As the subprime loan crisis expands, some chief executive officers (CEO) have been "retired" with million-dollar bonuses. Why should they get millions for making serious financial mistakes? Homeowners don't enjoy the same fate. When they fail to properly manage the biggest investment of their lives - their dream or starter home - they often lose everything through foreclosure.

The reason many CEOs who blunder don't leave the premises empty handed is they protected themselves with a contract. The contract guarantees a parachute or some other life-saving mechanism that they can activate in the event of a sudden fall from grace.

Home buyers don't have the benefit of negotiating such a smooth descent with their lending bank. If they suddenly find themselves unable to pay their mortgage, the bank reclaims their home. But had the homeowner started the process as though he or she were the CEO of a small real estate empire, they might have exercised at least one basic business axiom: hedge your bet. And by doing so, the CEO-homeowner, may have averted disaster.

Banks, real estate firms, and corporations of all stripes set aside funds in case of emergency. We're not talking about a somewhat dormant savings account. No. These big firms make their money work. It is invested or traded in accounts that hedge their risks. At least that's what happened before the subprime fiasco. It appears now that some very large companies exposed themselves to financial risks that outmatched their ability to protect. Thus we now have various Titanic corporations scraping against an iceberg of their own making: stupidity. But I digress.

My point is most homeowners do nothing to protect their investment. This is unfortunate. Maybe your mortgage interest rate is fixed. Good. But other variables of the economy that may cause ruination are not fixed: loss of employment; inflation in food, schooling and other costs; interest rate changes that affect the availability of money. And, oh yes, war, famine and political upheaval.

Homeowners must see themselves as something more than home makers. They must become CEOs. They must oversee their real estate empire - modest as it might seem - by devising a plan to protect the gamble of borrowing heavily from a bank. The plan must include participation in at least one of the markets that most affects their plight: I suggest U.S. Treasury bonds. More specifically, options on T-bond futures.

I'm not talking about the purchase of U.S. Treasuries. The stocks and bonds you may hold in your investment portfolio are part of a long-term strategy. Learning to trade options on the U.S. Treasury bond on the Chicago Board of Trade gives you the ability to remain liquid and adjust to short-term changes in one of the world's largest markets.

Are there risks when participating in this market? Yes. And the market might not be appropriate for everyone, even though it is available to all Americans.

Yet the wise CEO-homeowner compares the risk of learning a new skill to the prospect of remaining a sitting duck. After careful consideration, the CEO-homeowner realizes that it is potentially disastrous to remain ignorant of the one market that his/her bank mastered decades ago.

Copyright 2007

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