Last week, I purchased a combo meal at a Burger King NC. The cost was $4.57. I handed a $5 bill to a young man at the counter, and reached into my pocket to see what spare change I could liberate from the dark and noisy front left pocket. He had rung up the 'out of $5.00' when I handed him $.07 in lose change. Expecting him to hand me back $.50, he paused - and calmly called for his manager.

This reminded me of an email I got some time ago about the shifting evolution of math education. Our continued orientation and focus relates to using arithmetic and their own goals to help the consumer navigate through their decisions related to borrowing. Borrowing from an industry that lowered eligibility requirements over the last several years while continuing to the ignore suitability requirements of that borrowing - hence the subprime hangover.

I learned math (basic arithmetic) in the 70's, and really related to a math teacher's recent perspective on how math was being taught in some schools ...

**Teaching Math In 1960:**

A logger sells a truckload of lumber for $100. His cost of production is 4/5 of the price. What is his profit?

**Teaching Math In 1970:**

A logger sells a truckload of lumber for $100. His cost of production is 4/5 of the price, or $80. What is his profit?

**Teaching Math In 1980:**

A logger sells a truckload of lumber for $100. His cost of production is $80. Did he make a profit?

**Teaching Math In 1990:**

A logger sells a truckload of lumber for $100. His cost of production is $80 and his profit is $20. Your assignment: Underline the number 20.

**Teaching Math In 2000:**

A logger cuts down a beautiful forest because he is selfish and inconsiderate and cares nothing for the habitat of animals or the preservation of our woodlands. He does this so he can make a profit of $20. What do you think of this way of making a living?

This is what seems to be math as philosophy. It is an extreme, I know, but we seem to be living in a world of extremes lately. When the word 'financial contagion' becomes a daily headline, we see math being used to create complex derivatives and CDOs to mutate greed into the financial equivalent of the financial avian flu.

The financial and philosophical impact is spreading, and we don't know all the implications yet - but this recent interactive chart by Financial Times is worth a quick viewing. Leverage is a powerful force, and the long term implications to lenders, loan officers, and consumers could be far from over. As we've discussed, we have now opened the door for greater (and seemingly justified) regulation at a state and federal level.

Want to understand more about the details behind the math used to create these complex instruments - John Mauldin does a great job of explaining it in this article on the Subprime Debacle. Our thoughts go out to those of you who have shared with us some of your stories and how this has impacted you. It seems to be part of the shift, or 'shock' needed to the financial body - it will lead to greater change in how we view borrowing at many levels. Another great article that explains the history of what happened is: The ABC of CDOs.

** PS** - Our Mentor program for Mortgage Professionals starts on September 12th. We have 8 seats left for this one year program. If you'd like to learn more, call Misty Beil at 919.688.8223 and ask for an appointment with Larry Herst (larryh@kendalltodd.com) to discuss the program.

Being a resident of a Blue state, I generally watch my mouth.

Having lived for 12 years in a red state, I can do nothing but laugh while shaking my head sadly at how true that statemtent is.

Posted by: Brian Brady | August 15, 2007 at 08:09 PM