-Submitted by David Drumm (Nal), Guest Blogger
New York City mayor Michael Bloomberg surprised many when he stooped to the level of Rush Limbaugh to push the Big Lie, that it was the government that caused the mortgage crisis. Bloomberg claimed that “It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and to give mortgages to people who were on the cusp.” Bloomberg added that members of Congress “were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will.”
Fannie and Freddie don’t make loans. Whom does Bloomberg think he’s fooling?
Matt Taibbi referred to the speech as Bloomberg’s Marie Antoinette moment, his own personal “Let Them Eat Cake” line. Taibbi went on to write:
Well, you know what, Mike Bloomberg? FUCK YOU.
The Big Lie has been shown false so many times, and Bloomberg’s persona as a pragmatic technocrat has been so carefully crafted, that Taibbi’s frank language is not only understandable, but refreshingly honest.
More than 84% of the subprime loans were issued by private lending institutions. Only one of the top 25 subprime lenders was directly subject to the Community Reinvestment Act (CRA).
The Occupy Wall Street movement must be worrying the 1% if Bloomberg is willing to embarrass himself by spouting falsehoods. It was the greed of Wall Street that created the demand for riskier loans. Mortgage Backed Securities were a hugely profitable financial monster with an appetite for more and more mortgages. More mortgages required more borrowers and hence, risky and even fraudulent lending practices.
As we have discussed, here, the Obama administration has proposed a settlement with major banks that would restrict the ability of prosecutors to investigate wrongdoing with regard to bundling of loans into mortgage securities. Taibbi’s frank statement need not be reserved for Bloomberg.
H/T: Mike Konczal, McClatchy, Barry Ritholtz, NYTimes, Center for Responsible Lending (pdf).
puzzling:
they are buying up good loans with low risk to make their books look better. Using public money to do it to I imagine.
If that why taxpayers are on the hook for $100B in rescue money so far? From this week:
Fannie Mae Says It Needs $7.8 Billion More U.S. Aid
Fannie Mae also owns 125,000 foreclosed homes that it needs to book losses on.
Gene,
Pie and Orcs woos you every time … you’re sooo easy …;)
From “Lord of the Rings: The Lost First Edit”:
“You have failed me miserably, Saruman,” said the Eye of Sauron. “Mordor demanded an army of Orcs and wolves and a pie of roast pumpkins and spices, not the other way around! Never send a Wizard to do the job of a Nazgûl!”
nono rafflaw, that was Blouise’s good quote…I was just lovin it 🙂
Nal,
Taiibbi did a follow-up post about Bloomberg and the banks.
One Last Note on Mike Bloomberg
http://www.rollingstone.com/politics/blogs/taibblog/one-last-note-on-michael-bloomberg-20111105
Excerpt:
I’m getting a number of letters, mainly from conservatives and libertarians, who seem to think that my response to Mike Bloomberg’s “It’s not the banks’ fault” rant means I “don’t believe in personal responsibility.”
Apparently, people feel that by explaining how the banks profited from the explosion of subprime home loans, I’m somehow letting the ordinary homeowner who over-borrowed off the hook.
But the question was never, Do ordinary homeowners share any blame for the crisis? The question, as implicitly posed by Bloomberg, was, Is it true that the banks had NO blame for the crisis?
We can all argue about how big of a slice of the blame pie should be doled out to other actors – the irresponsible homeowner, the corrupted ratings agency analyst, the sleeping regulator, the do-gooder liberal congressman, etc. – later on. But what the mayor said, and Wall Street flaks have been saying for years, is that the banks shouldn’t eat any of that pie, and that they only made those loans because they were forced to, by Barney Frank and Franklin Raines and other such liberal meddling kids.
So let’s examine that for a minute.
For one thing, we know, because of investigations like Carl Levin’s inquiry into Washington Mutual and its subsidiary Long Beach, that these banks were often well aware that fly-by-night lenders like Countrywide and Long Beach were committing fraud on a massive scale – and bought their loans anyway, knowing they could still sell them off on the secondary market.
In 2005, for instance, Washington Mutual did an internal audit of two of Long Beach’s biggest offices, one in Downey, California, and one in Montebello, California. They found that 53 percent of the Downey loans involved some type of fraud, while the number in Montebello was 83 percent. The internal investigation drummed up the usual litany of unsafe financial sexual practices, using white-out to disguise low income levels, cutting and pasting info from good borrowers onto the loan applications of less worthy applicants, and so on.
So you know what WaMu did about all that fraud they found? Zip.
The company overrode its auditors and sold those phony loans off into the market anyway. And internally, they did nothing to change lending practices. WaMu did a follow-up investigation in 2007, and found the fraud rate at Montebello was still 62 percent.
So forget about the banks being dragged, kicking and screaming, to take on even legitimate loans for unworthy, overextended homeowners. Not only did the banks willingly take on every conceivable real home loan, government-backed or not – they even wanted the fraudulent loans, the loans that were not just likely to fail but virtually guaranteed to fail.
Why? Because they could. Because they were making huge profits hawking these bad loans to third-party customers who didn’t know what they were buying.
But here’s the real kicker: when the banks milked the Countrywides and Long Beaches dry, and ran out of real people with pulses to lend homes to, they went out and made derivative copies of those “unworthy” lenders supposedly forced upon them by Barney Frank, and sold those copies off on the secondary market.
In other words, they were so “reluctant” to give that Oakland janitor a house that once they had his loan on their books, they promptly Xerox-copied him in the form of synthetic derivatives (essentially, bets on his home loan) and sold him off in five, ten, fifteen different directions. Janitor takes out home loan, bank tells two friends, and those friends tell two friends, and so on, and so on. The banks sold every one of those endlessly-replicating little squares and made cold hard cash each time.
Mmmmmmmmmm . . . orcs and pie.