Maybe Risks Should Be Shouldered by Creditors

With respect to Kathy M. Krisof’s “Creditors Unite to Try to Toughen the Nation’s Bankruptcy Code” (Personal Finance, April 6), I respectfully suggest that there is a lack of balance and perspective.

I would like to remind you that this is the very same financial industry that almost crashed our financial system by mismanagement, outright fraud and the manipulation of interest rates. And they did this on the back of the consumer, who ultimately financed the entire bill for the bailout.

This is the very same industry that borrows at 3% to 4% and still charges 17%, 18% or 19% on credit cards. Justified, in their minds, by the risk factor they have willingly assumed. Yes, willingly, as they fight for a market share by dropping their credit scoring standards lower and lower.

These are the same people who are now pushing the home equity line of credit loans, which are marvelous tools for converting unsecured debt from credit cards into real estate secured debt.

And the troubles will continue as the consumer faces the potential privatization of extremely profitable government-backed securities--such as Fannie Mae and Freddie Mac--and the increased competition between traditional financial institutions--such as banks and the nontraditional “nonbank banks,” finance companies and major consumer goods suppliers.

As long as debt can be “pooled” and secured with mathematically modeled risk-reward structures, it pays handsomely to get the debt on the books at almost any cost, roll it into a pool, sell it to someone else and book the profit.

Then the “industry” complains when the cost of a default comes directly out of some other investor’s profit. Perhaps you should push for smarter investors who know how to read a profit-and-loss statement and understand the smoke-and-mirrors employed by the so-called securities industry, where price/earnings ratios are not reflective of core business values.

Perhaps the risk of poor investments should be shouldered by the knowledgeable investor--and not reflected back at the consumer through tax write-offs of debts discharged in bankruptcy. This would be some industry wake-up call! And let us not forget the middlemen brokers who buy, service and sell the debt and earn a profit on every transaction: win, lose or draw.

STEPHEN RICHARD LEVINE

Sherman Oaks