Mortgages And Applesauce: Ingredients Count

Today I would like to talk about applesauce and mortgages. If you have been reading the news, you know that the number of foreclosures was up from the month of June 2007 from the month of June 2008 by 53%. Despite belated efforts being made by the Congress to keep people in their homes, millions of people are losing their homes because they can not make the mortgage payments or can not get refinanced into a mortgage payment they can afford.

Last week I decided to buy some applesauce as I was shopping at my local Costco. Naturally, you can not buy just one jar of applesauce, they only come in a package of three. So, not having bought applesauce in quite a while, I put a three-pack in my cart and walked on. What a surprise I had when I opened and tasted the apple sauce of today. First, the stuff pours like baby food because it has so much water in it that it just runs. But, when I read the ingredients, I found that after apples the next two ingredients were high fructose corn syrup and water. This is not applesauce, this is pure crap. Whatever happened to quality products? Everything today is run by business school MBAs, who could give a rat’s ass about quality. Everything is about the bottom line. Put enough water in the apple sauce per jar and you can cut the cost of the main ingredient apples! Then add high fructose corn syrup to make it sweet because you have watered down the apple’s natural sweetness. It does not take a genius to figure out that if you can stretch the apples by watering them down and then adding sweetener, you can cut your cost per jar and make more money. Well Mott’s, this is the last apple sauce I plan to buy from you. You got me once, but you will not get me again. I am sure there are enough people out there that will buy watered down apple sauce that they can go on making it that way for some time. But, I still remember when you ate applesauce with a fork and did not drink it.

Putting people in the wrong mortgage should be a crime, but unfortunately it is not. The whole mortgage industry needs better regulation and oversight. The present disaster was man made and could have been avoided. I am not saying ever family could have been saved from losing their home, but I am saying that the mortgage industry needs new guidelines and perhaps it would not be a bad idea if mortgage brokers and their associates be licensed as real estate brokers and stock and insurance sales people are licensed. The day when people will care about each other the way we would like to think society should be organized does not exist in the real world. Everyone is bottom line oriented. The business schools have banged that thought into everyone’s head. Unless there are guidelines and codes of ethical conduct, this same mortgage disaster will take place in a few years.

The second part of the mortgage equation and the disaster that now has engulfed just about the whole nation is the creation of mortgage bonds. Like most things in life, a new tool can be used properly or can be used to create trouble. Again, unfortunately, mortgage bonds, a great idea, got abused. Something must be done about the rating agencies. Without the rating agencies’ complicity, the whole sub-prime mortgage mess would have never gotten to first base. The fact that no one at the highest levels of government want to talk about this single fact, makes me wonder who is in bed with whom. No pension fund, foundation fund, insurance fund, mutual fund or any other type of fund would have invested in mortgage bonds without some kind of bond rating. The AAA rating is the same as a green light in traffic, without it you are not going anywhere. And yet, the quiet from this point of view is deafening. If there are no changes in the rating agencies and the way they are run, then, again, it is just a matter of time before we face the same exact mortgage bond related problems. You can count on it.

So, in conclusion, whether you are dealing with applesauce or mortgages, the product is only as good as the stuff that goes into it. You add high fructose corn syrup after you water down the apples and you have crap. You water down what a AAA rating means and you have a disaster in the mortgage bond market. Everyone wants to maximize profits, cut costs and live the rich live with huge salaries and even bigger bonuses, but eventually the chickens will come home to roost. Scams don’t go on forever unless your the government, and even then, governments that govern poorly get over turned.

Stay tuned.