What caused the financial crisis? The Big Lie goes viral.
Update: Worth reading — Why Wall Street Can’t Handle the Truth. By an insider.
The Mahablog
Politics. Society. Group Therapy.
What caused the financial crisis? The Big Lie goes viral.
Update: Worth reading — Why Wall Street Can’t Handle the Truth. By an insider.
Two excellent articles worth the effort involved in reading economic analysis.
Barbara, you are turning into a wonk.
Good articles! Thanks!
The linked article by Barry Ritholtz is OK, but I think that Matt Taibbi did a much better job with this topic:
Mike Bloomberg’s Marie Antoinette Moment
http://www.rollingstone.com/politics/blogs/taibblog/mike-bloombergs-marie-antoinette-moment-20111103
If you really want to see a great video on what caused the financial crisis, you can hardly beat this one on Aljazeera:
Meltdown: The Men Who Crashed the World
http://english.aljazeera.net/programmes/meltdown/2011/09/2011914105518615434.html
Wall Street blaming the regulators is like the rapist saying he’s the real victim, and it’s all completely your fault because if you weren’t so tempting he’d never have done what he did. You made him do it. You need to go to jail for it.
Right after the collapse, we should have stuck their noses into the pile of poop they left on the carpet, hit them on the snout with a rolled up newspaper, then stuck a .357 in their mouth and taken every last cent from their accounts, and told them that they were lucky to walk away with their lives, because in less enlightened times, we’d have released them and their families to their victims and turned our backs to their begging and shrieking.
Remember all those ideas banks used to stand for, like secure safeguarding of your deposits? I think this quote from the second article nails it:
What we need is a better version of capitalism. That version starts with accounting: Let banks operate with a lot of latitude, but make sure outsiders can see the numbers (the real numbers). It also includes bankruptcy: Let those who stand to gain from the risks they take—lenders, borrowers and bank executives—also remain accountable for mistakes
Honesty and openness and firm standards disappeared, and as Gomer Pyle used to say, “Surprise, surprise, surprise!”
The big lie article is excellent (I tried to go back to see the authors name, I need to sign up to see it again?) The problem is he takes 12 small paragraphs to explain the causes of the collapse, far to many words for your run of the mill republicant dimwitted-teabagger.
They all know it was the Gubmint what done it!
A few facts: Under monopoly-finance capital, an accumulation of misery is a necessary condition, corresponding to the accumulation of wealth; Goldman advised investors to buy certain stocks which later the same advisers sold short; the amount of sub-prime mortgages issues and embedded in Mortgage Backed Securities shot up from $54 billion in 2000 to $508 billion at the peak in 2005; As to Bloomberg’s remark, interesting that the government “forced” private lending agencies to make bad loans, but the same government is not able to “force” the recipients of our money to reveal what they’re doing with it.
The sad part of this is that it does work well as a “big lie”. If a Very Serious Person tells a big enough lie with any plausibility, people will debate how big a lie it really is.
I saw one person saying that “of course” the CRA got some people loans who are going to be foreclosed on. That’s astoundingly stupid. Why?
*BECAUSE EVERYONE WITH A MORTGAGE HAS A CHANCE OF BEING FORECLOSED ON*.
People have taken out mortgages and ended up foreclosed on *forever*. The CRA did not change that. All it did was take a new group of people who never had a chance to get a mortgage in the past, and gave them a chance to get one – and that included the chance to face foreclosure. You’d only have information about whether the CRA caused foreclosures if you could show an increase in foreclosures, above the average rate of foreclosures for other conforming loans, during the recession. You might be able to prove that – but I’ll guarantee you no one’s bothered to find out!
Unless you can show that the CRA – and *only* the CRA, not the massive recession – caused foreclosures, it’s the kind of BS that typically supports the Big Lie. People just say stuff that seems relevant, and other people node wisely and agree, and it seems like they’re being broad minded.
And, of course, it ignores the much, much, much more important issue: without the sub-prime lending by institutions that were *not* covered by the CRA, the crisis simply would not have happened.
twtfltrd: The first article was by Barry Ritholtz. I was able to go back to article with no problems. (Links — how do they work?)
Both articles are good. Thanks Maha.
One thing that CRA did cause banks to do was to make them “increase” their amount of corporate charity and make it local. I saw that when I worked in development for a non-profit organization. We regularly cite CRA as a reason for a bank to make a contribution to us. I used the quotes around the increase because I don’t know how to track the contributions after the banks began merging and eating up each other; one of the points made for mergers to the stockholders was that corporate contributions could be cut by the merger. And I did see that happen.
maha,
I find out on Wednesday if my unemployment get extended for another 12 weeks – and if it does, I’ll try to donate a bit on Friday.
I wish it could be a lot of money, because you know how much I love your blog!!!
Barry Ritholz is a well respected guy that not enough people listen to, probably because as a commenter upstream put it, he puts together concepts and words beyond the attention span of the average wingnut. I was dismayed by some of the comments to his article, some rightard claiming “no, it was the democrats and fannie mae and freddie mac” that caused the problem – the Big Lie personified.
But here again, the fact that the Big Lie exists at all is the failure of the Democrats – especially Barack Obama – to explain to the country what happened. I happened to pass by an LA Times news stand, the lead article saying (in a nutshell) that Obama has more campaign cash by far than any of his rivals. Gee, I wonder where it all came from?
Correction – the wingnuts don’t listen Barry R because he tries to be completely data-driven. This drives wingnuts crazy, because they’re completely driven by ideology.
I like Ritholtz a lot. One of the very few financial-types who isn’t speaking out of his “backside”.
He left out a few layers in the crisis:
Internet banking allowed “banks” to offer high rates for deposits easily to large audiences, forcing even formerly-conservative banks to offer such rates or perish. Such rates of return were only available “safely and liquidly” if they invested in the MBSs.
Local agents for all mortgage services (e.g., inspections, appraisals, etc.) were none-too-subtly apprised that their services were only being requested if they could deliver a suitable product. The businesses, often single-proprietors, were so overworked that actual due diligence was nearly impossible, even if they were not bought and paid for. Even respectable agents were brought into the fold by the self-sustaining belief that their services were truthful (as long as the prices of houses continued to go up).
Homebuilders, riding the wave, way overproduced housing beyond what the actual eventual economy could sustain, thus the lack of current demand for housing at any price.
Homeowners, living beyond their current means (but knowing that things would keep going up, as they always had), borrowed from their homes (which artificially propped up the economy and pushed the refinance boom concurrent with the mortgage origination boom).
Et cetera, et cetera, et cetera. Way too many ripples to cite in one post.
NONE of which was caused by any fictitious Fanny Mae or Freddie Mac requirement that banks lend money to unqualified, poor borrowers.