You have to read Matt Taibbi’s entire post on Mayor Bloomberg’s “let them eat cake” moment. A snippet:
This whole notion that the financial crisis was caused by government attempts to create an “ownership society” and make mortgages more available to low-income (and particularly minority) borrowers has been pushed for some time by dingbats like Rush Limbaugh and Sean Hannity, who often point to laws like the 1977 Community Reinvestment Act as signature events in the crash drama.
But Rush Limbaugh and Sean Hannity are at least dumb enough that it is theoretically possible that they actually believe the crash was caused by the CRA, Barney Frank, and Fannie and Freddie.
On the other hand, nobody who actually understands anything about banking, or has spent more than ten minutes inside a Wall Street office, believes any of that crap. In the financial world, the fairy tales about the CRA causing the crash inspire a sort of chuckling bemusement, as though they were tribal bugaboos explaining bad rainfall or an outbreak of hoof-and-mouth, ghost stories and legends good for scaring the masses.
But nobody actually believes them. Did government efforts to ease lending standards put a lot of iffy borrowers into homes? Absolutely. Were there a lot of people who wouldn’t have gotten homes twenty or thirty years ago who are now in foreclosure thanks to government efforts to make mortgages more available? Sure – no question.
But did any of that have anything at all to do with the explosion of subprime home lending that caused the gigantic speculative bubble of the mid-2000s, or the crash that followed?
Not even slightly. The whole premise is preposterous. And Mike Bloomberg knows it.
In order for this vision of history to be true, one would have to imagine that all of these banks were dragged, kicking and screaming, to the altar of home lending, forced against their will to create huge volumes of home loans for unqualified borrowers.
In fact, just the opposite was true. This was an orgiastic stampede of lending, undertaken with something very like bloodlust. Far from being dragged into poor neighborhoods and forced to give out home loans to jobless black folk, companies like Countrywide and New Century charged into suburbs and exurbs from coast to coast with the enthusiasm of Rwandan machete mobs, looking to create as many loans as they could.
They lent to anyone with a pulse and they didn’t need Barney Frank to give them a push. This was not social policy. This was greed. They created those loans not because they had to, but because it was profitable. Enormously, gigantically profitable — profitable enough to create huge fortunes out of thin air, with a speed never seen before in Wall Street’s history.
The typical money-machine cycle of subprime lending took place without any real government involvement. Bank A (let’s say it’s Goldman, Sachs) lends criminal enterprise B (let’s say it’s Countrywide) a billion dollars. Countrywide then goes out and creates a billion dollars of shoddy home loans, committing any and all kinds of fraud along the way in an effort to produce as many loans as quickly as possible, very often putting people who shouldn’t have gotten homes into homes, faking their income levels, their credit scores, etc.
Goldman then buys back those loans from Countrywide, places them in an offshore trust, and chops them up into securities. Here they use fancy math to turn a billion dollars of subprime junk into different types of securities, some of them AAA-rated, some of them junk-rated, etc. They then go out on the open market and sell those securities to various big customers – pension funds, foreign trade unions, hedge funds, and so on.
The whole game was based on one new innovation: the derivative instruments like CDOs that allowed them to take junk-rated home loans and turn them into AAA-rated instruments. It was not Barney Frank who made it possible for Goldman, Sachs to sell the home loan of an occasionally-employed janitor in Oakland or Detroit as something just as safe as, and more profitable than, a United States Treasury Bill. This was something they cooked up entirely by themselves and developed solely with the aim of making more money.
The government’s efforts to make home loans more available to people showed up in a few places in this whole tableau. For one thing, it made it easier for the Countrywides of the world to create their giant masses of loans. And secondly, the Fannies and Freddies of the world were big customers of the banks, buying up mortgage-backed securities in bulk along with the rest of the suckers. Without a doubt, the bubble would not have been as big, or inflated as fast, without Fannie and Freddie.
But the bubble was overwhelmingly built around a single private-sector economic reality that had nothing to do with any of that: new financial instruments made it possible to sell crap loans as AAA-rated paper.
This part is so true that it hurts my stomach, especially considering that I have met lots of retirees (or former retirees) and parents and teachers in this same boat:
These banks did not need to be dragged kicking and screaming to make the billions of dollars in profits from these and other similar selling-baby-powder-as-coke transactions. They did it for the money, and they did it because they did not give a fuck who got hurt.
Who cares if some schmuck carpenter in Connecticut loses the pension he’s worked his whole life to save? Who cares if he’s now going to have to work until he’s seventy, instead of retiring at fifty-five? It’s his own fault for not knowing what his pension fund manager was buying.
I wish people could see how condescending and disrespectful some of the bank attorneys (more like default servicer attorneys in actuality, although they pretend to represent the bank trustees and MERS too) are to these American citizens in court. Some are just outright dismissive and rude to fellow citizens who could easily be friends of theirs or of their parents, work colleagues or church members.
They tell the judge that this is just “frivolous” and “foreclosure avoidance” and try to bias the court, all the while ignoring the fact that their clients (through them in many cases) have presented faked up conveyance documents. And some of the judges buy right in to the “poor bank” story…don’t they have friends facing foreclosure? And don’t they see commercial lenders and developers modify loans and promissory notes as a matter of course? And have they already forgotten 2007 and 2008 and what happened there? The part where these same citizens gave the banks the money that they needed? And now they run around moralizing and threatening people?