Making Beds. Lying In Them. Etc.

We deserve what we’re getting now, and we deserve what’s coming down the pike. First now, next later, then an unsatisfactory conclusion.

Now.

We’ve reaped the whirlwind of our past acts in the current financial collapse. People who had no right buying houses bought houses. These prospective homeowners were aided by appraisers and mortgage brokers who jiggered the numbers to support unwise lending. The appraisers and mortgage brokers were abetted by an irresponsible Congress, who permitted Fannie and Freddie to fund subprime mortgages, thereby opening the tap of cheap money to risky borrowers. Fannie and Freddie had money pouring in because financial gurus created derivative instruments that purportedly eliminated the risk of subprime lending by securitizing the debt and selling strips as riskless, high yield investments. And it all worked, for a while.

What happened? ‘Puter’s got a theory. All of the aforementioned people were rewarded for pushing money out, not for bringing money in. That is, salaries and bonuses were determined not on results, at least not bottom line results. If Congress really wants to fix the problem with regulation going forward (which ‘Puter thinks is a bad idea), a not completely stupid way to do so is to tie commissions and other rewards to longer term benchmarks. For example, for mortgage brokers, pay a portion of the agreed commission on origination, but tie the remainder to 12 month loan performance standard. The broker gets less if the loan tanks.

Later.

Rampant populism threatens to prolong if not worsen this crisis. Nobody wants the downside of their actions to haunt them. Americans are showing themselves to be fundamentally unserious yet again. The rigmarole around the AIG bonuses is misplaced and shortsighted. No one receiving the bonuses was involved in the credit default swap debacle. And these people may be the only folks who know enough to unravel the transactions without completely destabilizing the affected entities. Rather than support and reward these folks (which Geithner and Dodd were right to do in the first instance (even if for the wrong reasons)), Congress is now tearing them down. ‘Puter thinks this is going to end badly for AIG, and likely for America.

Further, everyone (banks, homeowners, states, etc.) is standing in line for government handouts rather than taking responsibility for his actions, deleveraging, living within his means and moving on. Relying on the government to protect stupid actors from the consequences of their stupid actions creates moral hazard. That is, if we are not permitted to fail, we won’t learn anything, and we will continue to make the same stupid mistakes again and again.

Conclusion.

This post is much longer than ‘Puter intended. Short synopsis. We all are at the root of the current crisis, whether we want to acknowledge it or not. Until we get serious, stop blaming others and make a societal shift back to personal responsibility, things will not get better. And government appears to be poised to prolong the transition by rewarding profligacy and punishing responsibility.

About 'Puter

Always right, unless he isn’t, the infallible Ghettoputer F. X. Gormogons claims to be an in-law of the Volgi, although no one really believes this.’Puter carefully follows economic and financial trends, legal affairs, and serves as the Gormogons’ financial and legal advisor. He successfully defended us against a lawsuit from a liquor distributor worth hundreds of thousands of dollars in unpaid deliveries of bootleg shandies.The Geep has an IQ so high it is untestable and attempts to measure it have resulted in dangerously unstable results as well as injuries to researchers. Coincidentally, he publishes intelligence tests as a side gig.His sarcasm is so highly developed it borders on the psychic, and he is often able to insult a person even before meeting them. ’Puter enjoys hunting small game with 000 slugs and punt guns, correcting homilies in real time at Mass, and undermining unions. ’Puter likes to wear a hockey mask and carry an axe into public campgrounds, where he bursts into people’s tents and screams. As you might expect, he has been shot several times but remains completely undeterred.He assures us that his obsessive fawning over news stories involving women teachers sleeping with young students is not Freudian in any way, although he admits something similar once happened to him. Uniquely, ’Puter is unable to speak, read, or write Russian, but he is able to sing it fluently.Geep joined the order in the mid-1980s. He arrived at the Castle door with dozens of steamer trunks and an inarticulate hissing creature of astonishingly low intelligence he calls “Sleestak.” Ghettoputer appears to make his wishes known to Sleestak, although no one is sure whether this is the result of complex sign language, expert body posture reading, or simply beating Sleestak with a rubber mallet.'Puter suggests the Czar suck it.

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