Thinking about financial meltdowns...

I see the Wall Street meltdown from a couple different perspectives...

I was a newbie public accounting auditor, doing mortgage audits of places like First Federal Savings & Loan, Home Federal Savings & Loan, First Federal of Delta and a whole bunch of other S&Ls in northwest Ohio that overstretched themselves and collapsed in the early 80's.

As a newbie, I got assigned to the fun stuff - checking mortgage documentation. We were looking at internal controls that said "Is there a certified signed property valuation for the loan?" when the question should have been "Is there a property valuation that was worth more than a fart in a windstorm?" The loans were 100% documented from a compliance standpoint - but the worth of the documentation itself was nil, plus or minus 10%. This sounds very familiar to where we are now. Just substitute the words "market valuation" and you're set.

Another view...my sister and brother-in-law are owners of a condo purchased with a low-ball-rate ARM. It's not an extravagant thing - you could buy 3 of these with some of the monster properties surrounding us out here in the genteel country south and west of Toledo. It's nice, but there are no granite countertops, no sixty-thousand dollar kitchens or Hummers in the garage. It's just a nice home for a person who can't climb stairs and another who (after 30 years of cutting grass) is tired of dealing with a yard.

They were approved at the upper bleeding maximum edge of their ability to pay - with an adjustable rate mortgage that was (unknown to them, or me, at the time) almost certain to go up way beyond their ability to pay when the adjustment period came due. The people who wrote that loan put the shells in the chambers, cocked the gun, and pointed it at my family's head, knowing that the gun would almost certainly go off in 3 years. If my sister and bro-in-law are culpable, those who originated the loan and those who refinanced it are equally culpable. Just because they wanted this house was no reason to sell it to them, or finance it for them. Just because you can say "yes" doesn't mean that you should...

Of course, no one could have foreseen my sister's disability or Jeff's down-grade from year-round worker to seasonal status. But even at their most financially productive, with the other debt they were carrying, it was madness to approve the loan they got. And I'm a little resentful that the organization wants the bailout, rather than the little people who were sold an exploding pig in a poke.

I know what the S&L buyout cost the nation 20 years ago - and there is no way in hell it's not going to cost exponentially more this time than last. And this from an economy that's already suckin' dry from our overseas adventures.

To my mind, the only reason the oil companies haven't been stampeded together and broken-up like in the last antitrust wars is because we are so addicted to fuel. The nation - myself included - is so addicted to the "right" to independent and at-will travel that no one will risk threatening the supply of our drug - even though people (just like addicts) are now having to make decision between their fuel (read: drug-of-choice) and food, health-care, even housing.

I just wish I had an answer. But I also know the old answers won't do anymore, either...

Forgive me, br'er Cobb, for cross-posting this from your comments onto my own blog - but your post brought up several ideas that have also been percolating in my mind.