Control failures in terms of the housing market, reported in Reuters:

Critics of the system argue scores are full of errors and dangerous to use alone. They also are easy to manipulate. A cottage industry has thrived helping prospective borrowers raise their scores without changing their underlying ability to repay a mortgage.

“There are fundamental flaws in the system because people can manipulate characteristics to get the FICO score they would like to see,” said Kevin Jackson, a strategist who follows mortgages at RBC Capital Markets in New York. The system can be played “to come up with the kind of mortgage for people who really couldn’t afford a house.”

Point of trivia, I used to play in a band with one of the authors of the article.

Another point of trivia, I was recently talking with a seasoned computer security professional who said “I have no sympathy for those people who signed up for high risk mortgages. They knew the risks and now they must pay the price.”

If only it were true. The fact is actually that the “risk” is not only obscure, but seems to have been actively manipulated by those who intended to shift all liability to the less fortunate with little/no concern for macro stability/impact.

I don’t believe regulation in innately good, but I also don’t believe that babies should be taken from their mother, dropped on a street corner and left to fend for themselves to prove the benefits of a free-market. A certain amount of guidance and care to ensure a stable family, or even society, is not a bad thing.

Those who want an absence of regulation are often the same ones who (believe they) are the ones most likely to profit from it while avoiding the costs, so conflict-of-interest issues must always be minded.