Monday, January 5, 2009

Op-Ed Contributors - The End of the Financial World as We Know It -

"OUR financial catastrophe, like Bernard Madoff’s pyramid scheme, required all sorts of important, plugged-in people to sacrifice our collective long-term interests for short-term gain. The pressure to do this in today’s financial markets is immense. Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that’s the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest." (Emphasis Mine.)

I've long used a mantra to keep entrepreneurs from making huge mistakes: Avoid short-term gain that leads to long-term loss. But to do that, you have to be willing to look at the long-term options and consequences, so that your short-term decision is based on enhancing the long-term, not sabotaging it.

Our financial system took away long-term oversight in favor of "improved" short-term analysis, something akin to blackening the windshield while fiddling with the speedometer. Are We doomed? Here's the answer...and it is not pessimistic. An example that is well within reach (now):

"THIS could be fixed. Congress might grant qualifying homeowners the ability to get new government loans based on the current appraised values without requiring their bank’s consent. When a corporation gets into trouble, its lenders often accept a partial payment in return for some share in any future recovery. Similarly, homeowners should be permitted to satisfy current first mortgages with a combination of the proceeds of the new government loan and a share in any future recovery from the future sale or refinancing of their homes. Lenders who issued second mortgages should be forced to release their claims on property. The important point is that homeowners, not lenders, be granted the right to obtain new government loans. To work, the program needs to be universal and should not require homeowners to file for bankruptcy." (Emphasis Mine.)


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