Why Good Mortgages Go Bad

There was a time when the banker who approved a loan was the banker who opened the account, handled deposits, accepted the payments and issued a handshake when the debt was retired. Those days have long gone.  With the advent of teller-less transactions and electronic transfers, the movement of money has become so fast that nobody can afford the time to get to know you anymore. The bank on Wall Street whose tagline was “The right relationship is everything” was a liar.  That statement couldn’t be farther from the truth, because there are no relationships in the financial sector anymore.  Everything is a transaction.  And this, my fellow Americans, is at the heart of our financial problems today.

Specialization of duties was supposed to improve efficiency in the banking sector. But instead all it did was add complexity to a system that was already hard to understand. The pace of financial innovation was too fast for even the smartest and brightest of accountants and financiers.  Sufficient checks and balances were never put into place and this vacuum of mutual accountability is what allowed the barons of greed to corrupt America’s once proud banking infrastructure.  I do not envy the challenges faced by Tim Geithner; he carries a heavy load.

There are so many moving parts that comprise a loan transaction.  While no one entity was responsible for creating the house of cards, an attitude of indifference at all levels was absolutely responsible for tipping it over.  In any mortgage transaction, there are even more moving parts and the risk of system collapse was greater which each successful transaction.  Everybody was making money and no one thought to ’slow things the fuck down’ because they assumed some other entity would do it instead.

America’s financial collapse was a creation of our own undoing.  While it is easy to point to Bernie Madoff or AIG for the failures of the system, their trepasses don’t scratch the surface of what is at the heart of the problem.  We are the problem. We, you and me, can at times be our own worst enemies. Until we take a good look at our contribution in creating the monster, there won’t be anything Secretary Geithner, President Obama, Sarah Palin or Rush Limbaugh will be able to do to save us from ourselves.  So where shall I start? The following is my list of culprits and the reasons they are in desperate need of an attitude adjustment.

1. homebuyers, especially the snot-nosed yuppies who want what they want, when the they want it and at any cost.
2. the friends of homebuyers, who compete socially with their friends and one-up each other, resulting in peer-pressure to buy more house than they can afford.
3. mummy and deddy, who spoil their kids with down payments for houses instead of teaching them the value of savings, trade-offs and deferred gratification.
4. real estate brokers, who create a false sense of scarcity and urgency to drive up the values of homes and ultimately increase commissions.
5. renovation contractors, who underbid to get a job then underdeliver until the promise of more payment is made from the proceeds of an unnecessary second loan.
6. mortgage brokers, who steer borrowers into loan products, some of which may be unsuitable.
7. home appraisers, whose payments are made by the mortgage brokers and lenders and whose compensation volume is tied to successful loan placements.
8. boiler room telemarketers, who targeted the elderly with 30 year cash-back loans as a supplement to an underfunded retirement and social security.
9. local governments, who don’t investigate local corruption because of the additional tax income generated by a corrupt system.
10. lenders, who sell approved loans into a secondary market and bare little, if any, of the risk for the ones that go bad.
11. subprime lenders, who compete with traditional lenders for traditional mortgage clients by offering ‘too good to be true’ teaser deals which end up being just that.
12. moneycenter banks, who set up single-purpose corporate entities that package the loans into a new financial instrument that gets resold into a tertiary market.
13. financial engineers, who bundle the new financial instruments with cute ‘tricks’ like credit enhancement, over-collateralization and tranches as a portable hedge against risk.
14. insurance companies, who sell a credit enhancement product but don’t set up internal controls to limit exposures, monitor performance of the product or hedge the impact on the rest of the organization
15. re-insurance companies, who use one financial ‘trick’ to hedge the risk of another financial ‘trick’ not realizing that, as a result of their being 4x removed from the original transaction, they’ve inadvertently doubled or tripled down on the same risk.
16. rating agencies, whose investment-banker-wannabe underpaid salaried staff can’t tell the difference between a true credit enhancement and ‘lipstick on a pig’
17. television networks, who canceled classics like One Day at a Time, Good Times, Alice & M*A*S*H in favor of aspirational shows like Dallas & Dynasty, effectively shaming the ‘have-nots’ for how little they actually have.
18. financial regulators, underpaid, understaffed, underfunded beaurocrats who are  underinformed as to the newest financial innovations on wall street
19. legislative overseers, who are as financially illiterate as homebuyers
20. legislative aids, who spend less time on policy and governance issues (despite Ivy League political science degrees) and more time on raising funds and getting their boss re-elected so they don’t have to go into the private sector and ‘get a real job.’
21. hedge fund managers, who think their Harvard & Wharton MBAs render them invincible so they start their own firms and lure investors by promising a higher return than is statistically possible, ceteris paribus.
22. Robin Leach, whose Lifestyles of the Rich & Famous showed the ‘haves’ in America how little they actually have.
23. hedge fund investors, who aren’t satisfied with the consistent 8% returns of the equity markets yet miraculously expect to achieve higher returns without higher risk.
24. financial media, who are journalists at heart but eventually succumb to the market’s incessant demand for entertainment over information.
25. lifestyle media, who stimulate demand for house and home products by encouraging a sense of entitlement while understating the responsibilities of homeownership with programs like ‘Extreme Home Makeover’ and ‘Design on a Dime.’
26. real estate speculators, who played a game of hot potato by entering into ‘no-money-down, interest-only, balloon payment’ exotic (read toxic) loans but mistimed the market, abandoned the property, left the banks holding the bag and then pointed the finger at government-sponsored working class homeownership programs when the crisis was made public.
27. people, who believe everything they see and hear, then act on what they believe; all without applying a scintilla of common sense or asking someone who knows better.
28. Other _____________________________________

I can’t stress it enough. America’s financial collapse was a creation of our own undoing.  While it is easy to point to Bernie Madoff or AIG for the failures of the system, their trepasses don’t scratch the surface of what is at the heart of the problem.  We are the problem. We, you and me, can at times be our own worst enemies. Until we take a good look at our contribution in creating the monster, there won’t be anything Secretary Geithner, President Obama, Sarah Palin or Rush Limbaugh will be able to do to save us from ourselves.

I am a Food Criminal

My parents are Haitian immigrants and they raised me to obey the law and set an example of leadership.  Their advice served me well for the first 40 or so years of life but a recent experience has converted me to the dark side. I am not ashamed to have joined the ranks of New York’s felonious underworld. The following is the story of how I came to be a food criminal.

Last August, I attended an industry event in Lower Manhattan. It was hosted by the National Association of Specialty Food Trade, the sponsors of the Fancy Food Show.  It was there that I first experienced Alili Morocco’s harissa. Business events are often cold and impersonal; I expected no better when I entered the conference room. There was a food table and so I helped myself to the offerings so lavishly provided. After spreading a little harissa on a piece of french bread, I chomped away.  The first bite ignited a culinary explosion inside my mouth; the second bite caused me to tell somebody. Within minutes, the room was sticken with harissa-fever. Everyone tried it and we all experienced something profound.

We live in a world that values conformity, convergence to the mean and (quite frankly) blandness. It was uncommonly refreshing to experience the unique and bold blend of spices that make up Morocco’s third greatest export (behind Wm Shakespeare’s Othello & Humphrey Bogart’s Casablanca). The harissa shook us all up. That shared experience was the ice-breaker that ultimately brought us all together.  Suffice it to say, we had an extremely productive meeting.

At the close of the session, everyone shook hands, exchanged business cards and went on their merry way.  I, on the other hand, had a more grandiose plan. It isn’t fair for industry professionals to have sole exposure to this North African delicacy; it belongs to the people! Fancying myself a Robin Hood of the kitchen, a Babyface Nelson of spices and a culinary Jesse James, I swiped an unopened jar for my personal consumption.

I shared it with some colleagues and often bring it to picnics, brunches and dinner parties.  In doing so, I have rescued countless palates from the gastronomic mediocrity of most processed foods. Just as Robin Hood “stole from the rich and gave to the poor,” I steal from the enlightened and give to the bland. My harissa campaign, if you can call it that, is to “Spread the spread.”

As the Alili Morocco brand is not yet carried in local New York supermarkets, I have had to get creative in order to satisfy my harissa addiction.  I frequent their website to learn about upcoming trade shows. At the ones I attend, when nobody’s looking, I apply a five-finger discount toward the acquisition of my next harissa supply. So far, I haven’t been caught and I doubt that this public confession will alert the authorities.  After all, who reads my blog?

I am a food criminal. So goes the story of my entry into a life of crime.

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I Agree |  I Disagree | I’m Not Sure

Desperate Housewives

Serena Williams using a tennis prop to express herself

Amidst a lot of hullabaloo, Kim Cleijsters won the US Open; why hasn’t anyone congratulated her? The weekend headline should have been about the triumph of a first time mother who returns to the workforce and regains championship form. Her achievement should be a celebration for all women who struggle to balance family and career. Procter & Gamble, Kraft Foods and CafeMom should be lining up to sign her to an endorsement deal. But that is not likely to happen. Instead, we are left to read about a superstar athlete who lost her cool after finding herself on the wrong side of an unjust penalty.  The following is my post-mortem on an unfortunate incident that ended terribly wrong. Or did it?

Was Serena wronged?

Yes, in fact the line judge who so ineptly called a foot foul should have been issued a lifetime ban from the USTA.  She is not fit to judge a dog contest much less a world class tennis match. Good riddance.

Was Serena right to argue the call?

Yes. At her level, she has the right to expect decency from the officiating crew. She is not a novice to the game. Bad calls impact performance which in turn impact endorsement negotiations. As the highest grossing female athlete in history, she has the right to protect her earning potential from the squintingly lack of attention afforded the line judge.

Should Serena have used profanity in lodging her complaint?

It’s debatable. John McEnroe was extremely effective in using profanity to call attention to judicial indiscretions that might otherwise have been swept under the rug. His antics have also set the tone for an illustrious career after tennis. On the other hand, her choice of words were vulgar and unbecoming;  I would have preferred for Serena to responded differently when playing the sport of kings in the county of Queens.

Was the USTA right to fine her?

Absolutely! In fact, the $10,500 fine may not have been enough.

Should we still be talking about it?

Again it’s debatable. Serena Williams is extremely popular among young girls and her actions matter. It is interesting that on the same weekend that Serena stood up for judicial fairness, Peggy Olson’s character on “Mad Men” walked into Don Draper’s office to demand equal pay. By design or circumstance, we may be witnessing next wave of the women’s movement as confident women exercise their deserved authority.

In New York alone, the oft maligned candidate for the office of Manhattan District Attorney, Leslie Crocker Snyder (left, with husband Fred), is on the eve of taking the top job in law enforcement. Running in the same Democratic primary, Melinda (“I told him to stick it”) Katz (below) may very well win the nomination to become the city’s next chief financial officer. However attractive we may find them, their looks do not define them. Both women have abandoned a Betty Boop approach in favor of a confident presence, fact-based analysis and decisive actions to define their careers. In a country that failed to pass the Equal Rights Amendment, women are taking matters into their own hands with neither apology nor reservation. Could Serena’s assertiveness be viewed in a similar light?

There has been talk of further sanctions against Serena and if that occurs, it will only reflect a failure of our compassion for someone who made a mistake. In all, many mistakes were made. But the only real loser was the quiet woman who showed up, did her job and won the match. For this, Kim, we should all be sincerely sorry.

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I Agree |  I Disagree | I’m Not Sure