I have a view on the subprime mess that is slightly contrary.

While I know that it is a serious issue and that people’s lives are being thrown into turmoil, I am going to suggest that the mess has several participants and the question for the entrepreneur is, can you profit here and, if so, how?

First, the fault, Dear Brutus, lies in ourselves…the borrower did not understand the terms and conditions.

I just finished trying to buy life insurance. I have the benefit of being reasonably smart and have a cadre of smart advisors, but I can swear to you that the insurance business is not a business…it is a racket...and it is damn near impenetrable. I have been on the problem for 6 weeks...two brokers…two companies…and I cannot get a straight answer.

The reason I mention this is because the mortgage business, for most people, is equally opaque. What the borrower wants is the house. He or she wants it now….and will worry about the reset of the rates when that happens.

Nobody reads the fine print…the agent, broker, etc. told me that everything would be ok. So the first entrepreneur rule is: read the damn fine print. Yes, read it! Get a magnifying glass, ask questions…even stupid questions…it is your responsibility.

I have to tell you that I know lawyers who have closed giant multi-million dollar financings and the CEO has never read the docs. They rely on the lawyer or someone else… or maybe no one reads them.

Second on the guilty party list is the broker or agent. The compensation system rewards crookery, scammery and high pressure tactics. The broker is long gone when the loan blows up….he sells it, you sign, he gets paid, then he is “adios vaminose” and on his way to Hawaii. Reward unintended consequences when you design compensation packages for the salesmen in your company.

Number 3 – Wall Street. The packagers--they bundle the mortgages, slice and dice and rate them, and then they sell them to someone else who doesn’t know the broker, doesn’t know the borrower and doesn’t know the real estate.

So when the “plaintiff cry” from the homeowner says, “Hey, gimme a break…a little time,” the guy that owns the loan doesn’t know the borrower from nobody.
The owner of the mortgage is not the local banker who knows your family….it is First United Interstate Global American Financial Advisory Hedge Fund Corporation…so basically, you are a dead man.

Now to the point of the rant... making subprime loans put millions of people into homes and that is a good thing. As a percentage, the number of defaults is small compared to all the subprime loans made.

So, it is a mixed bag…there was awesome greed, no controls, wrong-headed compensation, and a “take the money and run” mentality which is sickening to me.

But it is also true that Betty and Bob got their first home.

Regarding the last point…if, not when, Betty and Bob lose the house in foreclosure, do not think you are going to steal it and get rich. Here is the reason: there are ads today in the paper for eight different seminars on how to make money in the coming real estate foreclosure mess. If it were so easy, they would not be giving a seminar – they would be doing it. Stop and think --- if eight guys in Sunday’s paper are pitching crap, do you think the horsehoe is possibly rigged?

The little guy has no business tangling with the monster on the Midway or Wall Street.

Focus on your business, grow your customers, create value, and make your mortgage payment each month. Do not touch the fire and brimstone...you will get burned.