Letter: Laurie Dobson’s ‘solution’ is no solution at all (Printed Feb. 15, 2008)
Editor:
Once again we are in an election year, that magical time when candidates for governmental offices dispense with rationality and pander to the electorate by proposing simplistic mandates to remedy complex problems.
Candidate Laurie Dobson’s “solution” for the widespread subprime woes, articulated in a letter to the Post editor last week (Feb. 8), is just the kind of feel-good proposition that one should anticipate in this season of folly that comes around every few years. Not only does her so-called remedy demonstrate an abject lack of understanding of global financial models, it also blames the entirety of the present crisis on “Wall Street bankers” and “greedy speculators” when culpability also lies with the individuals who took out “no money down” ARM mortgages at teaser rates, betting that the market value of underlying real estate would continue its exponential growth and allow future refinancing before the loans adjusted to market rates the borrowers knew at the outset would be too high for them to pay. Who is more culpable, the banks that offered the high risk mortgages or the individual borrowers that gambled on continued price escalation in real estate to bail them out for living beyond their means?
Contrary to the implications in Dobson’s letter and as explained in a WSJ op-ed piece on Friday, Feb. 8, many purchasers of homes without equity at risk were not average families but “greedy speculators” enticed by the prospect of huge profits in a short time. As the value of the mortgaged property failed to increase or actually decreased, they simply walked away from their obligations leaving the banks and investors both domestic and international that purchased what they perceived were safe securities collateralized by mortgages to suffer the losses. Where is the personal responsibility? And isn’t this moratorium plan a bailout of these speculative adventurers?
The letter also underestimates the real world complexities of current mortgage practices in a global economy. In the past, an individual went to a local bank that loaned the money and kept the mortgage in its own portfolio; now, individual mortgages are bundled and resold all over the world. How can the US government impose a moratorium on foreclosures when a mortgage made here in Maine is now held by a bank in Germany that uses the cash flow to pay dividends to a retired teacher? Who will make up this cash deficit if the property cannot be sold to pay the German bank?
Finally, there are a number of errors in the letter from candidate Dobson that must be corrected. The Federal Reserve is a Federal agency and as such it is ipso facto “Federalized.” Pension funds are currently protected by ERISA provisions and the PBGC so that “hard-earned employee pensions” cannot be looted. Investment strategies never cannabalized any company to my knowledge. Derivatives do not by themselves create either hyper-inflation or depression; they are merely a financial tool that can be used as a hedge to cushion against financial extremes. Presidents whether Democrats or Republicans do not create economic depressions, recessions, or booms.
Just as forest fires clean and rejuvenate with their destructive flames, so too market crises weed out unsustainable practices. And in both cases, the best thing that the Government can do is to let nature take its course as cruel as that might seem.
By the way, I do have a financial background having been a partner in a large international accounting firm as well as a founding member of a regional firm.
George Lambert
Kennebunk
Once again we are in an election year, that magical time when candidates for governmental offices dispense with rationality and pander to the electorate by proposing simplistic mandates to remedy complex problems.
Candidate Laurie Dobson’s “solution” for the widespread subprime woes, articulated in a letter to the Post editor last week (Feb. 8), is just the kind of feel-good proposition that one should anticipate in this season of folly that comes around every few years. Not only does her so-called remedy demonstrate an abject lack of understanding of global financial models, it also blames the entirety of the present crisis on “Wall Street bankers” and “greedy speculators” when culpability also lies with the individuals who took out “no money down” ARM mortgages at teaser rates, betting that the market value of underlying real estate would continue its exponential growth and allow future refinancing before the loans adjusted to market rates the borrowers knew at the outset would be too high for them to pay. Who is more culpable, the banks that offered the high risk mortgages or the individual borrowers that gambled on continued price escalation in real estate to bail them out for living beyond their means?
Contrary to the implications in Dobson’s letter and as explained in a WSJ op-ed piece on Friday, Feb. 8, many purchasers of homes without equity at risk were not average families but “greedy speculators” enticed by the prospect of huge profits in a short time. As the value of the mortgaged property failed to increase or actually decreased, they simply walked away from their obligations leaving the banks and investors both domestic and international that purchased what they perceived were safe securities collateralized by mortgages to suffer the losses. Where is the personal responsibility? And isn’t this moratorium plan a bailout of these speculative adventurers?
The letter also underestimates the real world complexities of current mortgage practices in a global economy. In the past, an individual went to a local bank that loaned the money and kept the mortgage in its own portfolio; now, individual mortgages are bundled and resold all over the world. How can the US government impose a moratorium on foreclosures when a mortgage made here in Maine is now held by a bank in Germany that uses the cash flow to pay dividends to a retired teacher? Who will make up this cash deficit if the property cannot be sold to pay the German bank?
Finally, there are a number of errors in the letter from candidate Dobson that must be corrected. The Federal Reserve is a Federal agency and as such it is ipso facto “Federalized.” Pension funds are currently protected by ERISA provisions and the PBGC so that “hard-earned employee pensions” cannot be looted. Investment strategies never cannabalized any company to my knowledge. Derivatives do not by themselves create either hyper-inflation or depression; they are merely a financial tool that can be used as a hedge to cushion against financial extremes. Presidents whether Democrats or Republicans do not create economic depressions, recessions, or booms.
Just as forest fires clean and rejuvenate with their destructive flames, so too market crises weed out unsustainable practices. And in both cases, the best thing that the Government can do is to let nature take its course as cruel as that might seem.
By the way, I do have a financial background having been a partner in a large international accounting firm as well as a founding member of a regional firm.
George Lambert
Kennebunk
Comments