The subprime mortgage mess; once more, with Star Trek

by Patrice Sarath, September 14th, 2007, 6:23 am

I have a nametag on my desk that is from the Ferengi School of Business. Tag line: “First Rule of Acquisition: Once you have their money, you never give it back.”

(Star Trek aliens have always been a reflection of society’s current preoccupations: The 1960s Klingons, for example, were vaguely Asian, one might say representing America’s, ah, uneasiness over the Vietnam War; the 1980s Ferengi were a way to sort out our feelings about Gordon Gekko.)

So was it the Ferengi who were responsible for the subprime mortgage mess, the collapse of the residential construction market, and the subsequent fallout that has been rippling across the globe?

Dear reader, let’s take a look at the evidence.

Hedge funds Wharton Asset Management and the aptly named Pirate Capital are both telling investors they can’t withdraw from certain funds.  This is bound to annoy investors, but whether they have recourse is another matter. That invokes rule number 1, as we saw above.  

Rule 45. “Expand or die.” Sounds like the credo of residential construction companies. Maybe this explains why residential builders overbuilt, even though they knew they were contributing to a bubble.

Rule 111: “Treat people in debt like family. Exploit them.” There was plenty of that during the subprime bubble, as we saw lots of unethical behavior by brokers selling loans to customers who could not handle the debt they were taking on or who didn’t even understand the kind of loan they had.

Rule 189. “Let others keep their reputations. You keep their money.” We saw how well that one worked for Bear Stearns. 

Rule 202. “The justification for profit is profit.” Ditto New Century Financial and many, many of its cohorts.

The clincher:

Rule 284. “Deep down, everyone’s a Ferengi.”