Robert Weaver: A Guest Post
Buck Says: I am fortunate that through my life I have acquired some pretty bright friends whom I now bother for Ideas to use in my Blog. Bob Weaver is one such friend. Bob is a lawyer, an engineer, has been a college professor teaching computer science and is now involved in a company with government agency related products that he doesn’t describe in any detail. Bob sent me a note that is worth reading and thinking about. I am publishing it unedited with his permission. The newspaper he refers to is of course a facetious reference to the NY Times which I often refer to as a “once” great newspaper. Buck
Bob’s note to me.
So, I was reading your favorite paper yesterday and I ran across
this article
(http://www.nytimes.com/2009/03/01/business/01gret.html?_r=1&ref=todayspaper).
The gist of the article is that it is becoming apparent that in putting
together the various securitization trusts based on mortgages, the banks (or
whoever they hired to do the work) did a “minimalist” job. That is, they
often failed to comply with the legal formalities involved in transferring
the mortgages to the pools they created. They failed to do legal
assignments; they lost the original notes.
This has implications on several fronts. If the borrower doesn’t
make the monthly payments, the administrator for the trust will be unable to
foreclose if anyone involved in the process starts asking inconvenient
questions (like, “please produce the original note and all subsequent
assignments”). If the homeowner decides to sell the property, it may be very
difficult of even impossible if the real holder of the note cannot be
located.
Now, one of the lessons I have learned being involved in a number of
business ventures is that for a business to succeed in the long run, the
focus of the business has to be on the customer. So who was the customer
here? The homeowner to whom the loan was made? The investor to whom a piece
of the trust was sold? Obviously the banks thought neither of these groups
was very important. The only group that arguably benefited from this way of
doing business was the shareholders of the bank. How can anyone argue that
given this sort of execution on these investment vehicles that the
institutions involved had any kind of commitment to any customer?
Now if there were just lots and lots of little neighborhood banks
involved in this problem, perhaps we could simply say let the shareholders
suffer the consequences of hiring stupid executives. But that’s not how it
worked. Enormous institutions were involved. And all of them appear to have
done much the same thing. Most people at the policy-making level appear to
be of the belief that if we simply let these institutions fail, the damage
to the general economy will be unacceptable.
This argues that in the future we either (1) need to insure that our
financial institutions never get this large again (the free market solution
- sort of), or (2) we need substantially more regulation of these
institutions.
Nothing really new, just something to think about.
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A very astute and accurate assessment of the terrible mess we now find ourselves in thanks to liberal social engineering.This can only be fixed at the polls in time.