Medical vs. Financial Engineering
I broke my elbow a month ago, pretty badly as I was told. The surgeon screwed the pieces back together, using a steel alloy bracket and six screws. Two hours later, I left the hospital with no cast, a bandage (just to cover a very ugly scar), a prescription for painkillers and therapy started a week later.
What would have happened if I had suffered the same accident in 1975? The surgery would probably be in-patient, requiring a couple of days in the hospital. The broken fragments would take weeks to heal, in a cast. Rehab would take many months while I may never regain the previous range of motion or strength again. Medical engineering has advanced so much in the last forty years.
Before I stray too far, why 1975? That was the year in which I entered the real estate market. In comparison, real estate involves just simple transactions, nowhere near the complexity of cutting up a body, drilling holes and screwing some plate into human bones.
In forty years, the real estate market should have advanced to the point where a transaction is no more cumbersome than ordering some merchandise on Amazon, prepackaged with financing, right? Wrong.
Not only has financing engineering not advanced like medical engineering, it has deteriorated into one of the most destructive forces in the modern world. Pertaining to real estate, it was failed financing engineering that brought us the Savings and Loans debacle.
It brought us Greenspan bubble part one, which paused on September 11, 2001, then went ballistic with Greenspan’s sub-prime bubble. It created derivatives and derivatives derived from derivatives.
The Helicopter Mortgage
Where has financial engineering led us to today?
Over a recent weekend, Mel Watt (FHFA), Jack Lew (Treasury) and Janet Yellen (Federal Reserve) held a summit meeting and came up with a plan that will forever eliminate the possibility of another housing crisis. The plan is the Helicopter Mortgage. Here is how it works:
This post was published at Acting-Man on August 1, 2016.