| Who Is To Blame for How We Got To Where We Are Today? |
| Invention Development Advice - Marketing | |||
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A junior officer who works for a small mortgage company makes a pitch to a newly married couple who are expecting a baby. And as simply as that, The Game begins.
A junior officer who works for a small mortgage company makes a pitch to a newly married couple who are expecting a baby. And as simply as that, The Game begins. The young couple have seen an advert on TV which offered them the chance to buy a home without putting any money down on it. They tell their loan officer about this. The wife is a little hesitant, but her husband assures her that lots of their friends have done it, so why be left behind? Let's go for it, he says to his wife and she finally gives in. The wife has some reservations, but her husband calms her down by telling her that this is how everyone is doing it these days. Eventually she agrees, and they sign up for the mortgage. Throughout the firm other salesmen are having similar successes. More customers are signed on and paperwork is completed. What next? Jim thinks it's a capital idea and soon an investment house buys the mortgage company's portfolio. They in turn use it to secure shares in the mutual fund they are offering to investors. Shares are sold to investors as well as institutions. Jim agrees that idea has legs, and arranges to sell out the company's mortgage portfolio to an investment house which then uses it to secure shares in the mutual fund they are offering to investors - private individuals, as well as institutions, are invited to buy shares. Among these shareholders is a large investment fund in New York which adds these shares to an existing fund and sells that on to new investors. A fund in Singapore then purchases the entire investment house along with its entire portfolio, and so the process continues... These securities continue to be dispersed more or less evenly across the world's financial markets, up to the point at which it is almost impossible to determine who is actually holding the paper on our young couple's mortgage. Now the bubble is near breaking point. When it eventually bursts the mortgages securing the securities lose their value altogether. The mortgage company is not to blame, since it no longer controls the mortgages it sole in the first place. The investment house likewise is no longer responsive and so on. Everyone involved in the process has done nothing but buy up debt, combine it with more debt, and sell it on like a ticking time bomb. When it goes off, all anyone is interested in is not being in possession of the accumulating debt and therefore having to pay it off. So who is caught holding the hot potato? So who must ultimately pay back the debt? To some extent the shareholders invested in these funds will be affected: the professionals and those who have their savings tied up in shares. These are ordinary people like you and me, and it is ordinary people who will have to pick up the tab when the government bails out the failing investment houses out of public funds. Who is to blame? Who do we hold accountable, the loan officer? He was just doing his job - meeting his quota trying to sell as much product as he can. Do we blame the mortgage company? Their mandate was to place their funds with homeowners and manage the risk and that's what they did. They signed up the homeowners and then sold the debt. What more could they do in fulfilling their responsibility to their shareholders? Should we blame the management of the investment houses? They were acting on the professional advice of their qualified experts in the research department. How about the experts they relied upon? They were only following the advice of what all the economists were saying. The only one left to blame is the economist, the man behind it all. He will tell us that based on the model it should have worked; however, certain unanticipated events (such as the extent of human greed) were not fully taken into account. So in the end, who truly is to blame? And no one, it seems, can answer the question without attributing blame to 'nothing and nobody'. Economic anomalies are blamed, or exceptions which are said to prove rules. Some people have called the resulting crisis 'an Act of God' - something which could not have been predicted or prevented. Still others enjoin us to accept it as a necessary part of the rise and fall of spending which makes capitalism what it is.
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