CNBC has some bright and interesting people; but, with a couple of exceptions, they and their typical guests are prisoners of the Wall Street ethos. They are like railroad firemen reflexively shoveling coal as fast as they can into the boiler of a runaway freight train – a plausible metaphor for 21st century capitalism.
Aside from the skew this gives to their economics, it tends also to warp their perspective. Thursday morning they were discussing a Clinton-era initiative of the early 1990s to expand the possibilities of home ownership in America. A noble and worthy purpose, they lamented, but one which sowed the seeds of today’s collapse in the housing markets.
Breathtaking.
Of course Clinton-era policies could be abused. All policies can be abused. But it was not government that abused the principles of sound credit. Abusers did.
Blaming that on government policy is like blaming the Brinks robbery on government requirements for banks to hold loan reserves.
Nothing in government policy urged no-doc, low-doc, or NINJA loans. Fraudulent mortgage brokers and banks failing to do proper (or any) credit checks gamed the system. Cynical investment bankers bundled these travesties into securitized tranches and seduced fee-loving rating agencies to obtain the eucharistic blessing of AAA ratings. It’s been one of those amazing times when the voracious predators worked themselves into such a feeding frenzy that they devoured each other.
There is one thing the government could realistically have done. It could have prevented some of these excesses with vigilant regulation – which is exactly what the Wall Street Bible and the priestly cult of CNBC hate most.
In Friday’s Times, Floyd Norris observes, "As the mortgage mess grows, we are learning more and more about just how sloppy things were in the mortgage-issuing business as loans were churned out, carved into securities, and sold off."
He notes that a few judges are now blocking foreclosure proceedings because the would-be repossessors can’t even prove they own the mortgages they’re trying to foreclose on.
And now, he writes, the banks are begging the accounting rule makers to allow them to ignore a standard that has been on the books for almost 15 years -- a rule requiring them to report their losses -- enacted to correct the deceptive bloating of balance sheets that fueled the Savings & Loan debacle of the late 1980s. Exempt them from that requirement and they can bamboozle their stockholders as well as their borrowers.
But don’t look for this story to emerge from the hosts and guests of CNBC. They’re Wall Streeters. Fish don’t oppose water, and Wall Streeters don’t find fault with banks.
Some outa-towners musta done it.
Government is only one of their scapegoats. They also blame "irresponsible" home buyers – the folks who were talked into believing they could at long last afford to own their own homes.
Of course some of the borrowers were speculators, buying second and third homes and flipping them to sell at higher prices until they got caught when the market topped and the buyers evaporated.
But let’s stick to the typical case where working people are shown the yellow brick road to home ownership by mortgage brokers and bankers looking for the highest possible volume of loans, quality be damned, because they had no intention of adding these loans to their books – they would bundle them off for resale through the investment banks.
Many of them engorged their profits in the process by pushing completely unsuitable high-rate, high-fee loans that they knew could never be repaid but were gloriously lucrative to the banks, lending companies, and commissioned mortgage brokers. The borrowers who now stand to lose their homes will have spent their last dollar fattening up the lenders and brokers with unconscionable fees that go on and on, even after the mortgages slide into default.
And the homeowners are to blame for bursting the housing bubble?
As Norris points out, the banks are now claiming they just don’t have adequate staff or computer systems to comply with accounting rules, but somehow home buyers were supposed to be able to figure it all out on their fingers?
Have you ever met a homeowner who has actually read all the documents he or she signed at a mortgage closing? And if they had, could anyone have translated all that legalistic gibberish well enough to see the pitfalls, the penalties, and the overcharges being shoved down their throats?
Many if not most of the borrowers deserve a reprieve.
And many of the banks and bankers deserve to be foreclosed.
Cross posted from The Horse You Rode In On