Thoughts on the Subprime Mortgage Mess from the Wall Street Journal

I got to admit that a point in the following got to me - about the little guy wanting government off his back. Who does deregulation really favor? Not the little guy.

Debt and Responsibility
By ROB ASGHAR
WALL STREET JOURNAL OPINION PAGE
December 27, 2007; Page A10

I blame the borrower. Yes, on the eve of an election year, it is bad
politics and bad manners to say that the "little guy" deserves the brunt
of the blame for the global subprime mortgage crisis. But I blame him
nonetheless, with minimal qualifications and apologies.

Remember, first of all, that the 2008 elections will be decided by this
same little guy. Remember that, as America seeks to bring the gospel
of freedom to societies such as my native Pakistan, we must convince
these nations that their own little guys can be trusted in decisions both
grand and small. Once, America's little guy was sane enough. He saved a
dime on every dollar in the 1980s and a nickel on every dollar into
the 1990s. Then, infected by rampant and ill-considered consumerism, he
helped the national savings rate go negative in 2005, for the first time
since the Great Depression.

The little guy has wanted the government off his back and has hoped to
release as few of his hard-earned dollars as possible to that fat
bureaucracy. Now he longs for a paternal force to save him from people who
promised to help him keep up with his overspending neighbors.

On the surface at least, it would seem that others would make better
scapegoats. I dealt with such potential scapegoats in 2004 and 2005, when
I spent two years as the communications director at a burgeoning
subprime mortgage originator in Orange County, Calif.

Pricey and posh Orange County office complexes housed half of America's
20 leading subprime lenders. I occasionally asked mortgage executives
what explained this coincidence. The question puzzled them. They lived
in ocean-view Newport Beach homes. Why would they want to work anywhere
else? The subprime industry chose to ignore economic and efficiency
factors that had driven so many other businesses far from the costly
California coast.

Another peculiarity was compensation. Top salespersons at companies
such as New Century Mortgage Corporation often drew astronomical
seven-figure salaries (and perks such as first-class trips to Spain and
Germany). Capped teeth and breast implants trumped a work ethic for many who aspired to make it in subprime sales. Their counterparts in prime lending were lucky if they reached six figures.

Investors foolishly tossed billions of dollars at inefficient
enterprises while expecting massive, long-term benefits. New Century's
now-laughable slogan was "a new shade of blue-chip," and Wall Street proved gullible for a long time.

By and large, the lenders were no less irresponsible than the borrowers
who aspired to live a bigger life than they could afford. But all of
the strange creatures of subprime -- the overpaid loan officers, bloated
budgets, lavish Las Vegas "planning meetings" and the like -- were
nurtured by consumers who believed that incurring massive debt was the
secret to becoming a rich landholder (or boat owner).

Regulation of the industry may address some problems -- but not without
creating the new ones that inevitably result from straitjacketing the
free market. Besides, market forces were already slaying subprime's
monsters. By late 2005, most in the business knew the feast was entering
its final moments.

The recent effort by the Bush administration to help a segment of
subprime borrowers is, fortunately, a mostly cosmetic matter. (One mortgage executive tells me that only about 5% of the loans in his company's loan portfolio will be affected.) Policy makers in Washington would do well to leave it at that. We need bureaucratic meddling far less than we need a sober and clear-eyed citizenry.

As my own friends bought and maintained homes, I quietly mused about
how the homes owned them, not the other way around. I moved often, based
on job commitments, with no interest in buying a house.

I may own a home someday, if prices return to sane levels once
unfettered market forces play out their Shiva-esque roles as both Creator and
Destroyer of fortunes. When the average person learns to treat those
forces with humility and respect, we'll all be served far better than by
any political promises that claim to stand up for the little guy.

Mr. Asghar is a writer and editor based in Southern California.