Understanding greed

October 11, 2011

OPINION by GORDON MULLIN

I’m greedy.

When I do my taxes, I don’t ask myself, “what’s the fair amount I should pay?’  Nope.  I just attempt to follow the byzantine tax rules as best as I can hoping I don’t make a mistake and find myself on the receiving end of an IRS audit.  I work hard, spending a great deal of time looking for write-offs trying to make that “taxes owed” number on my 1040 just as small as possible. And I must confess, never has it crossed my mind to pay more than what the rules tell me.  Greedy me.

My Webster’s Unabridged defines greed as “excessive or rapacious desire, esp. for wealth or possessions.”  With the continued downturn in the housing markets and banks tottering at cliffs edge, we’ve been hearing the word a lot.

We now have entire swaths of occupations deemed to be populated by the greedy- bankers, lenders, Wall Street brokers (ouch-too close to home), mortgage agents and, of course, the usual suspects- lawyers, developers, and every single employee of insurance, drug and oil companies. Wall Street is merely the target du jour.

However, it strikes me that we’ve become so accustomed to hearing greed used to describe others that we’ve come to think of these people as somehow different than us regular folk and I don’t think that’s true.  I know we all like stuff-owning stuff, possessing stuff; using stuff.  Shopping itself has become a pastime for many-kind of a hobby.  “What do you want to do today, dear?  Why don’t we go shopping?  That’d be fun.”  Ever heard that?

I think we’ve simply mislabeled a common and normal human inclination, the pursuit of self-interest, when it is in others we’ve chosen to castigate.  This month it’s Wall Street brokers who sold subprime loans and financial gurus who packaged those mortgages and sold them to banks, hedge funds and your 401k provider.  Recall that in 2007 they were doing the exact same thing and everyone was fine with that.  There were a few voices warning of an impending bubble in the housing market, but like the tech stock bubble of 2001, no one wanted to listen.

Three years ago, Harry, the guy next door who bought his home in 1974 for $30,000 and now could retire on the gains, felt those unplanned riches were his just due and no one considered him greedy for pocketing the eye-popping profits.

The mortgage broker at the bank who offered a suite of alternatives to Maria, the buyer of Harry’s home, perhaps knew that Maria was over extended but Maria was old enough to make her own decisions and there were plenty of other places she could look for advice and options.  She hadn’t saved up any money for a down payment but the lender was willing to finance 100% of the home, encouraged by Congress’s ‘Minority Assistance’ mandates.  She’d be paying only the interest for a couple of years but she wanted, not the starter home, but the nice one, the expensive one and she knew that of course prices would continue to climb, she’d get that raise, and things would turn out well.

The bank packaged up Maria’s mortgage along with hundreds of others and sold them to Fannie Mae who borrowed in the market at government subsidized rates to buy Maria’s loan so that the mortgage was off the bank’s books and didn’t drag on their capital requirements.

Fannie Mae in turn offered AAA credit rated bonds with excellent returns that everyone knew was implicitly backed by the government and investors, mutual funds and retirement plans of public employees, gobbled up the bonds of Fannie Mae, all enjoying the safety of government sponsored returns.

Three years ago, everyone was pleased with the situation.  No one considered an entire financial industry greedy.  All was well.  Till the housing market bubble burst.  And now we look for scapegoats finding them, most recently at, where else, Wall Street.

We are all inclined to desire wealth and possessions.  When the times are good, we’re content but when times are bad we seek out those we deem responsible, label them greedy, and demand our politicians regulate, regulate, regulate.

We should not seek the regulation of greed for that is truly beyond the reach of government.  We can and should demand honest and fulsome disclosure by all, both lenders and borrowers.  Bubbles will occur again; they always do.  But we should not ask for solutions based on the regulation of greed- that’s a distraction from our problem and leads us down a path to where there are no answers.

We merely find ourselves.

Gordon Mullin in a registered financial adviser in San Luis Obispo.

 


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End the Fed and the “Cloud” web censoring facilty being built underground near Vegas.


Elect Paul then hide him in a bullet proof vault. Remenber what happened to JFK a month after he took the FED down, the only tme since it’s inception in 1913 after Europe’s banker’s joined their New York partners and bought for Woodrow Wilson his Presidency in exchange for it’s appointment. How can you not admire Ron Paul’s courage?


The FED is a ridiculous concept that rose to the pinnacle of world power but not without a shot being fired by any stretch…. It’s best revenues come from their war profiteeriing dept., as always. Ripping you off by proclaming you in debt to them with high interest and inflation by printing money to the moon and back therefore diluting the value of everything you own, is 2nd or 3rd.

Dump B of A and Chase bank’s accounts, cash out your stocks and consume as little as possible. But by far an alive Pres. Ron Paul is the present necessity to get on a path to a healthy Western world.

Buckle up, gang. Those in power never just roll over. Would you want to give up your money tree?


Yup.


Greedy U.S. autoworkers demand payment for their labors beyond what the consuming public will pay. Regardless of a car buyers willingness or ability to pay, the autoworkers demand a living wage.


Complementary to that is the greed of the car buyers. Perhaps they “should” pay more to keep our autoworkers and automotive industry strong. But they don’t. Their greed compels them to look for the best car for the least money.


(Shoot. Please move this comment to the bottom of the page, in response to Amtkhog.)


I listened to Randi Rhodes all the while she was on KYNS, and yes, she is very outspoken, very liberal, BUT, she came up with an analogy that describes the crux of the derivative market very clearly, something like this: As the government regulators started relaxing the rules for mortgage loans, more and more questionable loans were arranged. Many of these new loans were very bad, the person helping the borrower knew that, but because the government was supposedly backing these loans AND because the lender was going to sell off the loan as soon as it was processed, no one took a second thought as to how risky these loans were. The “bad” loans were not sold outright as an entire loan, no, they were sliced and diced and bits and pieces of the bad loans were sold along with bits and pieces of good loans. The result is like a coleslaw that has “some” tainted cabbage in it; a little bit wont hurt you, a little more may make you feel bad, a little more can make you sick, and if you get enough of the bad stuff, you are in serious trouble. This is exactly what happened to the sub-prime loans; as more and more “bad” loans bits and pieces came into the system and were sold off with the good loans, the saturation point was met resulting in the whole system crashing down. Too many bad loans, brought on by all sorts of circumstances that led to debacle that shorted many many 401k s that hurt so many, but those at the top (that fabled 1%) actually got even more rich off of those sub-primes going belly up. Before derivatives were “invented”, Wall Street and the banks could not interact directly due to the Glass – Steagal Act, and once that was gone, the person who invented the derivative became very wealthy, but also was aghast at how poorly the market was regulated and how a complete lack of oversight led to the problem that crashed all of the 401k s that were heavily invested in derivatives (David Swensen) Bottom line is though, GREED is what drove the system, and to a large part still does drive Wall Street. There are those who have invested and live off of those investments for their retirement and I would not call them “greedy”, there are also many different funds that manage portfolios for pension funds, and those too I would not call “greedy”, but too many on Wall Street and/or the investment “game” only want to produce more returns on the management of money without any “real” work or personal investment. If you really want to “earn” a living, you have to “work”; if your “job” is pushing paper and crunching data on a computer screen in order to make a profit, you really aren’t “contributing” to the economy because you are not producing a “good” (product) and/or the service you are providing relies on there being a “loser” for every “winner” in the investment “game”. Mr. Mullen, get a real job, try producing something of value that people can hold or use, using money to make money is exactly what Jesus railed against in his “Sermon on the Mount”. Which company would Jesus invest in?


I am surprised how many “it was Bush’s fault” or “it was Clinton’s fault” I hear. I know, there are rabid ideologues still (even in 2011? yeah, unfortunately).


You can INTERCHANGE the politician (executive, judicial, or legislative) it does not matter, they are only the smoke. If you really think BUSH had this great idea, or CLINTON had a plan… I feel sorry for you. There are, however, plenty of choir to sing that to.


The reality is, the money-lenders have ALWAYS been the root of evil, and politics and nationalism are just tools in their arsenal. Look at these dopey NY protests? Seriously? Who do you think is backing them and had this planned out for YEARS? We are dummies. Comments like “it’s that party or this party’s fault” just really take the wind out of my sails sometimes.


I’m happy you love your ideology. It shows how thorough your indoctrination has been. Thanks media and school! Mission accomplished!


Sorry, but gov policy matters. Dubya took the regulators off the beat. Simple….


diluting anti-social behavior by projecting said weaknesses onto the general population


nice rationalizing work, mr mullin


next time I’m feeling particularly greedy (in only in a purely self-interested way), I’m sure you won’t mind if I walk into your house and inform you that it now belongs to me?


Excuse me, Mr. Mullin, but I beg to differ. Three years ago, or even 6 years ago when we bought our house, I was OUTRAGED that lending institutions were lending to those who didn’t save up for a down payment and needed something like 100% financing. I knew MY good credit was helping back those poor investments.

I was outraged when a friend got approved to buy a condo with a mortgage that was bigger than his gross monthly pay.

It wasn’t us “commoners” that were okay with it, it was the greedy politicians etc lining their own pockets and looking the other way.


And it seems to be you are moronic to equate taking advantage of every tax break available to being “greedy.” What the heck kind of financial adviser are you to not know the difference. I sure as heck won’t ever come to you for advice.


Huh? You’re the guy who took peoples money, lost it, and now transferring the blame to………noone? Everyone at this point has been updated way past what you’re putting out here, Mullin. Wall st. plays it straight, etc. It’s everybody’s fault? No intentional misdeeds? Hardly.

You’re wrong now and you must’ve been way wrong while advising people in the past.

This was a planned diaster from the top down. The FED(s). Wall St. and policy makers. The lowly Loan app. takers aren’t supposed to suspect anything, just follow loan policy from on high, put the ink on the paper.


YOU are the guy that was supposed to pick up on the scam. YOU were supposed to tell people this economy can only crash after examining the sitch throughly and consistantly. If you’re blowing off blaming everything and everybody else that only proves you’re running for cover.

Personally any guy in your trade should have at the very least smelled a rat. And personally I think you did, but you’ve got bills, a kid in college and….. So are you not to blame?


Many of the subprime loans that inflated the housing bubble were not made by banks, but by mortgage companies that weren’t regulated by the federal government. A big reason they made the loans was because they could profit by selling them to Wall Street investment banks, which made money by packaging them into securities and selling them.


It wasn’t government that did this, but private markets, it wasn’t F/F that did this, but other market leaders, it wasn’t CRA or other government policies (that worked pretty well until Dubya)


REAL CAUSES OF FIN CRISIS:


Free market absolutism becomes the dominant intellectual thought.


Deregulation of markets, investment houses, and banks becomes a broad goal: This led to Glass Steagall repeal, unfettering of Derivatives, Investing house leverage exemptions, and a new breed of unregulated non bank lenders.


-Legislative actions reduce or eliminate much of the regulatory oversight; SEC funding is weakened.


-Rates come down to absurd levels.


-Bond managers madly scramble for yield.


Derivatives, non-bank lending, leverage, bank size, compensation levels all run away from prior levels.


-Wall Street securitizes whatever it can to satisfy the demand for higher yields.


-”Lend to securitize” nonbank mortgage writers sell enormous amounts of subprime loans to Wall Street for this purpose.


-To meet this huge demand, non bank lenders collapse lending standards (banks eventually follow), leading to a credit bubble.


-The Fed approves of this “innovation,” ignores risks.


-Housing booms … then busts


-Credit freezes, the markets collapse, a new recession begins.


http://www.ritholtz.com/blog/2010/05/rewriting-the-causes-of-the-credit-crisis/


How we hot here?


DEREGULATION AND CONSERVATIVE MINDSET!


Bush White House Philosophy Stoked Mortgage Bonfire


“We can put light where there’s darkness, and hope where there’s despondency in this country. And part of it is working together as a nation to encourage folks to own their own home.”


– President George W. Bush, Oct. 15, 2002


CRA is not to Blame for the Mortgage Meltdown


It’s time to stop the scapegoating: According to a study by the Federal Reserve, 94% of high-cost loans originated during the housing boom had nothing to do with Community Reinvestment Act goals. Lending to poor didn’t spur crisis -Fed’s Kroszner


CRA was effective long before the subprime market existed.


Most subprime lenders weren’t covered under CRA.


Wall Street created the demand for riskier loans


Regulatory oversight and accountability was missing.


The majority of subprime loans went to white borrowers.


http://www.responsiblelending.org/media-center/press-releases/archives/spin-and-outright-lies-on-cause-of-economic-crisis.html


READ THIS:


The “turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007,” the President’s Working Group on Financial Markets said in December 2008!


http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html#ixzz1UC8M7o1g


Private sector loans, not Fannie or Freddie, triggered crisis


Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.


Federal Reserve Board data show that:


More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.


Let’s clarify the causes of current circumstances. Ask yourself the following questions about the impact of the Community Reinvestment Act and/or the role of Fannie & Freddie:


• Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?


• 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?


• What about “No Money Down” Mortgages (0% down payments)? Were they required by the CRA? Fannie? Freddie?


• Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?


• Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what?


• Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?


• How exactly did legislation force Moody’s, S&Ps and Fitch to rate junk paper as Triple AAA?


• What about piggy back loans? Were banks required by Congress to lend the first mortgage and do a HELOC for the down payment — at the same time?


Did the GSEs require banks to not check credit scores? Assets? Income?


• What was it about the CRA or GSEs that mandated fund managers load up on an investment product that was hard to value, thinly traded, and poorly understood


• What was it in the Act that forced banks to make “interest only” loans? Were “Neg Am loans” also part of the legislative requirements also?


• Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages — was that a CRA requirement too, or just a grab for more market share, and bad banking?


• Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn’t have been: Titled How to Get an “Iffy” loan approved at JPM Chase.(Was circulating that memo also a FNM/FRE/CRA requirement?)


The answer to all of the above questions is NO, NONE AND NOTHING AT ALL!


http://bigpicture.typepad.com/comments/2008/10/misunderstandin.html


an analysis of foreclosure rates in that study found that loans originated by CRA-covered lenders were significantly less likely to be in foreclosure than those originated by independent mortgage companies. Clearly, claims that CRA caused the subprime crisis are not supported by the facts.


http://www.federalreserve.gov/newsevents/speech/duke20090224a.htm


Federal Reserve States CRA Played No Part in Foreclosure Crisis


http://www.house.gov/apps/list/press/financialsvcs_dem/press031209.shtml


We were suckered by guys who stay up at night figuring new ways to swindle us ….


I’ve seen that one before, too funny.


Submitted to fast:


GOVERNMENT POLICY MATTERS!


It wasn’t government that did this, but private markets, it wasn’t F/F that did this, but other market leaders, it wasn’t CRA or other government policies (that worked pretty well until Dubya)


CRA is not to Blame for the Mortgage Meltdown

It’s time to stop the scapegoating: According to a study by the Federal Reserve, 94% of high-cost loans originated during the housing boom had nothing to do with Community Reinvestment Act goals. Lending to poor didn’t spur crisis -Fed’s Kroszner


CRA was effective long before the subprime market existed.


Most subprime lenders weren’t covered under CRA.


Wall Street created the demand for riskier loans


Regulatory oversight and accountability was missing.


The majority of subprime loans went to white borrowers.


http://www.responsiblelending.org/media-center/press-releases/archives/spin-and-outright-lies-on-cause-of-economic-crisis.html


READ THIS:


The “turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007,” the President’s Working Group on Financial Markets said in December 2008!


http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html#ixzz1UC8M7o1g


Private sector loans, not Fannie or Freddie, triggered crisis


Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.


Federal Reserve Board data show that:


More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.


Let’s clarify the causes of current circumstances. Ask yourself the following questions about the impact of the Community Reinvestment Act and/or the role of Fannie & Freddie:


• Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants?


• 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ?


• What about “No Money Down” Mortgages (0% down payments)? Were they required by the CRA? Fannie? Freddie?


• Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement?


• Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what?


• Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible?


• How exactly did legislation force Moody’s, S&Ps and Fitch to rate junk paper as Triple AAA?


• What about piggy back loans? Were banks required by Congress to lend the first mortgage and do a HELOC for the down payment — at the same time?


Did the GSEs require banks to not check credit scores? Assets? Income?


• What was it about the CRA or GSEs that mandated fund managers load up on an investment product that was hard to value, thinly traded, and poorly understood


• What was it in the Act that forced banks to make “interest only” loans? Were “Neg Am loans” also part of the legislative requirements also?


• Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages — was that a CRA requirement too, or just a grab for more market share, and bad banking?


• Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn’t have been: Titled How to Get an “Iffy” loan approved at JPM Chase.(Was circulating that memo also a FNM/FRE/CRA requirement?)


The answer to all of the above questions is NO, NONE AND NOTHING AT ALL!


http://bigpicture.typepad.com/comments/2008/10/misunderstandin.html