Skin in the Game!

I was listening to a long-time Wall Street trader and the CEO of Cougar Investments discuss the Obama administration's new financial regulations yesterday and he touched on a subject near and dear to my heart. He was saying that the top executives at the banks and investment houses that "invented" the highly-leveraged financial packages, at the mortgage lenders who sold some of the undocumented loans and the boards of directors at publicly traded companies should all have signifcant personal skin in the game.
It is so easy for someone working with another client's money to take a few "extra" risks because the pain incurred for failure doesn't hurt the trader or director personally. Even if they hold stock in a company, if they didn't pay their own hard-earned money for it, they don't have skin in the game.
This is exactly the problem we have today with most foreclosures and with some home-owners who are considering walking away from their mortgage and handing the lender the keys to the home. So when someone tells me that there is this "new loan program" that allows buyers to get in for zero down or almost zero down, I shudder! Deja vue! Didn't we learn anything? Hard-earned money that is at risk is a key element to minimizing financial over-reaching.
The speaker also commented on the argument by some investment houses that tough regulations would stifle creativity in the financial markets. He astutely and politely avoided saying that some of the financial creativity that were demonstrated in the past should have been stifled! He did, however, say that a study of times when new regulations were enacted showed that they were followed typically by periods of greater financial growth for clients as well as greater financial stability in the markets. It's a lot easier, safer and faster to go down a road when you know where the edges of the pavement are located and where the out-of-bonds are.

Inventory remains tight at the entry price levels. Mortgage rates are down slightly from the highs of two weeks ago. More foreclosures are coming. There are 4 Million homes behind on their mortgages in the USA. Only 400,000 mortgages have been re-negotiated so far by the banks and government. We have buyers ready to buy these foreclosures and short-sales.
At the upper tiers of the market, it remains a slow and tough sell. Jumbo loan rates remain high compared to conforming rates and downpayment requirements are stringent. The recent testimony from several real estate industry leaders to the US Congress recommended that interest rates need to be maintained / instituted at low levels across all price ranges and that the tax credits for first-time buyers should be extended to all buyers as well as extended in time beyond Dec 31, 2009. All the stuff you have been reading here!