Incompetence and Corruption at Heart of Financial Crisis

For years Fannie Mae and Freddie Mac executives have taken advantage of their tax-exempt, protected, semi-monopoly status to encourage bad management of mortgage portfolios.  Under the back-to-back corrupt regimes of James Johnson and Franklin Raines, these practices have brought about the worst financial crisis since the Great Depression.

But Raines and Johnson had help.  On the corruption side,  they had myriad members of Congress who protected bad management and fraud in exchange for kickbacks from Fannie and Freddie executives.  In exchange, the executives "earned" tens of millions of dollars in fraudulent bonuses.  Congress in turn protected Freddie and Frannie from oversight and regulation.  The cost to taxpayers:  $200 million up  front, hundred of billions in economic devastation.

The private banks failing can blame terrible senior management from people who have big degrees from big universities.  These institutions should considering closing their business schools, because they are producing failure on a criminal scale. 

A company like Bear Stearns or Lehman Brothers should know not to buy loan portfolios that have zero chance of repayment.  Interest only loans for 125% of appraised value don't work.  Period.  Such stupid lending forces inflation in the market by flooding money into the hands of buyers.  That's why housing prices skyrocketed for 15 years.  Not because of value a need to house our population.  There was simply too much capital in the hands of buyers.

By inflating their primary collateral, the lenders were increasing the risk of their loans.  This would be like a device manufacturer offering its clients ridiculously easy credit--like Net 365--then bad-mouthing the clients' products in trade journals interviews. 

My advice:  If you get a resume across your desk for an executive with experience at Fannie Mae, Freddie Mac, Bear Stearns, AIG, Merrill Lynch, Lehman Brothers, Washington Mutual, or any of the big financial firms on verge of collapse, BURN IT!  The local high school has smarter business minds.

Technorati Tags: Financial Crisis,Bad Management,Bad Managers