Don't hate the player, hate the game!

I’m one of those people who reads various Business Journals to keep a finger on the pulse of our country ‘s business climate. On any given day, I might browse up to five different city-specific editions to see what’s going on in markets like Phoenix, Atlanta, Nashville, or Denver. Each email summary typically has a link to the “Question of the Day”, which today got me thinking….

Today’s Poll (from the Phoenix edition) was soliciting input on who was to blame for our country’s current mortgage crisis. The choices provided were as follows:

  1. Wall Street for bundling sub-prime securities
  2. Lenders for pushing risky loans
  3. Homebuyers for borrowing beyond their means
  4. Federal regulators lax oversight
  5. Other

As a “recovering financial adviser”, I’d like to think I know something about all angles of this issue. In a somewhat lengthy (on the record) rant on this colossal failure of the mortgage-lending system in America, let’s address these point-by-point of the choices given to this question:

  1. Wall Street– Of course. Anytime there is a huge financial hiccup it’s easy to point fingers at the very institutions that best represent the capitalism which makes this country (and the world) so wonderful. That’s odd, coming from me – for she is the same financial machine, fueled by the greed of Wall Street, I’ve so intimately dated over the years–and our relationship hasn’t exactly been roses. Wall Street (and banking, for that matter) works on the notion of leveraging OPM (Other People’s Money) to create enormous profits for the middle-man. It is the same machine that has built efficient markets for selling bonds, stocks, and other securities over the years that have generally built a lot of wealth for ordinary, passive investors over the years. I can’t really fault “the street” for just doing what they do best, making money by creating markets to trade supply and demand.
  2. Lenders, for pushing risky loans– Hmmm, we might be on to something here. In the addiction recovery business, these people are called “enablers”. As a finance major in college, the key fundamental element of finance I learned is the correlation between risk and reward. The more risk one takes, the greater the anticipated reward for taking said risk. That works well when someone is risking their own capital. In this case, though, the concept of OPM comes into play once again. You see, in order for Wall Street to create bundles of smaller, less attractive individual loans for the consumption by larger, institutional sized investors, those smaller loans must first be made. As the demand for the bundled securities rose, so did the demand by the middle-men for those loans. Well, at some point, as the networks of the mid-tier players in the securities “food chain” became unable to support the demand, they simply began dishing out cash to borrowers of lesser and lesser quality through a further expanded network of mortgage brokers and specialty lenders. You might even be suprised to learn that your local bank actually holds very few of the mortgages it provides to it’s own customers, instead offering to accept a commission from these “upstream” institutions while at the same time, dodging any potential risk of default by the borrowers.

    Did you catch that? Now you have institutions making mortgage (investment) decisions based solely on what information was being collected by third and fourth party gatherers (read: those farther from the ramifications of poor risk analysis) versus their own people. While it’s not really an issue for those borrowers with great credit history, raise your hand if you think this is a good idea when dealing with borrowers with a declining ability to repay borrowed funds. (If you just raised your hand, you must now check yourself into a twelve-step program for those addicted to poor choices.)

  3. Homebuyers for borrowing beyond their means- The last time I checked, the way most people buy a home is to a) gather up personal financial information b) take it to a lender c) see how much they will lend you 4) go buy a house. I can remember the first mortgage application my ex-wife and I ever filled out. When the lender came back to us with the amount they were willing to lend us, I had to be picked up off of the floor. Without much hesitation, the mortgage company was willing to lend us about twice (measured by payment amount) what we were comfortable with. Had we not both been keenly aware of our own responsibilities associated with taking on a mortgage, we could have easily been suckered into a commitment far beyond our means. For the millions of Americans struggling to get by, I think a system fueled by greed put too much faith in Joe Paycheck turning down too large of a loan in an effort to continue fooling his family that everything was better than ever.
  4. Federal regulators lax oversight– Unfortunately, it’s because of a series of unfortunate, repeated, ill-thought-through decisions, the political repercussions of this mortgage meltdown will likely result in a “cure” that will swing the pendulum far in the opposite direction, likely slowing down the number of people taking steps to own a piece of the “American Dream” of home ownership for a while.
  5. Other -Okay, to the people who didn’t choose any of the above options…seriously, what the heck could be “other”?

In the style of the late Bernie Mac, I say, “America, why can’t we all just make responsible decisions and do the right thing. You know people are always going to push to see how much they can get away with!”

Shaking my head from atop Mt Olympus

Allow me to set the stage with this excerpt from a recent article (view it in its entirety here) emphasis added by blog author:

Athletes from Iraq have been banned from taking part at this summer’s Beijing Games, the International Olympic Committee has announced.

The team was already the subject of an interim ban after the Iraqi government replaced the country’s Olympic committee with its own appointees.

Under the IOC charter, all committees must be free of political influence.

Iraq had been planning to send a team of at least seven athletes to the Olympics which start on 8 August.

Two rowers, a weightlifter, a sprinter, a discus thrower, a judoka and an archer were in the frame for the trip to Beijing.

“The deadline for taking up places for Beijing for all sports except athletics has now passed,” said IOC spokeswoman Giselle Davies.

“The IOC very sadly has now to acknowledge that it is likely there will be no Iraqi presence at the Beijing Olympic Games, despite our best efforts.”

She added: “Clearly, we’d very much like to have seen Iraq’s athletes in Beijing.

“We are very disappointed that the athletes have been so ill-served by their own government’s actions.”

My thoughts:

  • Were the original Iraqi Olympic committee more or less corrupt than the new ones?
  • This country has been ravaged by years rule under a rabid dictator (since removed), has been in a state of war for years…can’t they catch a break? For heaven’s sake, it’s the Olympics!
  • (Read the words in RED above, then consider this)- If the only sport left to qualify for is “athletics” and Iraq has “athletes” – that’s just puzzling, right?
  • Go read the memoirs of ANY person who has ever spent time near the International Olympic Committee and/or it’s governing processes. IT’S ALL POLITICAL.
  • Zeus and the gods of Mt Olympus have to be thinking “What happened to the spirit of competition?”

What’s your opinion? Post it below!

Accountabilty Matters

See Coach Gundy’s Rant Here!

Perhaps there is another way to drive home his point, but I have to tip my hat this week to Coach Mike Gundy of the Oklahoma State Cowboys for defending a player.

While I appreciate the attention and research conducted by most of the writers involved with the media, let’s face it. It isn’t all that uncommon to find some degree of misinformation or quotes taken out of context in a report from any media source, on a given day.

To see a football coach, however, call out a reporter for gross inaccuracies in a newspaper report in defense of a player recently moved from his season start at quarterback to a different role on the team, is something else.

Coach Gundy is known as a “players coach”. To any parent wondering about the Oklahoma State coaching staff’s dedication to players, I think that was solved with the video clip you just watched. In full disclosure, I’m a graduate and long-time football season ticket holder at Oklahoma State. Sure, I’ve watched a coaching staff bring in talented recruits in recent years, only to fall short of the “spectacular season” we always seem to be promised. Hey, I’ve never played a down of football in my life, nor have I coached. I am a fan of the game, however, and I do like to see my team win.

Well, this weekend the OSU Cowboys pulled off a spectacular win over a talented Texas Tech football team (led by standout quarterback Graham Harrell). I’m hoping we’ve righted the ship for the season. We’ll see.

As for today, Coach Gundy, thanks for standing up for our players and showing your passion, fire, and dedication to team. Reid isn’t a failure, he’s a student-athlete who still supports, contributes, and plays on our team. Thanks for correcting the reporter. Can you do something about the ticket prices? Go Pokes!

When did OUR problem become MY problem?

THE BACKSTORY: In the Saturday/Sunday, July 7-8, 2007 edition of The Wall Street Journal; pg.A3), ran an article that really bothered me: How ERISA May Trip Up Bids To Extend Coverage. In short, this article discussed how recent attempts to enforce action against employers who fail to offer health care benefit plans to employees could be affected by the 1974 Employee Retirement Income Security Act (ERISA).

THE RUB: Why are the lawmakers in the United States so bent on making health care for workers the responsibility of employers, when it’s clearly the health care system that appears to be broken, making it difficult for individuals to even afford coverage on their own?

THE RANT: First, allow me to say thanks for living in a country where I can safely visit (nearly) any hospital in a time of urgent need, and obtain a high-level of care. In fact, I’m grateful for my chosen doctor and the relationship we have developed concerning the health needs of a male in his mid-30s.

Currently, I am self-employed and have health care coverage obtained (at a surprisingly affordable level) via COBRA coverage through the employer of my former wife. During the transitional period of starting my own business(es) and returning to bachelorhood, this was a reasonably affordable, temporary solution to my need for health care coverage. While it may not be optimal (money-wise), it has proven responsible.

Is a nationalized health-care system (similar to that in Canada or other countries) the answer for the United States? Likely not. (That’s a topic for another day.) But, neither should a health care system with out of control costs (malpractice insurance, drug costs, technology costs, etc.) be effectively subsidized by other business owners simply because they were successful enough to need to add employees. Let’s remember the problem, here: affordable health care for all who need it.

Simply requiring employers to offer a health care plan to all employees or face stiff penalties (often proposed as dollars per employee or a percentage of total payroll), only means employers could circumvent the penalties by offering up a handful of very expensive choices. Not what the legislators are hoping to achieve. Besides that, many employers may decide to offer health insurance at the expense of a retirement plan of any kind, a fate potentially far worse for employees!

It’s time to take a hard look at the economic failure created by a bloated, inefficient health care (insurance?) system and begin looking for solutions every citizen can afford. Insurance, by definition, is a pooling of risks, where many people pay in for the benefit of the entire group. Theoretically, the larger the group, the more the risk is spread around. If the same insurance company offers benefits to 1,000 customers, why should it matter if that is 1,000 self-employed individuals, 1 company with 1,000 participating employees, or any breakdown in-between. It is the same 1,000 people, for crying out loud!

Something is definitely wrong with the way health insurance companies assess their own amount of risk. Further, why do insurance companies get a discount off of the “rack rates” you and I would pay, if we simply paid cash for all services rendered? (Here’s one take on that issue from Ohioan Rick Smith’s campaign website.-Note: I do not live in Ohio, nor am I familiar with other political stances of Mr. Smith. This link is simply an illustration of my point about health coverage. Thanks for understanding.

On a lighter note, isn’t it funny how many people complain about paying a $20 co-pay for their own doctor’s visit and those very people will drop $500 in a heartbeat on a veterinarian bill to pay for uninsured services on a pet? It’s time to step up as Americans, and take some responsibility for our own medical needs!