The subprime mess - who’s to blame? How can we fix it?
Shouldn’t we blame REALTORS® for this mess that we currently find ourselves in? A recent study asking consumers how they felt about real estate agents came to some interesting conclusions. When asked about REALTORS® in general, people were mostly wishy-washy - some were in favor, some were not, most were unsure how they felt. But when asked about their particular REALTOR®, about 80% of respondents stated they would work with their agent again. What gives? The majority of business for most agents comes from repeat clients, referrals, and word-of-mouth. Agents should have a long-term interest in the area in which they work, since a few unhappy clients could potentially put them out of business.
I’m sure some agents were only seeing $$$ signs over the past decade, hoping and helping their clients and customers buy properties they could not afford. This is not true for the vast majority of agents, though.
I will place some blame on lenders, especially the big players. Their major concern is writing as many mortgages as possible so they can turn around and sell them. Nothing wrong with that in our capitalist economy, but lenders failed to think long-term and have reaped the seeds of their sowing.
Some blame must also go to global capital providers (those around the world with the big bucks like governments, megabusinesses, sovereign wealth funds, etc.) because all they were looking for was juicy returns on investment - a portfolio of risky loans returns a lot more than T-bills or any other ’safe’ investment. The bottom line for them is greed, and they must be taken to task for it. Will that happen? Their investment losses are probably their only punishment.
The biggest amount of blame must be put on the rating agencies. These companies, like Moody’s and Standard and Poor’s, are responsible for assigning a level of risk to a product. Because so many rely on their rating and only buy/sell AAA rated products, the ratings agencies are ultimately culpable for this mess. Instead of rating subprime loans at a level they should have, like BBB (much riskier than AAA), they decided en masse to rate these loans AAA. After all, the agencies make the most money by rating products AAA (many companies have risk policies that prohibit them from owning lower-rated investments) so that others may comfortably buy and sell the AAA products on the open market.
The ratings agencies are not non-profits, so clearly it is in their best interest to rate highly, as they make more money that way. There should have been more transparency, guidelines, and oversight regarding these companies. Since we cannot change the past, we must make an effort to make sure that this happens in the near future.
How can you help? Write your congressperson expressing your displeasure of the ratings agencies and suggest that they have more government oversight, stricter guidelines as to what really qualifies as AAA, and more clarity in reporting how and why each product receives the rating it does. If this happens, maybe we can prevent another mess like the subprime one from occurring in the future.
April 9th, 2008 at 10:33 pm
[…] Buying Foreclosed Homes - Buying Foreclosed Homes, Foreclosure Resources, Foreclosure Guides, Find Foreclosures, Foreclosure Books, Foreclosure Alternatives, Foreclosure Blog wrote an interesting post today onHere’s a quick excerptThe subprime mess - who’s to blame? How can we fix it? April 9th, 2008 Shouldn’t we blame REALTORS® for this mess that we currently find ourselves in? A recent study asking consumers how they felt about real estate agents came to some interesting conclusions. When asked about REALTORS® in general, people were mostly wishy-washy - some were in favor, some were not, most were unsure how they felt. But when asked about their particular REALTOR®, about 80% of respondents stated they would work w […]