Monday, April 19, 2010

Without truth, waste, fear, and ungodliness multiply.

In the last times people will trust strangers more than neighbors, acquaintances more than family, lawyers more than preachers, friends more than teachers, fables more than facts, selfishness more than love, and pleasures more than God.

Knowledge of righteousness will fade as intuitive and sensual concepts become imbued with profundity, and truth despised.

The distinction between anecdotes, statistics, and parameters will be lost so that any information will be considered typical thus losing insight into the fundamental nature of both corporate and individual challenges, and how to solve them.

Policy makers, the press, opinion leaders, governments, analysts etc must begin to search for truth and underlying causes in their attempt to solve specific problems.

For example, the common understanding is that the current economic crisis was caused by reckless underwriting of unqualified persons who were given mortgages without the ability to repay. However statistics show that these mortgages are performing at a rate greater than ninety percent even today.

On the other hand, it had been proven statistically that the mortgage crisis was caused by the reckless trading of derivatives based upon the subprime mortgages which multiplied the exposure of the world economy to poorly collateralized securities.

The anecdotal explanation is that a lot of unqualified persons were given mortgages which they could not afford. This evidence appeals to the intuition of many people including analysts who should have been searching for truth.

More importantly, the actual counts of the population of mortgages will yield parameters that verify the fact that the economic crisis was caused by the reckless underwriting of derivatives and financial instruments, and not by the actual foreclosures themselves.

Despite the expenditure of billions of dollars to recover the economy, results have been relatively inconsequential. The failure of the recovery effort is caused by the substitution of intuitive thinking for actual analysis. The problem has never been the credit-worthiness of persons who may have been locked out of home ownership prior to them being able to obtain subprime mortgages. And yet, subprime mortgages are considered to be the problem which caused the current crisis.

As a consequence of this thinking, banks and financial institutions have tightened credit underwriting, increased down payment and imposed much stricter requirements on all persons seeking mortgages thereby actually frustrating economic recovery.

If subprime mortgages did not cause the crisis, then tightening up credit and mortgage underwriting will not solve the problem. Indeed, such measures will exacerbate and prolong the recovery by stopping the ordinary flow of home purchases and the underlying equities that a vibrant housing economy provides. Indeed, the ability to buy depends on equity; equity depends on sales and price; sales and price depend upon demand and supply; demand and supply depend upon credit availability; and credit availability depends upon equity, and so forth.

Despite programs to help desperate home owners, to expand home purchasing, and revitalize economic activity, the economic recovery effort is failing because of bad analyses.

The solution is, no matter what appeals to us intuitively or what our political perspectives is or what our prejudicial dispositions may be, analyses should be objective and always looking for truth according to the best information available.

Without truth, waste, fear, and ungodliness multiply.

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