Wall & Main

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My perspectives as an investor and consumer

House of Cards

3008220063_3399805fc0_medHave you had a chance to see the new CNBC documentary, “House of Cards,” by David Faber?  If not, I recommend catching one of the reruns.  Faber presents the various elements that contributed to the housing-induced credit crisis and recession.  It is evident that there is plenty of blame to go around.  Factors include, but are not limited to:

  • historically low interest rates
  • consumer desire to fulfill the dream of home ownership at any cost
  • congressional legislation to facilitate that desire
  • Wall Street salivating at the prospect of additional revenue streams through formulation of loosely regulated/unregulated structured products
  • rating agencies operating under conflict of interest
  • investors reaching for the holy grail of high yields and “no risk” which they thought were encapsulated in these structured products

One element which was not covered in the documentary but, in my opinion, should share responsibility is the National Association of Realtors, led by David Lereah, which kept trumpeting the “buyer’s market” mantra.  Such rhetoric only exacerbated renters’ fears that they were going to miss out on the greatest real estate boom in history.  Now, as a private consultant, he admits he was wrong.

As consumers, we need to develop the ability for critical thought.  We need to learn to ask the right questions:

  • Is this in my family’s and my best long term interest?
  • Can I truly afford this?
  • Do I really understand what’s in this document?
  • Can I trust someone who benefits from my signing the document when they tell me not to worry about the fine print?
  • Am I making this decision based on fear or greed?

The primary interest of publicly traded companies is not necessarily the consumer.  They are beholden, first and foremost, to the shareholders.  Consumers need to be cognizant of this fact and hold themselves and the counterparty accountable.  Otherwise, we will find ourselves exhibiting the same systemic problems down the road albeit in another form.  Alan Greenspan, the former Chairman of the Federal Reserve, even states this as a foregone conclusion:

There is no doubt that somewhere in the future we’re going to have this conversation again.  It will not be for quite a period of time.  But, it will occur because the flaws of human nature are such that we cannot change that.

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