Re: [Marxism] Mortgage Company Exec Jumps to Death

[Les Schaffer <schaffer@xxxxxxxxxxxxx>]

the exception rather than the rule. an economist friend forwarded this 
article to me yesterday...

les



Deal Fees Under Fire
Amid Mortgage Crisis
Guaranteed Rewards
Of Bankers, Middlemen
Are in the Spotlight
By LIAM PLEVEN and SUSANNE CRAIG
January 17, 2008; Page A1

To understand a root cause of the financial crisis shaking global 
markets, take a look at Kevin Schmidt's paycheck.

Mr. Schmidt arranges mortgages in Shreveport, La. He earns his money 
upfront, taking a percentage of each loan once papers are signed. "We 
don't get paid unless we can say YES" to loans, his firm's Web site says.

The problem, which Mr. Schmidt says he sees clearly: Brokers have little 
incentive to say "no" to someone seeking a loan. If a borrower defaults 
several months later -- as Americans increasingly are doing -- it's 
someone else's problem.

At every level of the financial system, key players -- from deal makers 
on Wall Street and in the City of London to local brokers like Mr. 
Schmidt -- often get a cut of what a transaction is supposed to be worth 
when first structured, not what it actually delivers in the long term. 
Now, as the bond market wobbles, takeover deals unravel and mortgages 
sour, the situation is spurring a re-examination of how financiers get 
paid and whether the incentives the pay structure creates need to be 
modified. This week, Congress asked three prominent executives to 
testify about their pay packages.

Upfront commissions and fees are well established on Wall Street. 
Investment banks get paid when billion-dollar mergers are inked. Firms 
that create complex new securities are paid a percentage off the top. 
Rating services assess the risk of a new bond in return for fees on the 
front end.

Critics argue this system can give people a vested interest in closing a 
deal, regardless of whether it turns out to be a good idea over time.

full article at 
http://www.realestatejournal.com/buysell/mortgages/20080118-pleven.html?mod=RSS_Real_Estate_Journal&rejrss=frontpage


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