Devoted to Managers and those that seek to improve their management skills

The rule proposals by the Federal Reserve to allegedly combat the mortgage problems in the industry, are probrobably largely irrelevant at this time. The market has already weeded out the problems and business survival kicked in for self-regulation already.

Subprime mortgages have already been largely abandoned as a strategy for the financial community, and changes aleady been put in place.

When looking over the rule changes, when you get right down to it, it's really simply common sense practices that for the most part were practiced by the industry for decades, until a few years ago.

Here's the rules proposed by the Fed:

• Prohibit a lender from engaging in a pattern or practice of lending without considering borrowers' ability to repay the loans from sources other than the home's value.

• Prohibit a lender from making a loan by relying on income or assets that it does not verify.

• Restrict prepayment penalties only to loans that meet certain conditions, including the condition that the penalty expire at least sixty days before any possible payment increase.

• Require that the lender establish an escrow account for the payment of property taxes and homeowners' insurance. The lender may only offer the borrower the opportunity to opt out of the escrow account after one year.

What's more important in all this to me, is the breakdown of discipline in the financial business community, as they embraced these types of mortgages when history had already shown there's a price to pay by all involved if they do.

Even fairly recent history shows that from the Savings & Loan fiasco to the Internet bubble, there isn't going to be sustainable periods of time where growth will far exceed historical results. The idea that "this time is different," is what give usually smart people the temptation to abandon wise practices in exchange for wildly risky ones.

One major element that brought this to bear in this problem, was risk seemed to be spread widely across a larger number of investors and originators of mortgage loans, which gave the illusion that it could go on and on with no repercussions. That's in spite of the fact that people had been warning about the mortgage crisis almost from the time the loans started to be originated.

While spreading risk can be a good strategy, understanding historical precedents, as far as it relates to growth in any industry, is a better indicator of healthy transactions, than it is of suppposed new realities that make the old discipline obsolete in starry-eyed people that have been deceived by their own beliefs. That is an old story that people with the herd mentality always get themselves into.

We need to keep ourselves disciplined regardless of how fast a market is currently growing. Market rules won't change, they only go through periods of time that exceptional growth will occur. That growth can never be sustained over a long period, without abandoning business and management discipline.

Those that attempt to circumvent their discipline, will always find themselves in these types of situations. No rules or law are going to change that.

The bottom line is we can't believe our own hype, don't follow the herd, and have a strong commitment to managing growth. Over a period of time, things will level out, and competitors that seem to have a huge advantage, will eventually come crashing down to earth if they're taking shortcuts to attain large, short-term gains. The subprime mortgage crises once again proves this to be true.