The Republicans Should Be the Last to Point Fingers
September 2nd, 2010Rush Limbaugh the new Republican leader? It is high time to discuss the state of the U.S. economy, so, at the very least, to provide a greater degree of clarity on the issues at hand. The housing crisis is clearly the root of this possible economic meltdown. But if you recall, the entire fiasco began disguised as an endeavor to house every American. In fact, the American Dream of home ownership can be enjoyed by any and every American. Of course, this was also the battle cry of Republicans and of course the most infamous of them all, former President George W. Bush.
This initiative, disguised as the economic impetus to allow all to live the American dream, allowed Hattie Mae Johnson (our fictional African American Home Health Aide earning twenty five thousand dollars per year with a high school education) to purchase a $250,000 home. (Bear in mind that for every Hattie Mae Johnson, our fictional African American character, there are three Amber McCormicks, our white American fictional counterpart. Hence, the housing crisis does not have a pure racial bias.) Banks willfully financed Hattie’s loan and naturally the loan was approved since the mortgage broker suggested Hattie state $125,000 per year as her ‘Stated Income.’ Hattie’s mortgage and many others like hers were then packaged into exotic security stock options and sold to unwary European investors as golden investment opportunities.
Furthermore, clever mathematicians created intricate formulas to validate these European stock options as triple A — The most secure investment possible. Nonetheless, let us not forget that Hattie Mae’s loan is the principal component of the security option sold to unwary European investors. Hence, the cycle begins. Frenzied European investors smell opportunity in American Home securities. European money is thrown at American investment firms (Goldman Sachs) in unprecedented volume. Investment firms in turn throw money at mortgage brokers and banks providing home loans. The only focus was to build houses at break neck speed and fill them with anyone with a pulse to insure the continuation of the foreign investment revenue stream.
Well… guess what? Hattie’s adjustable rate mortgage ballooned to twice her salary. Hattie defaults on her loan. Secondly, the value of those exotic triple A security investments held by our friends in Europe begin to tank. European investors begin dumping their plummeting securities and the revenue stream dries up. American banks, now without an outside cash flow, stop lending money to consumers. The economy slides into the gutter. However, there is one more group of players in this drama. A small but insightful group of investors recognized the faulty foundation in which these securities were built. This same group of savvy investors purchased derivatives or insurance, primarily from the AIG (American International Group) Corporation, to be collected in the event of a decline in the security value.
Well, we all know the rest of the story. The securities tanked. The savvy derivative investors hit the jack pot and now AIG has to get bail out money to pay these same investors off. Now, President Obama comes on the scene. In every sense, he is now being handed a bag of cow dung as flour and not only asked to bake a cake, but, to also make certain that it has a wonderful flavor. Well, he can modify the loan so Hattie can afford to pay her mortgage — or he (the government) can buy Hattie’s home and charge her rent i.e. a modern day housing project. Clearly, this housing scheme rivals the magnitude of the Madoff ponzi scheme. But now that we’ve put the economic crisis in perspective, I think that it is imperative to offer pragmatic and sound solutions to this enormous challenge.
However, bear with me as I digress into a fictional story that may serve as both an analogy and window of opportunity to repair dysfunctional elements of our current economic system. There was once a Gynecologist that we will call Dr. Greedy. As Dr. Greedy poured over his monthly bills, he realized that his current income was insufficient to cover his mortgage, his child’s school tuition, and his wife’s Jaguar car payment. As he lay awake at night, pondering over possible ways to increase revenue, Dr. Greedy has an epiphany. He awakes his sleeping wife and says, “Honey, I’ve got it. I know how I’m going to double the amount of money that my medical practice is generating.” “How are you going to do that Bernie?” she replies. “I’m going to perform hysterectomies on everyone!” “Everyone!” she replied. “Yes, everyone. I will say that every woman has Endometrial Hyperplasia with Atypia which is a precancerous condition of the uterus and that will justify every hysterectomy that I perform.” “Well, don’t you have to biopsy the Uterus before the hysterectomy to prove that Endometrial Hyper thing you were saying?” replies his wife. “No, I’ve been on staff so long that I can just write it in as a ‘Stated Diagnosis’ and no one will follow up on it.” The next day Dr. Greedy implements his plan. Within two months, Dr. Greedy’s hysterectomy rate has increased 900%. Additionally, the pathology reports from the uterine specimens that Dr. Greedy has been removing all come back as normal with ‘No Evidence of Endometrial Hyperplasia With Atypia.’ Two months after initiating his plan, Dr. Greedy is called into the Gynecological Departmental Chairman’s Office. The Chairman said,” Bernie, a month and half ago I was very impressed with the fact that you were discovering an extraordinarily high amount of pathology in our community and treating it with surgical intervention, in effect, wiping out cancer. Additionally, I was also impressed by the additional patient and revenue flow to our hospital since we were revered for our disease detecting capabilities. However, News Channel 4 is outside our building with pathology reports claiming that you falsified the diagnosis of each and every surgery. Bernie you’re fired! Hand over your license.”
Our example brings to light the parallel between the housing markets branded campaign and Dr. Greedy’s superficial intent. Although Dr. Greedy’s true objective was to make money for himself, he touted his motive as an initiative to eradicate uterine cancer. Sound familiar? The housing crisis’ motif began as a campaign to allow every American to own their home. Falsified diagnoses and falsified incomes are consistent themes in both scenarios. (Despite our fictional story, there are legitimate means by which physicians may increase their income – read my book, “A Doctor’s Guide to Wealth”) This example also illustrates that inherent within the medical profession, certain fundamental oversights exists. In the absence of these basic oversights Dr. Greedy’s deeds would go unchecked.
So too must basic governmental oversight exist in today’s market economy. For starters, mortgage lenders must do away with ‘Stated Income’ loans and verify incomes based on annual tax return documents. Similarly, Dr. Greedy’s plan would have fallen short if he was required to submit presurgical tissue pathology results on each patient prior to a hysterectomy. Secondly, The Government, SEC, or some other ‘qualified’ agency must raise questions when the mortgage lending rates increase 900% as Dr. Greedy’s surgical rate did. These same agencies must improve their ability to designate triple A stock securities by not qualifying inferior products as triple A. This Governmental agency would in effect be equivalent to a departmental Chairman. Our government or any regulatory agency failed to raise inquiries in response to basic indicators, such as exploding home mortgage loan dispersion rates.
So, who is to blame in this current economic mess. Well for starters, the mortgage companies knowingly wrote bad loans. But the Investment CEO’s are first on the list since they collected loads of European cash which fueled the effort to create and package toxic American assets that were ultimately sold abroad to European investors. Government and regulating agencies were at fault for looking the other way. George W. Bush was infamous for saying that government should not “interfere with the free markets.” The mere sound of any oversight might be suggestive of an impairment of freedom. Nonetheless, our system is not irreparable. It needs only to be adjusted. Let’s save those facing foreclosure in order to circumvent our communities from ruin – both Hattie and our hysterectomy patients served as instruments to a larger scheme. They do not deserve to be made scapegoats. In the future, let’s give mortgages based on verified income variables as opposed to falsified ones. Lastly, let’s make the resulting stock securities have inherent worth reflective of the quality owner residing in each respective home and let’s label them appropriately, i.e. a triple A security is truly of superior merit. This will, subsequently, detoxify American assets and securities.
So, in closing, before we bash, criticize, or judge our newly elected president, let’s understand the enormity of the situation. But above all, particularly Republicans – Don’t root for President Obama to fail. A failing President Obama equates to a failing America – and last I checked, we’re all in this together.
Robert E. Rainer, MD, is a graduate of the University of Maryland School of Medicine. He completed his residency training in obstetrics and gynecology in 1995 and shortly afterward established his medical practice (see: www.brooklyngynplace.com ). Dr. Rainer’s practice flourished and is now a leading OB/GYN practice in New York City. Get his book: www.doctorsguidetowealth.com/index.htm