As recovery falters, here come the regulators

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As recovery falters, here come the regulators

Commentary: Ethical code with teeth would beat more rules

By Lou Barnes
Inman News™

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Domestic data vied with the European circus for control of financial markets, for once pushing in the same direction. Down. Both stocks and rates.

Greece seems certain to default in some form this summer, and European efforts have switched to containing contagion in the aftermath.

When Bear Stearns went down in March 2008, with some Fed safety net in place, no dominoes followed; six months later, when Lehman and AIG tanked, not even an all-out Fed and TARP could stop a collapse that we're still living in. Hell of a thing: no way to find out if there's water in the pool except by taking a triple gainer off the high board.

The U.S. data were as important. The N.Y. and Philly Feds released their indices for June: both were expected to hold positive ground, instead both went negative to the same degree and for the first time in nine months. The 10-year T-note quickly reversed a run at 3.1 percent, back in the 2.90s. May retail sales were OK, ex-cars and gasoline (everybody's got to eat and buy socks), and new unemployment claims stopped rising.

Source: Calculated Risk blog

Core CPI in May up to 0.3 percent is enough to paralyze any thought of new Fed stimulus for the moment, but is not really "inflation." Prices of commodities and food have been driven up by wildly overheating emerging nations, which are now slowing, all their central banks tightening. Here, incomes flat, higher prices are uncomfortable but not a spiral caused by money-printing, as so many fear.

The National Federation of Independent Business (NFIB) small-business survey confirmed the slowdown, its index down for a third straight month to the lowest value since last September, led by softening plans to hire.

National economic policy is confronted with several damned-if-you-do, damned-if-you-don'ts. Cut federal spending before recovery? Or risk a Treasury-borrowing wreck? Restrict credit to prevent any new bubble ever? But how to recover without credit?

Perhaps the toughest issue: after one of the great regulatory failures of all time, how to institute adequate regulation without paralyzing commerce?

Many moons ago, my beloved business partner of 20 years, now retired, shed some light. We had allowed an able loan processor a limited hunting license to make a few loans in addition to regular duties, supplementing her income without adding to our fixed cost.

Sixty days later we discovered that our processing had slowed to a crawl, and our "limited" producer had booked more loans than any in the sales staff. Fixed that. But, a month later, different version: production again bloated, this time at the cost of processing quality. Stopped that. Then another month, and a third evasion.

Partner and I sat down to write a rulebook to head off any more misbegotten behavior. After a short while, partner said, "This is stupid. Why spend our time attempting to invent rules faster than a lousy employee can invent misbehavior?" She was dead right.

Any auditor will tell you: If the senior officers of a company intend to conceal fraud, they can -- for a while, if not forever -- no matter how good the auditor.

The Fed's latest rules for mortgage underwriting are 117 pages of legal argle-bargle posted in the Federal Register, overlapping, circular, swat-fly-with-sledgehammer.

Get to the heart of the matter. We cannot repair and maintain our economy without principled people in corporate leadership. Everyone in financial markets (why stop there?) must accept and enjoy overriding duties to the society and the system. All risk taken must first survive that test.

Establish an ethical code. Get a forest of right hands in the air, taking the oath. Then energetic self-policing within and without each firm. And only one way to deal with miscreants: Drop your shop or threaten the system, and you -- Mr. CEO, Mr. CFO, and your directors -- get lifetime bans from senior work in public companies.

No more of this absurd footsie, in which confessing stupidity is an adequate defense. You say that you thought the prices of houses would rise forever?

Sport, you are gone.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at

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Curt Baumgarth

CDPE Certified Realtor

Century 21 All Star Realtors

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About Curt:  Curt Baumgarth is an AZ License Realtor, MAOM educated,  SEVAR member, a Certified Distressed Property Expert and longtime resident of the Valley of the Sun.  Curt is a former Police Officer in the valley and also has several investment properties and is more than happy to share any of his vast experiences and knowledge with you.

Are you considering a Foreclosure or Short Sale, contact Curt Baumgarth, who is a Certified Expert in Distressed Properties and can give you honest answers and guide you through the complicated procedures that it takes to SUCCESSFULLY complete such a sale or purchase.

Contact Curt if you are interested in buying or selling any type of residential property in the greater Phoenix, Scottsdale, Tempe, Mesa, Gilbert, Chandler, Queen Creek area. 


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Marge Draper
Keller Williams Realty Palo Alto - Menlo Park, CA
REALTOR, Keller Williams Realty, Menlo Park CA

I must admit that I was among the many who thought we would recover maybe this year.  Now I know that won't be happening.  We had a representative of Bank of America at our business meeting on Monday.  When asked, he said that they were poised to start releasing the distressed properties they've been holding back.  While we in Silicon Valley are somewhat protected, we do have distressed properties.  What that will do to our market is something we will have to wait and see.

Jun 21, 2011 06:53 AM #1
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