Investors and Securitized Mortgages

The securitization of home mortgages has been likened to a house of cards. It is interesting that the families who bought homes they could not afford are commonly castigated. There are many players in this farce. I want to consider the buyers of these securities.

I was raised with pithy sayings like "never look a gift horse in the mouth" and "buyer beware." Clearly, these are opposites. There there's "if it's too good to be true, it must not be true." But the lure of easy money is strong.

At this distance we can laugh at the foolishness of the buyers of securitized mortgages, so many of whom were cities in America and abroad. But it is the size of the loss that gets our attention and deserves our compassion.

How could buyers have avoided their losses? Old-fashioned banking holds one answer: know your customers. Invest locally.

There are different forms of capital: intellectual, social, environmental, monetary. Stable communities rely on positive flows of capital. Educating children who leave home to make their fortune on Wall Street results in a loss of the community's capital and jeopardizes its stability.

Creating local programs and institutions that can preserve or even increase local capital is a modern challenge. And well worth our effort. This is a form of self-sufficiency at the community level, and one that provides investors with a way to benefit themselves and their neighbors.

We need to find ways to create these programs so they can return dividends to their investors while benefiting the communities. Examples: a fund for student loans, a community garden that sells its surplus. The key is public ownership, with shares in the organization available for public sale, perhaps as preferred stock.

Revision: 4-27-2009.