The Band Wagon

Now that the economy has been jolted at so many levels and is far from turning the corner towards recovery, the papers are filled with articles about the mistakes and poor practices that have gone on every day in the world of business. Executive pay, compensation committees, corporate governance, board of directors, the buddy system and the list goes on. When the shit hits the fan, the media turns its attention to where we went wrong. In fairness to those reporters that report on the bad stuff even during good times and bull markets, I apologize.

In the mortgage business, the horror stories just keep coming. From just poor practices of turning a blind eye towards not wanting to know all the facts, such as income verification, to out right taking advantage of individuals that just did not know that mortgage brokers would steer them into a bad mortgage, the stories just keep rolling in. The whole process from mortgage origination to the mortgaged-backed bond sale to the investor, the process was filled with mistakes of judgment or just plain lies. Was Gordon Gecko wrong? Greed is not good?

What is it going to take to correct the way business is done or will be done in the future.? One word: EDUCATION!!! Education is the key to a better business environment at all levels. More specifically, people need to be educated about money. Far too many people do not understand the basics and as a result present themselves as marks for the predatory lender, salesperson or investment scam artist.

I would like to think that better regulations are in the works, but I really do not believe that the people that can make that happen will take the responsibility to make it happen. With time, people forget and other issues get the spotlight. Better and meaningful regulation will not get anyone reelected and therefore will never happen. There may be a lot of noise and eye wash and photo-ops, but real and meaningful change will get buried as time passes. The big cats live off of fresh meat and there needs to be new marks for the kill. The law of the jungle permeates the canyons of Wall Street too.

There are certainly enough books, articles and personal finance gurus around dispensing advice. Unfortunately, the people that need it the most do not read. Can we save people from themselves in every business transaction? Do we have the resources? Is it even the responsibility of government to look out for the welfare of every individual that enters into a business contract, agreement or purchase. Where is personal responsibility for one’s financial decisions? Can we make a law against stupid or greedy mistakes?

Some where there are answers to these questions. But, like the shareholder with little to no real power to correct excessive executive compensation, so too is it that the individual buyer of financial services fully understands what they are buying. Government can not be there to hold everyone’s hand, personal savvy is required and no amount of government regulations can take its place.

But, there is a big difference in personal responsibility and regulatory authority and oversight of large financial institutions. While education in personal financial management can reduce the number of fresh marks, it has little to do with the government’s regulatory authority and oversight of banks and investment banks. These institutions need to be audited, monitored and regulated and made to toe the line. It is a far cry from an individual making a poor financial decision to a large bank or investment banking house turning a blind eye to improper business practices on a large scale. This is where we read the word systemic. Systemic weaknesses need to be corrected, and hopefully our Congress will have the guts to do the job right. There will be pressure for sure to dilute the new regulatory authority before it even gets off the ground. But, hopefully, the fact that our government is getting close to being in a position where global pressures will have their say, that the right thing may be done. Stay tuned.