"Skin in the game" is my thought on a lot of of the financial woes that are facing our country and communities.
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The result was a not only a housing bubble, but these govt. backed loans were then bundled and sold by the big banks and Wall Street and the defaults were "insured" by folks like AIG. Now the housing mess was scaled up by these folks, leveraging these govt. backed loans with little or no risk on their part.
And to this date, this mess is still not resolved. Neither the President, nor the Republican or Democrat leaders in Congress have been able to address this funamental issue. Why? Their "skin", upside or bacon was with other priorities. Some have been ideological, from both side. Some have been ties and influence by "special interests" ie lobbyists. Other factors are just ties to incumbency and just to old thinking.
Some of the most original thinking, in my opinion comes from former Secretary of State George Schultz who now is a scholar at the
George Schultz Transcript from Economic Club of NY
ALAN S. BLINDER: You talked a lot in your opening, as almost ____ to long-term growth and policy being steady as she goes, and you gave great examples for monetary policy. We went through a period in the 2007 - 2009 financial crisis where policy was incredibly activist. Many would say might have even amplified some of the uncertainty in the economy. What could we, or should we have done differently in that period?
THE HONORABLE GEORGE P. SHULTZ: Well, going back I think two mistakes that were made. Monetary policy was too loose, and there was a huge government push to get people into houses. Banks were induced and the Fannie Mae and Freddie Mac were to the point where no down payment, no questions asked, and you’re laying the groundwork for a problem.Then you have securitization. And what that means is you wind up with loans and nobody has skin in the game because the guy who makes the loan gets a commission for making the loan and he’s out of it, no skin in the game, and so on. Unless you have people with skin the game, you’re in trouble. There’s no substitute for it.
So I think those are mistakes that were made and as far as I can see we haven’t done anything effective about Fannie Mae or Freddie Mac yet. And a reason why the housing market is still a problem is we keep fiddling around with it and we don’t let it find itself. So I think those things were a mistake. I wasn’t there so I don’t know what I would have done about all these interventions, but I thought it was way overdone.
In other discussions I've had educated collegaues I know (Schultz is not a colleague-out of my league) is Gordon Anderson, who is the publisher of a small book publishing company in Minnesota.
In his book, Life, LIberty and the Pursuit of Happiness he discusses what caused the real estate bubble to develop.
http://blog.ganderson.us/2011/03/anatomy-of-a-government-caused-bubble/
It's clear to me, that if all parties had "skin in the game" at every level of a transaction and government, we would have far less corruption and mishandling of public assets and most of all "the public trust."
