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The Blame Game

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The blame game has been around for a long time. Over time the blame game has evolved into an art form–mostly notably in politics. And, of all the politicians most likely to be blamed for most anything, is the president. As Harry Truman observed, the Oval Office is where the “buck stops.”

A good example, I believe, occurred during the hysteria over hurricane Katrina. The president wound up with most of the blame at the time, despite the failure of others involved in the whole mess. New Orleans had previously diverted federal funds from levee enhancement to other projects. An out-of-control mayor who could not get his people out of town when he had more than 6,000 buses sitting idle and an unconscious governor who did not mobilize first responders quickly or effectively were coupled with citizenry that failed to follow instructions. But they all blamed the president.

Sometimes such blame is well-placed but often it is manifestly unfair. The only consolation is that historians ultimately sort out the facts and the truth emerges. I remember clearly how incensed I was at President Truman when he took us into the Korean War. I had just started to get my career on track after serving in the Army Air Corps for 4 1/2 years in World War II. I was still under age 25, a member of the Air Force reserve and was told I was a prime candidate for recall as a fighter pilot. I blamed it all on HST bungling the post-war era. Luckily my number did not come up.

Time has a way of healing such emotions and recently I read David McCullough’s great book Truman and learned that I had completely misjudged the man. President Truman made many gutsy decisions while in office and was reviled at the time by many for having done so. But he stood his ground and history has vindicated him.

Putting the blame on members of Congress is another story–they never accept the blame for anything. There is a certain anonymity that goes with being only one of 535 members of the House and Senate. Any problem created is always caused by the members sitting across the “aisle,” thereby conveniently shifting the blame to others. When running for re-election in their home districts or state they typically blame the other 534 members for any mess that has occurred (and according to them, there is always a mess). No wonder their approval rating as a body stands at about 9% or 10%.

As I write this, the blame game is in full swing as we try to sort out the causes of the current financial crisis. So far, no one has come forward and said, “I did it,” nor is it likely anyone will do so. Suffice it to say, there will be plenty of finger-pointing before it is over.

Hopefully I will be around long enough for a historical perspective that will shed more light than the heat being generated today. Not that we ever learn anything from history, for my guess is that the root causes of today’s dilemma will be the same or similar to those that caused the collapse of Savings and Loans a couple of decades ago.

Over the span of my adult life I have applied for and obtained a number of home mortgages and a few commercial loans. In all instances I dealt with a loan officer, usually very experienced and professional. Although at times their inquiries into my finances and other relevant data were irksome, I understood this was necessary to protect the institution and its depositors. Extending a loan that I could not service or repay served no one’s best interest.

But in recent times I have observed that many loans are now handled by mortgage companies whose agents call themselves mortgage brokers. They are more akin to salespeople than loan officers. I know a quite a few of them; one delivers pizzas in the evening, two are waiters at a popular local restaurant and the rest are real estate agents selling mortgages to supplement their income. None are trained loan officers and I have not seen any evidence that they make any effort to protect the interests of the lending organization providing the funds. According to reports this has lead to many loans based upon false or incomplete information. Add to this, speculators given easy credit, no money down, and the hope that rising real estate values will yield a quick profit.

I write this not to repeat that which has been widely reported, but to raise the specter of what may be a brewing scandal.

I believe that a possible candidate for such an event will be a problem to be faced by hedge funds that are buying bundles of life insurance policies subject to a life settlement. I have often wondered just where the profit is in such transactions. Policies are bought for an amount greater than their cash values, an agent’s commission is paid, the bundling company makes a profit, premiums must be continued and the tax-free death benefit is lost. It all hinges on the insured’s dying on schedule, and they in turn will do everything possible to avoid this.

But more importantly, the people selling these arrangements, much like mortgage brokers, have no incentive to protect the hedge fund buyers or the institution of life insurance with its tax preferences or the original insurers. Not a very sound scenario in my view.

Presently the blame game is playing out at the top of our financial services. Perhaps more attention needs to be paid to the goings on at the bottom of the markets.


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