Mayor Michael Bloomberg said this morning that if there is anyone to blame for the mortgage crisis that led the collapse of the financial industry, it's not the "big banks," but congress.Speaking at a business breakfast in midtown featuring Bloomberg and two former New York City mayors, Bloomberg was asked what he thought of the Occupy Wall Street protesters."I hear your complaints," Bloomberg said. "Some of them are totally unfounded. It was not the banks that created the mortgage crisis. It was, plain and simple, congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I'm not saying I'm sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn't have gotten them without that."To me, this is Michael Bloomberg’s Marie Antoinette moment, his own personal "Let Them Eat Cake" line...Bloomberg, with this preposterous schlock about congress forcing banks to lend to poor people, may yet make himself the face of the 1%’s rank intellectual corruption.
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.
Fannie and Freddie had nothing to do with Merrill Lynch selling $16.5 billion worth of crap mortgage-backed securities to the Connecticut Carpenters Annuity Fund, the Mississippi Public Employees' Retirement System, the Connecticut Carpenters Pension Fund, and the Los Angeles County Employees Retirement Association. Citigroup and Deutsche Bank did not need to be pushed by Barney Frank and Nancy Pelosi to sell hundreds of millions of dollars in crappy MBS to Allstate.
And Goldman, Sachs did not need Franklin Raines to urge it to sell $1.2 billion in designed-to-fail mortgage-backed instruments to two of the country’s largest corporate credit unions, which subsequently went bust and had to be swallowed up by the National Credit Union Administration.
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.
And, of course, in a larger sense, the entire crisis was the fault of that janitor in Oakland, who took out too big of a loan, with the help of do-gooder liberals in congress and their fans in bleeding-heart liberal la-la land – you know, the same people Bloomberg wowed with his hep jokes about Snooki and Charlie Sheen.
This is the evil lie Bloomberg is now trying to dump on the Occupy movement... And the mayor put a cherry on the top of his Marie-Antoinette act with the rest of his speech:
"But [congress] were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody. And now we want to go vilify the banks because it's one target, it's easy to blame them and congress certainly isn't going to blame themselves. At the same time, Congress is trying to pressure banks to loosen their lending standards to make more loans. This is exactly the same speech they criticized them for."Bloomberg went on to say it's "cathartic" and "entertaining" to blame people, but the important thing now is to fix the problem.Jesus … I mean, for one thing, Fannie and Freddie don’t even make loans. That’s how absurd this whole thing is.
And the condescension levels here are unbelievable, his air of aristocratic superiority almost breathtaking to behold. Listen to Bloomberg paternally conceding in one breath that it is certainly nice that some struggling people now have homes ("I'm not saying I'm sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn't have gotten them without that"), just before chiding us with the next that there are sometimes negative consequences to doing something that sounds like goodness, like giving people a place of their own to live.
And then there’s this whole line in which he professes to indulgently understand the need for the "catharsis" and "entertainment" of protest, again almost like a Dad who tells his idiot teenage son that he understands the need to sow a wild oat or two, but please don’t wreck the family Mercedes next time...
People are not protesting for their own entertainment, you asshole. They’re protesting because millions of people were robbed, by your best friends incidentally, and they want their money back.
Friday, November 4, 2011
Mayor Bloomberg tries to re-write the origins of the financial crisis
Matt Taibbi at Rolling Stone: