Business models for the sub prime financial crisis, Linus’s laws, Bob Dylan and Favelas

This is not a blog about Mobile but it is an issue I have been thinking of ..

Recently, I got into an online discussion with an IFA(In the UK, an IFA is supposed to be an Independent financial advisor ). This person claimed that IFAs were unfairly penalised by the sub prime issue.

In my view .. Sadly .. The IFAs have been a MAJOR part of the problem – especially in the USA. It is incredible how so many people in the industry got it so wrong and one has to wonder – what motivates the advisors, how independent they are , and how greed drives the whole system ..

As a capitalist, I have believed in creation of wealth – i.e. adding an intellectual component to raw material to create a product or a service that satisfies a customer need. By that definition, a cathedral builder is a capitalist since they convert rocks to a wonderful monument.

But the business model for the sub prime financial crisis seems to defy the laws of capitalism since it seeks to identify (and con!) the poorest people who could never afford to pay for a house by deluding them into believing that they can .. Especially because the poorest pay the highest interest rates!

(In a nutshell .. It is call ‘sub’ prime for a good reason! i.e. these are not the richest customers – hence sub prime – but they think they should pay the highest rates .. and when they default – the bankers still own their house .. )

Let me explain

see THIS link from the BBC ..

I find the statement below deeply distressing and an indicator that the whole system had to be on it ..

The poorest people pay the highest interest rates,” he says. In the low interest rate years after 2001, sub-prime borrowers might pay two or three times the interest of a prime borrower.

And if some defaulted, it wasn’t the end of the world. Property prices were rising so fast in the US that the odd repossession wasn’t a major problem. In an atmosphere of speculation, many people saw there was money to be made in property and so the spiral continued.

“There were strippers in Las Vegas who became real estate brokers,” says Brummer.

But when the housing market took a turn for the worse, the problems started. Many borrowers were on deals that for the first two years had low rates and then switched to a much higher rate. Once house prices fell, borrowers who were struggling started defaulting on loans. Repossessed houses flooding onto the market caused a vicious circle.

By April this year, the FBI was already investigating 19 allegations of corporate fraud relating to sub-prime loans.

Linus’s law says .. Given enough eyeballs, all bugs are shallow.

So, what happened here? Where were the eyeballs? Why could so many people pretend not to see what was in front of them? How can greed blind so many people – and so soon after Dot com?

As Bob Dylan would say:

Yes, ‘n’ how many times can a man turn his head,

Pretending he just doesn’t see?

The answer, my friend, is blowin’ in the wind,

The answer is blowin’ in the wind.

At Mobile Web Megatrends, Priscila Grison from Brazil had a very interesting talk about Brazil and Digital inclusion - a subject historically close to my heart ..

She had the following picture of Favelas – and asked – What was wrong with it?


It turns out that the picture is upside down .. the insight being .. unless we refuse to see that picture being upside down .. we can never hope to include people – technology or not.

Maybe there is something to learn in this for all the investment bankers out there ..

On the way back on the London Underground – I saw two other things .. Rich Dad Poor Dad is coming to town .. the motivational vultures will have a field day with the crisis convincing more people to invest in more oddball schemes ..

And meanwhile .. a busker on the London Underground sang John Lennon’s song Imagine ..

I wonder if you can

No need for greed or hunger


  1. MD says:

    Liked the post but found it somewhat ironic that the ad at the bottom was from Tax Friend telling me that if I was a sole trader earning between £60K and £350K I could evade paying taxes by using a loophole in the tax law and all I had to do was to click the link…