Plenty of houses yes, but with good citizens living in them

(A letter to the Washington Post - that was not published)

Though not a US citizen but nevertheless a dependent on the strength and well being of the USA, as most of us in at least in the western world are, I have with sadness observed how much unethical behavior, from both sides, has taken over what should be the almost sacred relation between a debtor and a creditor.

This is extremely worrisome since the relation that exists between debtors and creditors constitutes a fundamental building block of a nation; and few of these are as important as those which relate to a mortgage which often constitute the major financial commitment a citizen has during his life.

In this respect I need to comment that the government’s recently announced plan to reform America´s housing finance market, though otherwise a well thought document, does unfortunately not begin by defining clearly what debtor-creditor relation is aspired, and so any reform might therefore risk to derail into the wrong direction.

For instance, if one considers, as I most definitely do, that a debtor should have the right to always be able to identify exactly who he undividedly owes his money to, this would not hinder all securitizations, but it would certainly prohibit the most extravagant forms of it, where for instance a mortgage is sliced and diced in so many pieces that no one can puzzle together and that are often even send off to a land where they don´t even speak English.

I sincerely hope that in the process of this reform someone gets down to defining early and correctly the relation I refer to, because in the long run it is better for a nation to have good citizens without houses than bad citizens dwelling in mansions.

The regulators, the banks and the sharks and their baits

The world’s bank regulators in the Basel Committee, assumed with unbelievable hubris the role of risk managers of the world; ignoring that perceived risks are not dangerous to the system, only those not-perceived are, authorized the banks to leverage their capital 60 times or more, when investing in or lending to anything related to a triple-A rating.

As should have been expected, the banks, carrying the minuscule life-vests ordained, in pursuit of easy profits, huge bonuses and too big to fail growth rates, entered massively the triple-A rated waters … where the sharks has baited them some triple-A rated securities collateralized with lousily awarded subprime mortgages paying juicy interests… and a true bloodbath ensued.

The saddest part of the story though, is that our banks are still regulated by the same regulators using precisely the same tools applied the same way… just more of it.