"Commentary"-What's in a Name?
Tuesday, August 14, 2007SUSIE GHARIB: What's in a name? Tonight's commentator says market euphemisms are no good for Wall Street. Here's Allan Sloan, senior editor at large at "Fortune."
ALLAN SLOAN, SR. EDITOR AT LARGE, FORTUNE: We're hear a lot these days about problems caused by sub-prime mortgages. Now the name sub-prime mortgage is yet another example of how Wall Street makes ugly stuff sound pretty or as they say puts lipstick on a pig. We should really call these loans junk mortgages or high-risk mortgages or manure-like mortgages. That's more what they are than sub-prime, which sounds like a little bit less than prime, basically OK.
Wall Street sold hundreds of billion of dollars of securities more or less backed by these things -- mortgages, remember, made to buyers whose credit was in doubt. Many of them borrowed the full purchase price of their houses, so if housing prices went down -- which they did -- or borrowers ran into financial trouble -- which many of them did -- there was no cushion. The Street carved these mortgages into pieces and convinced rating agencies, always hungry for fees, that large parts of these loans were triple "A" credits.
It's amazing. Junk mortgages rated as safe as loans made to the Federal government. Now, losses are rising and the lipstick is off the sub-prime pig. It's time for another awful product with a pretty name. Maybe next, the Street can offer investors nuclear waste that glows in the dark and call it carbon-free illumination material. I can hardly wait to buy some. I'm Allan Sloan.
