Supply Chain Management in the Mortgage Banking Industryin HPN Blog
In April of 2000, Morgan Stanley Dean Witter produced a white paper for their more sophisticated investors entitled “The B2B Internet Report: Collaborative Commerce”. This report was a snapshot of how the internet had influenced commerce up to that time. It also speculated how the internet was due to influence commerce into the future. It demonstrated how the internet had made information more transparent between business partners and how business partners, both buyers and sellers, would benefit from deeper collaboration in online B2B Commerce.
“B2B [business to business] is closer to a construction project with many synchronized processes between specialists, whereas B2C [business to consumer] is closer to buying the house once all that’s been completed. Unlike B2C, there’s a lot more to relationships between trading partners in the B2B world. These “collaborations” – shared, essential business processes, which facilitate commerce – represent obstacle and opportunity. Almost every business process between business partners can be improved or completely restructured by taking it online.
Throughout the 90’s and the early 2000’s, the sort of consolidation and collaborative online business relationships this paper reported upon developed and continued to develop as predicted. Supply chain management became the buzzword throughout Information Technology departments across the country. The business world saw mergers and acquisitions as regional competitors became integrated partners dominating their specific industry. Companies whose main stock in trade was knowledge of individual differences between regions were either absorbed or fell to the wayside as transparency of knowledge came to dominate the marketplace. This happened in several industries including aviation, automobile assembly, and defense manufacturing. In the process, it also reached into the logistical support each these industries needed in order to function.
Nowhere was this supply chain management concept applied more diligently than in the mortgage banking industry in the follow up to the S&L mess of the Reagan/Bush era. Mortgage banking, up until the late mid 90’s, was a labor and paper intensive endeavor. Computer and information technology brought an extreme streamlining to the process of delivering retail mortgage products to the individual. This B2B automation reduced to a minimum the number of people and companies involved in selling a mortgage B2C.
Throughout the 00’s, B2B collaboration between Mortgage Banking and the Shadow Banking System it supported became ever more integrated. It developed to where the consumer was able to purchase or refinance a home without ever signing or handling a piece of paper. It was all on line. There was a machine on the other side of the door in the closing room that took over the moment the homeowner walked out of the ceremony. This machine finished processing the paperwork the homeowner had signed and using the internet and computers, almost immediately produced the end product traded in the secondary, “Shadow Banking System”. The homeowner had no idea of just what his signature or check mark in a box had just created.
Individual home mortgages became just one piece in a long supply chain of items which ended up financing the world economy. The banking industry created a series of derived value financial products ranging from the value of the real estate involved (including water and mineral rights) to the credit ratings and payment histories of each individual home buyer including the future value thereof. This was done in the individual as well as the aggregate. The individual homeowner was totally unaware of all of this and no amount of due diligence on his part could have possibly revealed the sophisticated financial products his signature created.
These created financial products literally run the world. Films are made, hospitals are built, oil is shipped, all based upon the supply chain management of individual mortgage products and the aggregated cash flows they represent. Were it not for these structured products, you would not be eating strawberries in December. This flow of information and its corresponding cash flow to it created the link between the real economy and the virtual economy.
In order to understand what really happened to the finances of the world, one must cease looking upon foreclosures as a real property issue and come to see how real property fits into a much larger, virtual economic system. This system leverages the cash flows of aggregated mortgage payments, automobile payments, cell phone payments, satellite and cable television payments, student loan payments and any other contracted payment streams into highly structured banking products that literally run the world economic system. In the process, the bankers hijacked the ownership of all property and sold their future value many times over while keeping the attendant profits and control of all of the assets for themselves.
This is the world the individual homeowner entered into when he bought his home. The individual homeowner is just a small, albeit critical piece in the supply chain management of highly structured financial products. A mortgage is really a marketing plan to induce you to assume your role in the world economic system without you knowing about it. The banks use your identity, your payment histories, your credit rating to make billions of dollars in profits for themselves while putting the risk upon others without their knowledge.
As you read the rest of this series, please keep these concepts of supply chain management in mind. It will help make sense of what might otherwise seem nonsensical.
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