Sub-prime is Sub-optimal

Author:
Publish date:

Muffie Benson-Perella (muffie AT dealbreaker.com) is an Associate in the Investment Banking Division of a "Bulge Bracket" bank. She holds a B.A. in French and Art from Vassar College and an M.B.A. from Harvard Business School. Her regular column "Heard in the Suite" is a probing (and, ahem, fictional) weekly look into the secret lives and behind the velvet curtains of the investment banking world.
Recently, there has been a lot of discussion about "Sub-Prime," lending and the mortgage backed securities that underpin the industry. Any number of hours have been spent on the lending practices of various banks and who they should be lending to and who they shouldn't. I think we can clean the entire mess up very simply by tightening credit requirements for home loans. Let's limit these loans and therefore prevent the kind of damage that puts bad copy in the financial press about my prestigious investment bank. The reputations of these firms are being seriously harmed by this sub-prime nonsense.
I propose several additions to the credit applications for home loans. This presents a simple and effective check on bad loans before they ever get started and therefore before they make it in to the mortgage backed securities that we rely on to preserve our profits.


Let's think about this logically, there are two classes of people. 1. People who can handle their credit. 2. People who have family (maybe parents or something) who can help handle their credit. 3. People who cannot handle their credit. Why we would ever give people who cannot handle credit fire to burn themselves with is beyond me. Who is there to protect these people from their mistakes if we don't force the banks to do it? No one. Not until it is too late. If you haven't owed a house already then you don't have the experience to borrow and you should not be loaned to. I'm not sure why the best banks don't get this. They are staffed with people like me, who know perfectly well about the two classes of people. I don't really know anyone at Bear Stearns, so their problems are totally understandable.
Further, let's limit these loans to people who NEED the financing. Most new home buyers will be getting their financing from their parents after graduation in the first place, so they shouldn't be borrowing right away. It's the second house, the upgrade after getting engaged that really is where the financing is needed and where mom and dad shouldn't have to shell out all that money for the upgrade. (They are probably paying for little sister's place by that time anyhow).
As for these hedge funds that are shorting large and prestigious investment banks, I really don't think it is appropriate to punish firms of this kind of caliber for a few, little investment mistakes. These snakes are profiting off of the reputations of Wall Street icons. I think that legislation to outlaw hedge funds investing in the same businesses as large banks should be passed immediately. New York Democrat Charles Rangel, Chairman of the House, Ways and Means committee has already called for this sort of fairness in the industry with respect to private equity firms. "We should not permit one segment of the financial-services industry to enjoy a competitive advantage over others," the Wall Street Journal quotes him as saying. "Together, our actions should put everyone on notice that Congress may act to address these outstanding issues." Why should the most profitable firms on Wall Street or anywhere else be rewarded for their work at the expense of large investment banks? I thought this was a capitalist system.
Take an example. I love Bess, but should Bess have a home loan? I thought I would put it to the test using my new loan application model:
3:32:41 PM muffiehbs05: Hey Bessy!
3:32:46 PM ohbabyitsbess: hey muffs
3:32:47 PM ohbabyitsbess: what's up
3:32:53 PM muffiehbs05: Hey, when did you graduate?
3:32:59 PM ohbabyitsbess: '06
3:33:01 PM ohbabyitsbess: you know this
3:33:07 PM muffiehbs05: Oh, right!
3:33:12 PM muffiehbs05: From Amhurst, right?
3:33:26 PM ohbabyitsbess: you're hilarious today
3:33:28 PM ohbabyitsbess: bitch
3:33:52 PM ohbabyitsbess: (sry, carney's making me do a post about bonds, i'm all riled up)
3:34:12 PM muffiehbs05: I mean, during school, your parents were supportive, right?
3:34:20 PM ohbabyitsbess: um...yes?
3:34:32 PM muffiehbs05: I mean financially.
3:34:37 PM ohbabyitsbess: yeah
3:34:57 PM ohbabyitsbess: i mean, they told me i should get a baby sitting job that didn't come to pass
3:35:05 PM ohbabyitsbess: i had such a sweet one in HS
3:35:10 PM muffiehbs05: What?
3:35:10 PM ohbabyitsbess: it couldn't go downhill
3:35:21 PM muffiehbs05: Like for a cousin or something?
3:35:43 PM ohbabyitsbess: no, some goldman vp
3:35:54 PM muffiehbs05: Oh, oh, ok. I thought, nevermind.
3:36:02 PM muffiehbs05: Ok, so then you got a condo when you graduated, right?
3:36:06 PM ohbabyitsbess: i was allowed to have friends over, they had a trampoline, etc
3:36:10 PM muffiehbs05: (Hey, was the VP cute?)
3:36:26 PM ohbabyitsbess: (yes, for someone too old for me...more your age-type)
3:36:36 PM ohbabyitsbess: muffie, you've been to my apt
3:36:43 PM ohbabyitsbess: what are you talking about?
3:36:44 PM muffiehbs05: Since when is a VP at Goldman too old for a high school junior?
3:36:59 PM muffiehbs05: But you have a condo too, right? That apartment is just close to work, right?
3:37:28 PM ohbabyitsbess: uh, no
3:37:43 PM ohbabyitsbess: the apt is actual not that close to work
3:37:51 PM muffiehbs05: Oh... are you renting out the condo then?
3:37:53 PM ohbabyitsbess: we've got a couch in the office though
3:37:58 PM ohbabyitsbess: so, you know
3:37:59 PM ohbabyitsbess: muffie
3:38:02 PM ohbabyitsbess: what the fuck are you talking about
3:38:06 PM ohbabyitsbess: what condo
3:38:11 PM muffiehbs05: Your parents are renting it out and not giving you the money?
3:38:28 PM ohbabyitsbess: did you get into richard's wife's pills again?
3:38:35 PM muffiehbs05: Just answer the QUESTION!
3:38:41 PM muffiehbs05: She ran out anyhow.
3:38:51 PM muffiehbs05: And the doctor is pissed because she went back after a week and it was a month's supply.
3:39:08 PM muffiehbs05: Besides Alice took them all from my desk.
3:39:15 PM ohbabyitsbess: are you even at work?
3:39:23 PM muffiehbs05: What does that have to do with anything?
3:40:25 PM ohbabyitsbess: nothing...i'm just noting that it's not even 3:45 and you're at richard's...it's a good thing you didn't take that trading job Brant's father offered you
3:40:40 PM muffiehbs05: Ok, are you going to answer the question?
3:40:46 PM ohbabyitsbess: WHAT QUESTION
3:41:03 PM muffiehbs05: Are your parents renting out the condo you got for graduation?
3:41:20 PM ohbabyitsbess: hey
3:41:21 PM ohbabyitsbess: crazy
3:41:26 PM ohbabyitsbess: i didn't get a condo for graduation
3:41:31 PM ohbabyitsbess: i got a lap top
3:41:32 PM muffiehbs05: You are kidding me?
3:41:32 PM ohbabyitsbess: and a card
3:41:39 PM muffiehbs05: A Centurion card?
3:41:59 PM ohbabyitsbess: no, i got that through dealbreaker
3:42:05 PM muffiehbs05: Ok, I have to go.
3:42:24 PM ohbabyitsbess: yeah me too but are we going out tonight?
3:42:30 PM muffiehbs05: Uh, I'll chirp you, ok?
3:42:50 PM ohbabyitsbess: we still going to go to milk and honey and then that other place? with the citadel guys?
3:42:57 PM muffiehbs05: I really don't want to leave the UES. Look, I'll chirp you, ok?
I think we can all agree that this person should NEVER be permitted to own a home.

Related