G. Michael Girolamo

Author of Memorable Moments

Month: May 2008

Blaming the Victim

The housing crisis is rocking the entire world economy. How can we stabilize the economy and stop the bleeding? Congress is working on legislation that will impose stricter regulation on the mortgage industry. This is certainly an excellent idea. Basically, the industry has been self-regulated and you can see where that got us. It is important to remember who is culpable for this mess. Any solution that involves a taxpayer bailout is unacceptable. A taxpayer bailout would in effect be rewarding bond-rating services like Moody’s who gave triple-A ratings to mortgage backed securities and exotic derivatives. A taxpayer bailout would reward the mortgage industry and malfeasant institutes that made questionable loans to borrowers who could not afford them and would only further encourage risky lending practices. A taxpayer bailout would be tantamount to blaming the victim.

 

Bond rating services such as Moody’s, Standard & Poor’s, and Fitch are in the business of providing ratings for corporate bonds and securities. The ratings that these agencies provide are an estimate of risk, not a buy or sell recommendation. However, when Moody’s gives a good rating to securities, they become very marketable, even if the securities are comprised of a pool of mortgages given to risky sub-prime borrowers. The only reason that banks were willing to make these risky sub-prime loans is because they knew they could pass the risk off on to Wall Street. Banks no longer had to wait 20 or 30 years to get their money back from homeowners. They could sell these loans into securitized pools and realize their capital quickly. This enabled them to issue more loans at a much faster pace and thereby exacerbate the situation. Of course, this was extremely profitable for the banks as well as the rating agencies. From 2002 to 2006, Moody’s profits nearly tripled and in 2006 reported net income of $750 million. You don’t need an MBA to realize that the rating agencies suffer from a serious conflict of interest.

 

The Federal Reserve has taken action unprecedented since the Great Depression by lending money directly to a major investment bank, Bear Stearns in hopes that this will reassure investors and stabilize the market. The CEO of JP Morgan Chase, which purchased Bear Stearns, said, “There was a large failure of common sense”. I think he is being to kind. I think it was a successful attempt to make record earnings and a large failure to self-regulate. Why should taxpayer dollars back these risky loans? The stock and bonus plans offered to the CEOs of investment banks are worth more money than most of us will ever earn in a lifetime of honest work. The reason they decided to go ahead and make such risky loans is that they were rewarded handsomely for short-term profits and stock gains. Now that things are falling apart, we are the ones paying for it, not them. From 2004 to 2007 top executives at Bear Stearns, Citigroup, Goldman, J.P. Morgan, Lehman Brothers, Merrill, and Morgan Stanley received about $3.63 billion in salary, bonuses, and other benefits. Now these same seven companies are taking $96 billion in write-downs and yet their CEOs are allowed to keep there ludicrous earnings.

 

Congress is currently working on housing legislation that creates a regulator to oversee Fannie Mac and Freddie Mac, two companies that provide the majority of funding for home mortgages. This legislation also calls for the Federal Housing Administration (FHA) to insure as much as $300 billion in refinanced loans for struggling homeowners. The Congressional Budget Office estimated this insurance program would require $2.7 billion in government subsidy, and by government subsidy, I mean taxpayer’s dollars.

 

This legislation could potentially put the taxpayer on the hook if homeowner’s who receive government guaranteed loans, default on these loans. The proposed program would protect borrowers who owe more on their homes than they are worth. For these borrowers to qualify for the new government insured loan, their lenders would have to cut the size of the outstanding principal until the borrower actually has equity in the property. The program has the backing of the Federal Reserve Board and the FHA would guarantee the new loans. However, should we help the borrowers that got in over their head? We should hold the lending institutes culpable for making these sub-prime loans; after all, they were the ones who profited from them. In effect, this would be punishing the taxpayer for the bad judgment and questionable practices of others.

 

There are houses in my neighborhood that are in foreclosure. This affects the value of my home. I just received the financial statement from my IRA, and it has devalued significantly. I am already paying the price for the mistakes and poor judgment of others. It would be fair that those who profited should pay. When the CEOs of these companies are penniless and losing their homes, then I might be willing to use taxpayer dollars to bail out struggling homeowners, otherwise, using taxpayer money to bailout the economy is like blaming the victim.

Mayhem at the Mall

I hate to shop and I really, really hate to shop at the mall.  For me a trip to the mall is a clear sign of desperation indicating that I had put off shopping for the item until the last minute.  I try to resist the false societal pressures of buying presents for holiday’s conceived by some marketing genius. But in the end the pressure is insurmountable and I’m forced to acquiesce.  One such holiday is Mother’s Day. Now I think that all children should make nice cards with crayons and macaroni designs glued to paper plates for their Mothers.  But that’s it; it’s the love and the thought that counts.  How did husbands get roped into springing for yet another present for their wife on Mother’s Day?   

I’ll tell you how, it was some Jewelry Store Marketing executive that started with these commercials, showing the perfect family and the loving husband and the cute children. They are gathered around a MILF of a mother and are opening the presents the kid’s made for Mom, you know the macaroni dish and the home made cards.  Then, unexpectedly, Dad surprises Mom with a $1,000 dollar diamond necklace and she gives him a look that says yes, he’s her man and yes, you will be getting some tonight. 

 So I waited until the last minute to buy my wife a Mother’s Day present and I threw myself at the mercy of the mall.  I had spotted a pair of earrings in a store circular that had been mailed to my home. They were originally priced at $400 dollars, on sale, just for Mother’s Day, to $150 dollars.  Fist of all how would most children afford a $400 dollar piece of jewelry for Mother’s Day?  They can’t even afford macaroni for the stupid plate design. Clearly this is indented to put pressure on us Dads but I had resigned myself to grab this bargain.   I ran into the store and headed straight to the jewelry counter, unfortunately, it was mobbed.  Apparently the regular jewelry person was on lunch break and no one seemed to be filling in for her.  A swarm of customers were trying in vain to get the attention of anyone with a store badge on.  I snagged a store supervisor who tried to walk by me and I asked for help.  Immediately, three other customers came over to see if they could get waited on as well. She explained that this wasn’t her department but she would send someone over.  Eventually a clerk did come, but she quickly scanned the glass case of jewelry and announced that they didn’t have the earrings that I was looking for. I asked “Can you look under the counter? It’s an advertised special and you should have them”.  After a cursory glance she said that they weren’t there either but if I wanted to wait until the regular clerk got back she was sure that she would be happy to assist me.  The crowd was turning into a mob and I decided to see if another store had similar earrings.   

I couldn’t find anything similar to the ones advertised and certainly nothing close in price. So hoping that the crowd had thinned and the regular clerk was back, I headed back to the original store. The crowd had thinned; I assumed from frustration. I asked the clerk if she would please call another store to locate a pair of earrings for me.  She informed me that they didn’t provide that service on busy days but I could call the 800 number on the back of the flier.  By this point I had had it and walked out to my car, mumbling to myself. 

I called the number and waited the obligatory five minutes for the pleasure of speaking to a live representative. I told her my story and she proceeded to ask which item I was interested in ordering. I said “Hold it, I was told you would try to locate a store in the area that has a pair of earrings for me and you’re taking an order?”  She said she it was her job to take orders and it would cost $18 dollars for delivery and it would take ten to fourteen days to get the earrings.  I explained I was directed to call this number for assistance and she said “That’s not right, I would complain to the store manager.” I went back into the store and found the smiling man, walking around in the suit, with the badge that said “Store Manager”.  He looked just like his picture in the foyer. He apologized for the inconvenience and assigned someone to assist me. You should have seen all the helpful clerks who appeared out of no where politely assisting customers in front of the manager. 

The now attentive clerk printed out a listing of all the stores that had the earrings in stock.  She said “Well it says we have a pair here but you can never trust this information when it is less than two items.”  I wasn’t surprised that they didn’t have any in stock because I had already been assured by three other clerks that they didn’t have them.  What shocked me was the fact that they ran an ad and circulated it to untold thousands of households and had only stocked one pair of earrings.  Everyone sucked into the store by the low priced come on would be forced to make another, more expensive selection. Can you say bait and switch?  As we were discussing which store in the tri-state area I could go to next to try and find a pair of the advertised earrings I stopped in mid-sentence and stared in disbelief. The earrings in question were right there in the glass counter we were leaning on. She verified that they were the correct ones but informed me that I couldn’t get the sale price until tomorrow.  I told her I was disappointed in the service I had received to this point and that I had 45 minutes invested in these earrings.  I stared at her intently and said “If you think I’m leaving without these earrings I promise you I will start screaming and I won’t stop until Father’s Day”. In consideration for all I had been through, she kindly allowed me to purchase the earrings at the sales price and wished me a happy Mother’s Day. You have got to be freak’n kidding me!

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