A Home Inspector’s Weblog by Frank Schulte-Ladbeck

exploring homes and the lives in them around Houston

Politics and the Subprime

Today, Congress will be questioning people from the stock analyst community, believing that they helped dealing with (or could have prevented) the subprime mortgage fallout. This is a great opportunity for news items, but useless in dealing with our current situation.

Although, there has been legislation, which passed the House that will help new homeowners, we are not dealing with how to prevent this situation from occurring again. Here is what we are missing:

1. Mortgage providers who are targeting the subprime market for great profits, but with no care in helping such people in not taking on to much debt. In fact, some lenders happily mistreated such borrowers to produce ever increasing profits.

2. Investors wanting larger returns bought these loans in packages, knowing that their was a risk, but not wanting to deal with the consequences. To be fair, some investors did not realize what they were getting into because of brokers, who told them that these vehicles were safe. But not to fear, these investors will have to go to arbitration for their complaints. These panels have been notorious of late for always siding or aiding the brokers.

3. The Wall Street analyst being questioned today did play their part, but they have consistently promoted firms which they should not have. For better profits, they have not been forthcoming with information for some time, so why should they start now? Congress will slap them on the wrist, and they will go back to their normal lives.

4. Consumer protection laws, like the current bankruptcy laws, were written with heavy involvement from the industries the consumers need protection from. Our leaders seem interested in sound bites, rather than true action. Lets take President Bush’s statement of help to homeowners facing foreclosure because of the subprime crisis: we will deal with these consumers by having them obtain FHA loans. FHA will not deal with subprime market, so they cannot offer assistance to those consumers. (Bush just wanted something to say, which seems to be happening on both sides of the aisle in Congress).

Our society is failing if we stay on this course. Government should take measures which offer protections to both business and the consumer. Businesses should stop seeking the short term profit, and look to the long term. A stable subprime or prime borrower could offer better returns over a lifetime than the could at this moment in time. Finally Wall Street analysts should just be used for entertainment, I have never found their advice useful for my long term goals.

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