Economics & Finance

I was walking through a mall recently when I saw a sign that used to be quite common but is now rather rare. They were closing the store to take “inventory” overnight, and the store was scheduled to re-open in the morning.

As an accountant, the word “inventory” immediately perks me up. Way back when I started in accounting, computers were in use for a variety of purposes, such as plant accounting and financial reporting, but they hadn’t really penetrated inventory at retail. Why? Because computing power was expensive, and they didn’t have a solid methodology for tracking individual items (i.e. the bar code sticker and reader).

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Before this is through, nearly everyone on the planet will have expressed an opinion on the sub-prime mortgage crisis. It’s a little late, but I thought I should get mine in. Here are some points about the issue that I don’t think have been given much discussion.

Mortgage-backed derivatives are not new. Some 20 years ago, FNMA introduced the REMIC (Real Estate Mortgage Investment Conduit). These were pools of mortgages that were split into various tranches or classes of maturity and quality, which were then sold separately, similar to the way today’s collateralized debt obligations (CDOs) are sold.

There were some important differences between this first generation and its descendants. I would like to point out some of the differences, since they may highlight the reasons behind the collapse.

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The American economy may or may not experience a recession in the near future, but either way nobody can tell me that this is the face of a happy man.

* The German title is in reference to this book. Old Ben could sure use some of that Sturm und Drang spirit right now.