial compared to what can happen to thousands by bad investment decisions.
If Tim is right, we should obviously pay MP's a million a year to ensure we get the "right people" to do the intelligent things. I look forward to him standing for Parliament with that kind of platform.
As for the IT angle, the self cert ban is on self cert without proof. Maybe contractors will have to pay themselves a realistic salary and not tax dodge via dividends. That way they can get their mortgage, as they'll have lots of nice payslips.
Agreed. I use them too and it took alot of form signing (no more than any other morgage) but non of this messing about proving this that and the other. All they asked me was if I had any income going in to any other banks I wanted them to use and after saying no they worked it all out from there.
You too are obviously one of these people who thinks they know more than they actually do.
"As for the IT angle, the self cert ban is on self cert without proof. Maybe contractors will have to pay themselves a realistic salary and not tax dodge via dividends. That way they can get their mortgage, as they'll have lots of nice payslips."
As it happens, this is not a tax dodge, tax is still paid, this is how Ltd companies work. Besides, many contractors who are paid PAYE via umbrella companies, and who receive 'nice little payslips' are also stumped by the same obstacles when applying for mortgages because they will be asked if they can guarantee work for the next X amount of years. I don't know of anyone who can guarantee work for that long.
Do your research first, you don't need self cert mortgage if you're a contractor, many banks do lend at same great rates as permies get without the need to show accounts, with only proof of a contract (listing rate) required aswell running through the normal credit checks. So 18 months into a contract, if I want to apply or change mortgage, I can do so without going self cert and having to pay a premium on top!
Why am I reading all this crap about IT contractors and mortgages from people who obviously aren't IT contractors and don't know the facts. (1) You don't need Self Cert mortgage (2) You don't need to show years of accounts (3) You get the same rates as the fully employed (4) You don't need to show payslips (5) You don't have to prove you'll be contracting for the next few years! I've recently remortgaged at a great rate with only a 3 month contract proving my daily rate and the usual credit check. So please can IT contractors comment on IT contractor matters, instead of the assumption makers!!!!!
I don't know about all this mumbo jumbo pyscho stuff and it's applicability to the subject at hand, and I don't care what solutions the very same idiots who created the crisis (or at best stood on the sidelines watching) come up with. But, I want everyone of those fookers to pay and to continue to pay until all the debt they have saddled me, you, everyone else, your children and their children with, not to mention the impact on whole countries such as Iceland, is truly and fully paid off... with interest... just like we would have to pay. What I definitely don't want to see happening is them being let off scot-free, allowed to continue business as usual, pick up huge bonuses and then to stand in judgement of the small fella trying to make a living in a much more HONEST way than they are even capable of imagining. <rant mode disengaged>
"To start, assume everyone is solely motivated by money. I know plenty of highly motivated PhD's working for charities and in academia on not big salaries."
Well, I don't know which school of economics you're trying to describe there. The general assumptions of all such schools is that people are motivated by utility. Money is part of that, sure, but then so is feeling useful, changing the world, having shorter hours, the length of the commute and whether you get home to see the baby's smile.
Quite seriously, I don't know of any economist who tries to insist on the crazed idea that people are only motivated by money....not even solely by physical rewards.
...which has been the matter of some recent computational research:
Here we show, by means of agent based simulations, that if the latter two features actually hold in a given model of an organization with a hierarchical structure, then not only is the Peter principle unavoidable, but also it yields in turn a significant reduction of the global efficiency of the organization. Within a game theory-like approach, we explore different promotion strategies and we find, counterintuitively, that in order to avoid such an effect the best ways for improving the efficiency of a given organization are either to promote each time an agent at random or to promote randomly the best and the worst members in terms of competence.
I really like the most effective strategies as suggested (LOL)
Seriously, I wonder if such an approach would dampen the consequences of the Dunning-Kruger effect as well...
If those people in charge in the City were so damn clever, how is it they managed to run their businesses into the ground and need a shitload of public money to bail them out?
Before moving to Germany, I was contracting in the UK for over decade and I never needed a self certification mortgage - all I had to do when applying for a mortgage was show the lender my accounts and funnily enough, they understood them. Lenders see applications from many self employed folk, not just IT contractors and used to the idea that many people don't have fixed earnings.
Along with self certification, they need to ban mortgages above 90%. Anyone who can't be arsed or is too poor to save 10% towards the property they want to buy is not planning ahead.
Tim, I *think* that the original poster's intent (although badly phrased) was to imply that that was your base assumption for the article when you described regulators as being less competent than the people they were regulating on the basis that they were earning less.
Or not, maybe I'm prey to Dunning-Kruger now!
Too often we mistake confidence (or its appearance) as competence The self-effacing types in an institution tend not to get promoted as much as the ones who trumpet their every success.
Being self-critical of your work is meant to be an important skill. But if you do it you won't get the next big job. It'll go to the idiot who never admits a mistake. Promoted by another idiot of the same type.
Oh, and the highly competent but modest ones will work in the FSA or wherever. The ill informed braggarts become dealers, estate agents and, arguably, politicians.
1. Keeping a portion of the loan on the banks books
No! That isn't forcing banks to do what made them go bust in the first place. In the first place banks lent out £100 expecting to get £150 back in 5 years. However, 5 years is a long time, and there's some risk associated with it, so they sell the loan for say £120. There, they made a profit nice and fast! Not as much as they would have made if all went well, but good enough.
The trouble with that model is it incentivizes banks to lend shed loads of money to people they know can't afford to pay it back, then sell the loan at a reasonable profit before it goes bad. As long as they can keep shifting debt for cash all is good. Ofc it can't last forever as we saw.
Making banks retain some of the long term risk makes it a less viable option and so they won't do it. it may look very similar (banks got caught with risk and went bust, banks are now to be made to keep risk so they'll go bust) but it's entirely different. Now the banks KNOW they will be retaining risk, whereas before they made the stupid assumption they would always be able to shift it in time. It's all about changing the bankers frame of mind and making them more careful rather than getting carried away like a gambler in Vegas.
2. Hedge funds
Yes, yes they did cause problems. Back before anyone in the Ox and Cart had heard of hedgefunds they did a very simple and valuable task. They mitigated risk. Anyone that wanted to stabilise their expenditure (for example fuel costs, grain costs etc) they hedged. It's kinda (but not very much) like having a fixed rate mortgage. You know what you'll be paying for a certain period of time, but the pay-off is you lose out if the prices drop short term.
Then hedge funds started thinking hey - we're soooo good at this betting malarky! We hardly ever get it wrong. Let's bet shed loads of money on...oops. Ok, we got that one wrong, but we can't possibly get it wrong twi...oh bugger.
The point of hedge funds is stability, not betting on the markets. If they don't focus on their core job then everyone else that relies on hedging to keep their staff in jobs suffers. And everyone hedges. So everyone pays when it goes to pieces.
"Attracting large numbers of savers counts as capital backing too.
Mind you, those in charge have scuppered that one too by lowering base rates to near zero."
Personally I disagree that it is "those in charge" who have scuppered this. I think it is the greedy bastard banks being greedy bastards that are the problem here.
A quick look online shows the lowest loan rate of about 8%
Equally the lowest mortgage rate is about 4%
The best fixed term savings account is 5% and the best "real" savings account (most of us can't tie up 10,000+ for 5 years so need instant access) is about 3% with most lenders offering more like 1.5-2%
Now, I know some people have nice tracker mortgages but again that was banks being greedy in trying to guarantee themselves more money if interest rates went up - no-one thought they'd go down to 0.5% and they got caught. You can bet your life that all future trackers will have a floor to stop this happening again though. Equally many people would have had high fixed rate mortgages which should balance things out somewhat.
OK then, so simple maths shows that banks generally want to hold my money for 3% and then lend it to someone else for 8% which is just taking the piss.
If they think 3% interest is appropriate then loans should be no more than 6% and probably less. When my mortgage was 5.99% and I had savings at 4.5% I also had a loan at 6.8% and they were making money hand over fist then.
Oh, I am a contractor and I have never had to self certify a mortgage and never had worse rates than the standard. I was once told I could only have 90% max but that was in teh days when rates were better for 90% than 95% so I only wanted to borrow 90% anyway.
The mechanism will be familiar to anyone who's seen "Guys and Dolls", in particular the opening "Fugue for Tinhorns":
Me: "I know of a sure thing in the 3:30 at Kempton Park."
Sucker: "I'd sure like to put a ten-spot on that."
Me: "OK, give me a tenner, I'll go down the bookies and place the bet, taking just 5% for my expenses. If the horse wins, I'll take a 25% cut of the profits."
Sucker: "Sounds good to me."
Scale the numbers up by 10^5 and that's precisely what hedge funds do. The percentages are real!
"making bad choices and reaching erroneous conclusions without the wit to realize it "
Sounds like the beer virus to me
Oh - and when your business model is constantly increasing the amount of loans you sell you are always, without fail, mathematically dead certain going to fail - marginal income reduces and marginal costs increase to the point where you fall over. Its as simple as drinking too much.
Tim - have you been a victim of identity theft? Because I can't work out how someone could write both this comment:
"Money is part of that, sure, but then so is feeling useful, changing the world, having shorter hours, the length of the commute and whether you get home to see the baby's smile."
and this, in the article
"Those in the FSA are, by definition, those not good enough, or not competent enough, to be making millions somewhere in the bowels of a bank. They are those only sufficiently competent to earn a pencil sharpener's salary, and that's why they are where they are."
Maybe they're actually better or more competent. Just less motivated by making millions?
Please explain - I merely work in IT, I'm not a Fellow at an Economic think tank so try to use simple words.
It is cheaper for me to rent than pay interest on a mortgage. In Australia where housing prices are ridiculous by global comparison, I wonder just how many people get sucked in to 'the great Australian dream' when they would be better off renting and putting the saved money towards a bigger deposit (and hence a first interest payment below their rent on a suitable property).
And don't bother telling me that if I buy I end up owning a valuable asset. If I rent and bank the difference at decent rate of interest, by the time the deposit is big enough and loan is small enough to be cost effective I am way ahead. Also, even while I might buy a larger place for future-proofing, while renting, I can safely fit my accommodation to be as small as I can get away with and upgrade/downgrade at short notice and little transfer expense quickly and as needed.
This assumes my rent doesn't go through the roof suddenly. The week my rent goes over the first week's interest payment on a suitable long-term living space, I bail to the other side. My landlord knows this. ;-) I'm not going to hock myself up to the eyeballs and spend a good chunk of my life as a debt slave just because the government and their corporate sponsors want me to. I will sit down and do the maths (well I have a spreadsheet that does that for me now - juggling interest gained vs lost; first home buyer's grant, tax offsets, and several other factors is tedious more than twice through).
...Much like car ownership. Everyone needs a car right (particularly in non-metro Australia where public transport is pretty non-existent)? Well I don't. Not right now. When I need one, I own one. When I don't, I bank the savings. Some of my (almost always male) work colleagues are actually uncomfortable with my attitude to this. %-S
Agree - the problem with the banking industry is the divorce between risk and reward.
Make the mortgage retailers take a % of each repayment made, not a commission on the total value of mortage sold. No repayment, no commission. Why not make it illegal for mortgage debt to be resold or insured? Make the company responsible for the products it sells and actions of its sales staff - is that so wrong? What, you don't want to hold a mortgage for 25 years? Then don't sell a 25 year mortgage!
Yes credit will be harder to get. Perish the thought - you'll have to earn the money first!
Surely when you run out of people willing to put allow you to get further into debt it should be some kind of warning to fix your broken economy, not a lamentable situation you try to get out of! Since when was Keynes rehabilitated? Does no-one remember the 70's?
"So we just keep our heads down and get on with what we really do know how to do: coding, running large and complex systems, and, you know, just in general demonstrating competence and knowledge while those without either are the only ones who put themselves forward to try and run the world*.
this from a programmer? Absolutely hysterical, at least the banking system only crashes every few decades
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