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Republican Members of FCIC to Promote Crisis Urban Legends, Shift Blame From Banks

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Lordie, the Big Lie is with us in force.

The New York Times reports that the Republican members of the Financial Crisis Inquiry Commission are going to pre-empt the report (due in mid-January) and issue their own 13 page screed later today focusing blame for the crisis on…Fannie and Freddie, and no doubt the CRA too.

Let’s look at a few inconvenient facts. We had housing bubbles in the UK, Australia, Ireland, Spain, Iceland, Latvia, Canada, and a lot of Eastern Europe. Can we blame the CRA and Fannie and Freddie for that? How about the M&A boom, which resulted in a ton of leveraged loans being issued at super low spreads? If the Fed and other central banks had not driven rates to the floor, we’d see a good bit more distress and dislocation in this sector of the market. Oh, and how about the fact that banks in Continental Europe, which had no housing bubble in their home markets, and no evil Fannie or Freddie analogues, also nearly keeled over in the crisis?

This whole line of thinking is garbage, the financial policy equivalent of arguing that the sun revolves around the earth. Yes, the US and other countries provide overly generous subsidies to housing, and curtailing them over time would not be a bad idea. But that’s been our policy for decades. Calling that a major, let alone primary, cause of the crisis, is simply a highly coded “blame the poor” strategy, In reality, both the runup to the crisis and its aftermath were on of the greatest wealth transfers from the citizenry at large to a comparatively small group of rentiers in the history of man. (If you want to read the long form debunking of this thesis, go straight to Barry Ritholtz, a Republican who has shredded this brand of class warfare, or as he calls it, “one giant clusterfuck of imbecility,” repeatedly on his blog.)

The intent is pretty transparent: to discredit an effort at fact finding into the roots of the crisis, what was hoped to be a Pecora Commission, by making it appear partisan and launching an alternative narrative to muddy the waters. And the reason is clear. Even though FCIC is certain not to have the same effect that the Pecora Commission did, of discrediting major financial services industry figures and exposing various forms of chicanery, it appears that even lesser forms of criticism of the banksters must be sandbagged (the bizarre part of this drama is that at least some Democrats and very selectively, Republicans in office are willing to call out the predatory, extractive behavior of the large banks. But no one has the guts to buck an industry that is a major paymaster in a very serious way).

If you think I am exaggerating how intellectually dishonest this Republican whitewash effort is, Shahien Nasiripour’s first rate account at Huffington Post has more sordid details:

During a private commission meeting last week, all four Republicans voted in favor of banning the phrases “Wall Street” and “shadow banking” and the words “interconnection” and “deregulation” from the panel’s final report, according to a person familiar with the matter and confirmed by Brooksley E. Born, one of the six commissioners who voted against the proposal….Born said that the Republicans wanted to ban two other phrases “of the same ilk,” but she said she couldn’t remember what they were.

How can you talk coherently about the crisis and NOT talk about the shadow banking system, which grew to be at least as large as the official banking system and was the primary object of the various government rescue operations? It’s like trying to talk about AIDS and pretend there is no such thing as intercourse. Similarly, excessive interconnectedness, or as Richard Bookstaber vividly called it, “tight coupling” was another critical driver. AND HOW CAN YOU NOT TALK ABOUT DEREGULATION?!? What is there left to talk about once that is excised? Sunspots?

So what further censorship efforts will these Republicans dream up? Let’s see, if they burn every book on the crisis that contains “shadow banking”, “interconnection” or “deregulation” there will be no crisis books left! They can then engage the American Enterprise Institute, Cato, and other right wing think tanks to reeducate the public via providing far more accurate books (forget books, book reading should probably be discouraged, TV and webcasts with beautiful actors and actresses are much more effective messaging vehicles) that place all blame for the financial crisis on evil left leaning policy makers who pushed too much housing on unreliable lower income people. This of course makes it easy to excise lots of inconvenient facts, say, that 40% of the houses purchased in the bubble years were second homes, or that a single hedge fund, Magnetar, drove at least 50% of subprime demand via its CDO program during the toxic phase. Of course, Hank Paulson, Ben Bernanke, and Timothy Geither will be depicted as the saviors of humanity from the forces of darkness and declining asset values.

This pathetic development shows how deeply this country is in thrall to lobbyists. But these so-called commissioners, who are really no more than financial services minions out to misbrand themselves as independent, look to have overplayed thier hand. This stunt shows more than a tad of desperation on the part of banks and their operatives in their excessive efforts block any remotely accurate, and therefore critical, report on the industry.

Perversely, this development may be a positive indicator on several fronts. First, the FCIC report may be tougher and more probing than I dared hope. The New York Times indicates, for instance, that it highlights the role of CDOs, an area our research (both here and in ECONNED) indicates was rife with abuses and also central in the crisis.

It may also suggest that the banking industry is feeling more cornered than its continued high-handed posture might suggest. I continue to receive reports from industry insiders confirming that the biggest banks in the US are insolvent. The only sensible resolution of the mortgage mess involves deep principal mods, which will force the top four banks to write down their second mortgage books, blowing big holes in their balance sheets, and raising numerous, embarrassing questions (how could they and the Treasury defend paying back the TARP, much the less the level of 2009 and 2010 bonuses?)

In other words, the banks may be worried about the possibility of a backlash that might actually be effective. But they are already too late to stop the inevitable. They refuse to halt the juggernaut, a doomsday machine that continues to grind up families and communities and saddle innocent bystanders with the costs of higher taxes, unemployment, sagging infrastructure, and poor prospects for their children. This next two years may be the last window to leash and collar a parasitic financial services industry. If the authorities fail yet again, the cost will be both the rule of law and our unwritten social compact. If you tear asunder structures that fundamental, expect to reap a whirlwind.

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74 comments

  1. christofay

    We are in the age of establish the narrative. The Bush administration during the housing bubble peak years was pushing the “ownership society” trying to extend the warm feeling of more people purchasing homes into the sales effort of privatizing Social Security. Everyone should control more of their own assets, but actually turning over their assets to be managed by TBTF.

    Also the differentiation of the subprime debacle and the fiscalization of the economy by TBTF is also supported by elite economists. Brad Delong on his blog recently separated out the collapse of the subprime economy from the collapse of TBTF as if they were two distinct phenomenon. Not helpful. But typical amongst elite economists who still won’t recognize that Greenspan/Bernanke and the give-away-the treasury secretaries Paulson and Geithner are doing heroic brilliant work.

  2. christofay

    Or rather, elite economists defending the efforts of Greenspan/Bernanke and Paulson/Geithner as heroic work but the four horsemen actually simply defending TBTF first and foremost and elite economists trying to throw up clouded intellectual defenses.

  3. rkka

    “How can you talk coherently about the crisis and NOT talk about the shadow banking system, which grew to be at least as large as the official banking system and was the primary object of the various government rescue operations?”

    Easy-peasy. You just have to lie all the time, about everything, and have enough money to get our eager-to-be-bribed media and center-right politicians to fall in line with it.

    Which our plutocracy, with their rethuglican puppet in their right hand and their dfh-punching DLC puppet in their left hand, do.

    Questions?

  4. financial matters

    Yes, the sheer weight of this problem should eventually force the rule of law to prevail. Too much to paper over. From the excellent Huffington Post article…

    http://www.huffingtonpost.com/l-randall-wray/post_1423_b_795802.html

    Anatomy of Mortgage Fraud, Part II: The Mother of All Frauds

    “”When we get into the “work product” of the ‘robo-signers’ as seen in the sheer volume of Lost Note Affidavits, it is evident that these exist not simply because notes were “lost” but as a cover-up because the trustee and/or servicers realized early on that the notes were never properly endorsed and transferred or delivered to the trust so they “disappeared” the physical piece of paper and any allonges thereby eliminating any evidence contrary to the trust’s ownership of the notes. As you wrote ‘Those pesky little documents might come back to haunt them should someone later file a lawsuit.’”"

  5. FinancialObserver

    This is the most depressing thing I’ve read in weeks. This country is so sadly off track, with a population that’s so sadly out of touch, that even our narratives can be hijacked by those wearing their ideological blinders (and gold-plated lobbyist-bought suspenders). I lived in Hong Kong for years. Wake up America. We have become China.

  6. Jim the Skeptic

    I just wish some overconfident group of Republicans would sponsor a bill to prevent any further bailouts of the banks now, while the banks are paying large bonuses.

    Maybe the Democrats could be shamed into passing it!

    1. financial matters

      And with one of the stated goals of QE2 being to prop up the stock market, it begs the question what is the stock market?

  7. RueTheDay

    To get an idea how far out of touch with reality some on the far right are, see this recent Fortune Magazine interview with Ron Paul:

    http://finance.fortune.cnn.com/2010/12/14/congressman-ron-paul-end-the-fed/?section=magazines_fortune

    In it, Paul states unequivocally that:

    – We wouldn’t have depressions if there were no Federal Reserve.

    – The government wouldn’t be able to fund overseas wars without the Fed, so getting rid of the Fed would mean no more wars.

    – There would be no business cycle if we went back to the gold standard; booms and depressions would cease to exist.

    – The financial crisis was CAUSED by too much regulation.

    Nevermind the fact that we had depressions during the time when we had no central bank, in fact, they were quite frequent.

    Nevermind the obvious fact that we had wars before we had the Fed.

    Nevermind the fact that the Great Depression happened while we were on the gold standard.

    Nevermind the fact that the “regulation” of the financial markets that Paul so despises came about as a result of the failure of a largely unregulated financial market during the 1920′s and 1930′s, and that the passage of Glass-Steagall, the SEC Act, etc. were followed by decades of an unprecedented stability in the financial markets which vanished shortly after de-regulation came onto the scene.

    In other words, nevermind the FACTS. Who needs them, when you have absolutist dogma (whether it’s a belief that the world was created 6,000 years ago or the near-religious belief in unfettered free markets). That’s the real problem here. Some are so wedded to the false libertarian doctrine that the free market can never fail and that any apparent failure must always and everywhere be the result of government interference, that obvious facts to the contrary just get ignored.

    1. joe

      Can we start enforcing the existing regulations before we go about papering over the problem with more regulation? RP never seems to talk about prosecution, just less is more or something to that effect. Start the perp walks and then we can begin accurately determining how little or how much regulation we need.

    2. F. Beard

      Yep, I am a libertarian but RP deceives himself if he thinks a government backed, enforced or favored gold standard is libertarian. In fact, since government is force, pure fiat is ideal for it. However, government money should only be legal tender for government debts (taxes and fees) not private ones.

      BTW, Karl Denninger has a good post on the folly of a gold standard here: http://market-ticker.org/akcs-www?post=174968

      I disagree with Karl about fractional reserve lending but we are in full agreement wrt gold.

        1. ohioralph

          F. Beard, Ron Paul is clear that he proposes competing currencies with the probability that gold and silver would emerge in the marketplace as the preferred medium of exchange. Government could still issue fiat money as you indicate for payment of taxes. We agree about fractional/fictional reserve banking is fraud and should be punished for the crime that it is. Since fractional/fictional reserve banking would disappear so would the business cycle and the need for the FED. Sound money and the rule of law. What a novel idea!!

          1. F. Beard

            Ron Paul is clear that he proposes competing currencies with the probability that gold and silver would emerge in the marketplace as the preferred medium of exchange. ohioralph

            Let’s just make sure that ALL potential money alternatives including those that don’t require usury such as common stock are treated equally wrt government. The fact that RP can’t seem to think beyond gold and silver based monies worries me.

            Government could still issue fiat money as you indicate for payment of taxes. ohioralph

            This is crucial. Only government fiat should be acceptable for taxes otherwise we allow private counterfeiting of government money or government privilege of a particular commodity such as gold or silver.

            The chief value of gold or silver as money in history is the difficulty and expense of counterfeiting it. That use is obsolete these days with modern cryptography and other technology. Otherwise, commodity based monies are pretty absurd.

          2. F. Beard

            We agree about fractional/fictional reserve banking is fraud and should be punished for the crime that it is. ohioralph

            I’d prefer that a true free market in private money creation destroy it. Libertarians honestly disagree about FRL (fractional reserve lending). Let’s let the free market (should we ever have one) decide.

            Since fractional/fictional reserve banking would disappear so would the business cycle ohioralph

            Government backed fractional reserve banking is the cause
            of the business cycle. However, private FRL might be reasonably stable.

            and the need for the FED. ohioralph

            The Fed is a major contributer to the business cycle.

            Sound money ohioralph

            What is “sound money”? A shiny, scarce metal? Are we that primitive?

            and the rule of law.

            With this I can agree, the need for rule of law.

            What a novel idea!! ohioralph

            Goldbuggery is not novel. It is an old instrument of oppression and theft by the bankers.

    3. Toby

      Absolutely!

      Dispel the myth of The Almighty Invisible Hand, decouple money from our notions of wealth, and withdraw support from the mainstream in any way we can. The monstrous decadence and corruption can only be stopped if we stop feeding it, stop playing the left-right bullshit tribal squabbling that so drains and divides us, and start refocusing on the basics in as unprejudiced a manner as we are able; resources, planetary carrying capacity, sustainability, core morality, justice, clean and renewable energy supplies, city design, education revolution, and so on. The system is the problem, our ignorance is our enemy.

    4. F. Beard

      Some are so wedded to the false libertarian doctrine RueTheDay

      There is nothing libertarian about a government backed fractional reserve banking cartel using the government enforced monopoly money supply.

      that the free market can never fail and that any apparent failure must always and everywhere be the result of government interference, that obvious facts to the contrary just get ignored. RueTheDay

      We don’t have a free market. Instead we have government backed theft of purchasing power and assets via the banking system.

      Please don’t conflate Republican with libertarian. The Republicans are closer to being fascists than libertarians.

      BTW, I agree with your remarks about gold.

  8. Bruce Post

    “Calling that a major, let alone primary, cause of the crisis, is simply a highly coded “blame the poor” strategy.”

    Back in the day when I was a Republican, a very nice lady, a League of Women Voters member, said to me,”Do you know what the problem is with this country?” Her answer, “The poor!” I was astounded, but I said nothing, which I regret.

    To blame the poor — a group with little power and no effective influence — for the actions of those who actually wield the instruments of power is an exercise in double-speak. It’s like the operator of a drone whose attack kills innocent civilians saying, “Well, if they had not gotten in the way of the missile, they would still be alive. Stupid them.”

    1. Toby

      Interesting and telling anecdote. To my mind her wee ‘wisdom’ arises directly from the centuries old conflation of money with wealth. Classical economics rooted this connection deep into western culture, where it has remained in fine fettle ever since.

      Wealth is of course far more complex than money and riches, and is a concept culture should be ready to redefine and discuss on an ongoing basis. We are now, at almost 7 billion, pursuing the wrong sort of wealth — due to a poor and outdated definition of it — and sawing off the branch we sit on in the process.

      In a way though, the woman was almost correct. Poverty is the problem, in that the (monetary) system we have necessitates and exacerbates such, while necessitating perpetual GDP Growth via linear, debt driven consumption, and touting ‘success’ as the acquisition of various types of glitter and bling. ‘The poor’ don’t have a chance, even though, from time to time, some of their ranks ‘hit the jackpot.’

      Shame on humanity for taking so very long to deal with this properly.

      1. F. Beard

        Shame on humanity for taking so very long to deal with this properly. Toby

        Money is a mind boggling topic. Let’s not be too hard on the human race.

      2. JP

        You are obviously and intelligent, well educated person. I was so inspired by your comment. I grew up quite poor, working poor in a rural area. I didn’t really understand how poor we were, at the time. I carry this legacy with me even though I have broken through the social ceiling long ago and far enough that it’s hard sometimes to see how far away I am from the days of my youth. I just wanted you to know, that it is refreshing to see someone understand and acknowledge the truely tragic situation that the poor face and how rare it is for some to break through.

  9. ZA

    Perhaps the other members of the commission should hand them a lot of rope – “Fannie and Freddie are the problem? OK, shut them down. Hell, banks prospered for centuries without any concept of securitization. I’m sure they can just hold covered bonds on their books instead.”

  10. poopyjim

    “If the authorities fail yet again, the cost will be both the rule of law and our unwritten social compact.”

    Already gone baby!!! On both counts!

    1. AR

      Just to pound my point home, here are the first three paragraphs from the first link in my comment above:

      Iran-Contra’s ‘Lost Chapter’
      By Robert Parry (A Special Report)
      June 30, 2008

      As historians ponder George W. Bush’s disastrous presidency, they may wonder how Republicans perfected a propaganda system that could fool tens of millions of Americans, intimidate Democrats, and transform the vaunted Washington press corps from watchdogs to lapdogs.

      To understand this extraordinary development, historians might want to look back at the 1980s and examine the Iran-Contra scandal’s “lost chapter,” a narrative describing how Ronald Reagan’s administration brought CIA tactics to bear domestically to reshape the way Americans perceived the world.

      That chapter – which we are publishing here for the first time – was “lost” because Republicans on the congressional Iran-Contra investigation waged a rear-guard fight that traded elimination of the chapter’s key findings for the votes of three moderate GOP senators, giving the final report a patina of bipartisanship.

    2. Doug Terpstra

      Our elite are profoundly anti-democratic, but Reagan (Obama’s hero) carried “perception management” to a new (as far as we know) and explicitly criminal level with domestic CIA propaganda. Obama is clearly following his model, but I believe he will fail spectacularly, to the benefit of the American people.

      In this case, the preemptive Republican alternative to the official FCIC report is actually a very hopeful sign, as Yves notes, that the latter is substantive and honest. The minority report signals desperation that, unlike the Iran-Contra whitewash, they may not have been able to excise and pad the report for their patrons.

      Anyway, one can hope it’s not all part of the theatrical shell game, and if not it should help to continue the great unraveling that is necessary for a new socio-economic paradigm, wherein fraud, greed (as opposed to ambition), and violence are no longer tolerated.

  11. Amit Chokshi

    Conservatives are just hell bent on destroying this country. They are the O’Brien’s of the world, they want to rule over morons which through Faux news they’ll get. Ignorance is strength, simple as that. These guys for whatever reason can be wrong about EVERYTHING. Conservative econ policies, right wing defense policies, right wing social policies, if not for the republicans we’d have gotten much further as a society. Is there anything that conservatives have done that benefits this country? And I mean “conservatives” not republicans cause anyone that compared the southern dems pre civil/civial war to the republicans of today will find many similarities. After all the southern Dems were the ones that pushed to take over Mexico, wanted Cuba, Nicaragua, Honduras an empire for slavery basically. Secession, etc…states rights lol….hilarious how moronic the teabaggers are to pick up the mantle of the 1830-1870 southern fools.

    1. Francois T

      Do not forget their main enabler, the mainstream media pundits and the Washington press corps. Form fierce watchdogs of the Republic’s public morality to slothful and depraved courtesans gravitating toward Versailles-on-the-Potomac, the abdication of their responsibilities and ethics is now complete.

      The powers that be couldn’t dream of a better outcome for them. The rest of the country? Fuck them!

  12. Cedric Regula

    Funny. Burning Webster’s one word at a time.

    I guess they won’t say anything about the rich and upper middle class doing strategic defaults on the McMansion, beach community home, Aspen condo, Manhattan condo, etc…, because that wouldn’t be supportive of the hypothesis.

    Or the embarrassing strategic default the Mortgage Bankers Assoc. did on their $80M Manhattan office building.

    Or the fact that while I was watching South Central Los Angeles median home prices march towards $400K, New Century becoming the next Amazon.com, and going to the beach and seeing WaMu bikini models dressed up as cheerleaders and doing cheers for WaMu loans… Al “Adam Smith” Greenspan was still relentlessly telling us we were not having a housing bubble.

    So now we get lobotomized by a Senate report? Oh, the pain, the pain.

  13. Francois T

    Yves,

    They are republicans; what else is there to say?

    The GOP lives in a parallel universe because, for them, America as it is now is not really the country they wish it to be.

    They want a country where any ideal of justice, (social and economic) human rights and fairness has been completely eviscerated. They long for a world when the darkies “know their place”, where any trouble with the law is easily fixed with a phone call to the right person, where ordinary people are at the total mercy of the powerful, the well-connected and the corporations. Every action they push for, bring America in that direction. Let’s look at their deeds, not their propaganda.

    This is what decadency looks like: from the Party of Lincoln, the Party who promoted emancipation from slavery, the Party where fiscal conservatism didn’t prevent someone to be a social liberal to a cluster of reichwing nut jobs where substance and facts are to be shunned, where the the Almighty set of talking points are repeated with a degree of insistence that would have put the politrouk komissar in Chief of the Komsomolskaya Gazzetta or Pravda to absolute shame.

    So, having the Reichpubliscums members of a Commission of Congress sacrifice the rules of collegiality and elementary decency to the altar of their talking points on Freddie, Fannie, CRA and the deadbeats cannot possibly come at a surprise.

    One day, when it’ll be too late already, voters will see the obvious. But don’t tell them: the last thing one can do is telling an American voter he/she could be wrong.

  14. Dan Duncan

    This post is such Bullsh…Typical Leftist blathering abou…But the CRA was the main prob…Good for the GOP, they really underst…

    Fuck…I got nothin’. These GOP morons have me speechless.

    An utterly pathetic display. Achingly stupid Republicans.

    Almost makes me want to start throwing out some gratuitous Chomsky quotes, while looking to Naomi Klein for guidance.

    Really, this is so bad, so lame…I would have thought Yves was simply making up another GOP Strawman.

    Could that be the GOP strategy? Could the Repubs, in secret meetings, be saying: “Let’s come up with a narrative on housing that’s completely Bat-Shit-Stupid. Then, when the Left criticizes it, we’ll jump up and down exclaiming, ‘See, once again these angry Leftists over-exaggerate our stupidity! This is just another Strawman!’”?

    This is so bad…it has the taint of one of those fake racial hate crimes….like the white woman who claimed to be kidnapped by some black thugs, only to be on vacation in Disney World, or the Black professor who claims that some white racist pigs hung a noose in her classroom….

    The Right is coming up with a narrative that’s about as compelling as the storyline of a 3-Hour-NBC- Made-For-TV-Christmas-Movie. It’s so vapid, that American Idol Contestants say it lacks depth. And so that’s it: The GOP, in a masterstroke, has come up with a plan that’s so ingeniously moronic…they might just engender sympathy when it’s ripped to shreds by the Left.

    There’s nothing else that can be said. Nothing. Hell, even the gratuitous, irrelevant mockery over Chomsky and Global Warming seems forced.

    1. F. Beard

      There’s nothing else that can be said. Nothing. Hell, even the gratuitous, irrelevant mockery over Chomsky and Global Warming seems forced. Dan Duncan

      You poor leftists! You conceded the game when you accepted the theft (especially from the poor!) that is government backed fractional reserve banking.

      Meanwhile, the true libertarians (hopefully I R 1) have no problem identifying and attacking Republican hypocrisy.

      Will you defeat the Repugnicans with technical breeches of the law when you have already conceded that ordinary banker theft should be legal?

      Good luck with that and I mean that sincerely. Better some (accidental justice) than none.

  15. frances snoot

    Since when is forwarding a feudal system of privy liquidity a progressive concern? If the progressives ever had a voice, they have long since been silenced. Hitherto, the only game has been blame. Who’s to blame for the corporate tax gift? Wouldn’t that onus be laid next to the agenda of the World Bank Group?

    1. readerOfTeaLeaves

      Yes, and the archived documents, testimony, and video files of the FCIC hearings can also be accessed from that website.

      The very first hearing date, IIRC, empaneled a law enforcement officer from Miami, some finance expert from Houston, a state AG, and some others who provided testimony that made it absolutely clear that it required some kind of federal-level gutting of banking and mortgage rules for this widespread system of fraud to be implemented. It also made clear that local law enforcement knew about it quite early on, but it’s taken them a long time to get their act together.

      If the 4 GOP members of the FCIC want to humiliate themselves by forever destroying their reputations, that’s their affair.

      With all 50 state AGs working on legal action, with increasing organized grassroots activities, and with more and more evidence that this is widespread, systemic fraud perpetrated ‘at the highest levels’ of banking and government (a la GWBush’s change to a financial leverage rule in 2004, at Hank Paulson’s instigation), and with the movie “Inside Job” and other easy-to-follow explanations increasingly available to the public, the banks are in deep, deep trouble.

      If the GOP members of the FCIC want to throw themselves on the about-to-be bonfire of insolvency and ruin, well… one can only wonder about why they are so willing to demolish their future credibility. Sad, really.

  16. RichFam

    I think the finger points in every direction on the crisis so not blaming banks is senseless but not blaming FNMA and FHLMC is just as bad if not worse. They lost plenty of money that cost the tax payer just like the banks, right? I don’t think that’s blaming the poor. Also, if so many sub-prime loans were for second homes isn’t that a form of investment or speculation? If so doesn’t the borrow have some blame as well? Whats more prevalent in sub-prime a single mom in Mass who lost her job can’t pay the mortgage or some guy in Florida buying houses to flip? “No money down!”

    As for regulation, banks are heavily regulated already, more would be better but there was a clear failure to enforce the rules, maybe because the bankers wrote them…

  17. Paul Tioxon

    republicans: government, bad. taxes, evil spawn. social programs, the black plague. OMG, I’m actually twittering!

  18. crf

    “It’s like trying to talk about AIDS and pretend there is no such thing as intercourse.”

    But that’s easy, and done all the time! Thou shalt not covet thy neighbour’s logic.

  19. libarbarian

    This pathetic development shows how deeply this country is in thrall to lobbyists.

    I also think it shows how deeply in thrall we are to the Right-Left Narrative.

  20. Fraud Guy

    For the record, the four Republican members of the commission are:

    -Bill Thomas, former congressman from CA
    -Keith Hennessey, former economic advisor to George W. Bush
    -Douglas Holtz-Eakin, former economic advisor to George W. Bush
    -Peter Wallison, retired partner at Gibson Dunn

  21. JEHR

    Hey, I live in Canada and we did not have a housing bubble. We don’t have an inordinate amount of foreclosures and we are holding our own. But our banks were bailed out by the Fed probably because they bought US banks. Of course, the future could be bleak if the US doesn’t get back on track.

    1. Paul Tioxon

      Texas also escaped the carnage largely because of the doomsday they suffered in the S&L crisis. They outlawed 2nd mortgages. That’s right, during most of the real estate bubble, the Texan homeowner could not be tempted by the HELOC. That was some dog that didn’t get to hunt, OOOOEEEE!

  22. Kevin

    Housing bubbles – price changes over past 4 Years
    US Case/Shiller National Home Price: -27%
    Canada New Housing Price Index: +7%
    UK Median House Prices (GBP): +6%
    Spain House price per sq meter: -8%
    Australia Price Index of project Homes: +14%

    US has been worst of these. I don’t have price series on the others mentioned.

  23. dlwled

    The way I understand it, is that the Republicans removed the referees from the football league (those darn refs held up the game way too much and our teams had some great ideas for winning) and the resulting season was a disaster – with fatalities – who to blame? Maybe the peanut vendors? Or the fans?

  24. Obsvr-1

    This is sooo disappointing, after reviewing the documents and testimony released on the FCIC website I was hoping that a more objective and not partisan finding would come out of the commission. The operational work of the FCIC was more in line with that of the COP on TARP, however now it looks like the report and findings are going to be politicized and sugar coated unlike the reports from the COP. It is sickening to see those who dug so deep into the causes of the crisis (Scandal) fail the American people so miserably.

    I can only hope that the full report will not be so tainted as this article suggests. Perhaps the blogosphere can initiate a call for ALL of the documents and non-public testimony, interviews and Q&A be published so everyone can see the RAW information to determine if the report aligns with reality, a Wiki-leaks on FCIC.

    Also, it looks like the FCIC will have to edit/censor their own website as it contains the phrase “Wall St”, “Shadow Banking”, “regulation” — go to FCIC.org before the documents disappear …

    Ref documents from FCIC site:
    Reports

    1. Too Big to Fail: Expectations and Impact of Extraordinary Government Intervention and the role of Systemic Risk in the Financial Crisis
    September 1-2, 2010
    Governmental Rescues of ‘Too-Big-To-Fail’ Financial Institutions (PDF)
    2. The Role of Derivatives in the Financial Crisis
    June 30-July 1, 2010
    Overview on Derivatives (PDF)
    Credit Derivatives and Mortgage-Related Derivatives (PDF)
    3. Credibility of Credit Ratings, the Investment Decisions Made Based on those Ratings, and the Financial Crisis
    June 2, 2010
    Credit Ratings and The Financial Crisis (PDF)
    4. The Shadow Banking System
    May 4, 2010
    Shadow Banking and the Financial Crisis (PDF)
    5. Subprime Lending and Securitization and Government-Sponsored Enterprises
    April 7, 2010
    Role of Federal Reserve in Bank Supervision and Regulation (PDF)
    CRA and The Mortgage Crisis (PDF)
    The Mortgage Crisis (PDF)
    Government Sponsored Enterprises and the Financial Crisis (PDF)
    Securitization and the Mortgage Crisis (PDF)

  25. JerryDenim

    I’m suffering a bit of mortgage crisis fatique and haven’t really kept up on my facts and data points of late, but as I recall back as things stood in 2008-2009 the losses Freddie and Fannie had taken on credit derivatives was a large multiple (at least ten, maybe much more) of the losses they sustained from non-performing and delinquent loans. I was wondering if Yves or anyone else could weigh with a fresher more authoritative figure. Either way its yet another little inconvenient truth that blows a gigantic hole in the side of the Republican’s popular “welfare moms’ taking out liar’s loans caused the financial crisis” story.

  26. monday1929

    One of the benefits of the boldness of the fascists (Dem and Repub.) is that over-stepping into absurdity.

    Did they really want to ban the words ‘Wall Street” or was Yves exagerating?

    I just spoke to a very polite person at the FCIC switchboard number listed above, he actually noted my comments.
    I strongly suggest NC readers call that number 202-292-2799, and, more politely than I did, express your opinion.

    1. Yves Smith Post author

      Shahien Narisipour of Huffington Post, who is a respected reporter, has that coming directly from Brooksley Born, one of the FCIC commissioners.

  27. monday1929

    I’ve long predicted a Bull Market in irony, it looks like absurdity will have it’s own Bull run.

    This would make a wicked SNL skit…. ” And as I walked down mmmm Street, I was mugged by a ban.., uh, mmmmer”…..

    Thank you for what you do, Yves.

  28. Matt

    “It’s like trying to talk about AIDS and pretend there is no such thing as intercourse.”

    Funny – I’m pretty sure the GOP has tried *that* routine too. It’s certainly their sex-ed strategy.

  29. hermanas

    From what I read in the local press and hear from the cashier at home depot this morning, the new economic activity is home invasions. The new morning in America.

  30. Daniel Plainview

    YVES!!!!!!!!!!!!!!
    Again, I am really not trying to give you a hard time, really not….. BUT…. Isn’t it slightly hypocritical of you, and some might WONDER an attempt at smokescreens…. when you say that blaming it on Fannie and Freddie is an “Urban Legend” and the “Big Lie” when you spend HALF your time quoting Chris Whalen, and using Chris Whalen to back up your own viewpoints, and Chris Whalen has spent roughly half his time promoting this “Big Lie”?????

  31. Bernard

    gosh just wait until January and the Republicans can finish off what Obama has started.

    the snowball will be unstoppable once it reaches critical mass.

  32. Watching the Bubble since 05

    Yves, in your list of “inconvenient facts,” you forgot to include the fact that the U.S. commercial real estate market experienced a bubble as large as the residential real estate market did. The CRA,Fannie and Freddie had nothing to do with that. It had everything to do with the banks’ promiscuous lending. I’m no fan of Fannie and Freddie. In fact, I would love to see them go away. But the truth must be told and saying the “devil made me do it,” won’t cut it with the American public.

    1. monday1929

      Nice point. I have SRS (triple leveraged inverse CRE) Calls, and even I have forgotten the CRE crises. They have done a remarkable job keeping that off the publics’ radar.
      When extend/pretend fails there, the speed of that drop should be jaw-dropping

  33. TK in Texas

    Yves: You are a tremendous resource for all of trying to have a clear-eyed view of things. The banks’ mortgage books are garbage, they are likely insolvent as you say. I’m in the stock market though, so following Petraeus, “Tell me how it ends.” Or more to the point, when?

  34. solo

    A very helpful article, marred by an outbreak of wishful thinking in closing paragraph: “This next two years may be the last window to leash and collar a parasitic financial services industry.” Given the likely balance of political forces in the next two years, consider this “window” already stopped up with gridlock.

    1. Skippy

      Kinda like two people in the cannibals pot, both basting each other to the chefs delight. To whit, those that are not already debt chefs, are being slowly rendered (slow cooked) to extract every molecule of nourishment leaving only the un-usable carcass behind…like bleached bones on a desert floor.

      Skippy…gettin so small, that by the time I leave digital world…my requiem will be….Osmosis Amoebas

  35. cosmo1

    I really do not like be rude. But after reading this article and Barry Ritholtz piece, All I can say is this is why I believe in abortion. I know its crude but these 4 Republicans should have been swallowed. Period Amen!!!! Sorry Yves for being crude

  36. Strata

    Yves, I have been impressed by your dedication and scholarship for weeks now. This article is superb!

    I agree, we do have a short window. However, I’m optimistic that our fellow citizens are on the verge of falling out of their apathetic trance. 2011 will be decisive: will we decide to claw our way back to democracy or get buried in a trench of neofeudalism?

  37. Richard Kline

    The problem for the oligarchy at present and going forward is this: they have control of the authority but not the reality. Their banks and pirate shops are insolvent, dead, but the authorities shield them. The Big Lie is all the Big Shill in the mainstream media, but the small, quiet death of reality’s bites continues in the underbrush. There is no ‘recovery,’ just the invention of credit by the government which ends up in government financial instruments, the cybersex equivalent of real profit from doing real business which isn’t happening. What we have is an ancien regime in end stage; like the original Ancien Regime of the mid-Eighteenth century, unable to either reform or rule by decree; like the last generation of the nomenklatura in Eastern Europe, who completely controlled all institutions of power while the completely lost the hearts, minds, and endeavors of the other 97% of their countryfolk.

    Reality continues to trend against the oligarchy and all their lies. The can get out of the way, with or without a suitcase of cash, or they can kiss the blade. I’ll take either outcome; both have their merits and costs. But let’s get ON with it. I say, it begins 6-12 mo. from now.

  38. Paul Podhorn Jr.

    In Our Democracy it is TREASON for the FCIC, a government agency, to lie to the People, whether it be by a commissioner, staff, or any outsider on their behalf, including AEI and Peter Wallinson.
    In Our Democracy government has a moral and constitutional duty to be TRUTHFUL to the People.
    What is the difference between Hitler and Goebbels, or Peter Wallison and AEI? Or, any other Free Marketeer.
    All have rolled tanks over people. As did Milton Friedman in Chile.
    And will in the future–in the USA, Greece, Italy, Ireland, Britain, France. Until the Peoples’ sacrifice compensates the plutocrats’ gambling losses.
    Think ==> mafia thug collecting a gambling debt!
    Except with financial collapse and police state tyranny, the losers force completely innocent non-players, the People, to cover their psychotic gambling losses.
    In Our Democracy all political and economy discussions and policies begin with the duty to protect the People’s inalienable rights to life, liberty and the pursuit of happiness. Had Jefferson and Madison written on economics, what would be their guidance for today?
    Anti-American traitors in AEI, CATO, the press, elected representatives and the financial industry must face public trial for treason and dire punishment because they conspire to overthrow Our First Principles and Constitutional Democracy to impose a plutocracy tyranny.
    If they don’t like Our First Principles and Constitutional Democracy, they don’t have a choice of overthrowing inalienable rights and Democracy to make profits. Their only choice is leave America.
    Why DO the People tolerate Rupert Murdoch operating a Nazi propaganda machine? It is not protected free speech for plutocratic conspirators to impose anti-American tyranny.
    Madoff is rotting in Butner Federal Prison; why should his comrades-in-greed-and-fraud continue to live like kings when they stole TRILLIONS? Free to command bonuses for their past fraud and failures.
    Brits, Greeks, French, Itlalians are rebelling against police state tyranny (government austerity and spending discipline–demanded by the Free Market and international finance).
    But Americans are licking Nazi jackboots. Financing from taxes the very traitors planning America’s destruction.
    Those whose poor business decisions, greed and deception caused the Depression have never suffered austerity, or practiced any discipline–moral or financial prudence–, or imposed austerity and discipline on themselves. In fact, their appetites and spending just grew and grew and continue to grow gargantuan. Those with the gold make the rules.
    The lessons of Orwell are not that the People should or must submit to enslavement and ruin. Like Sam Adams, Patrick Henry, Thomas Jefferson, and other Founders, we can act to govern ourselves. That is Democracy, our unique history. We can overthrow corrupt Masters, be they George III, or present corporations and ideologues. Forever.
    There are many truthful and competent economists in our country ready, willing and able to improve all the Peoples’ lives. Let’s go to work. Let’s govern. Responsibly. Reasonably. Morally. Virtuously. For all the People, not just the plutocrats, who created the Depression.
    Let the liars and greeders enjoy the rich spoils of prison life they helped to create–just one more plutocratic, anti-democratic insult and injury to the life, liberty and pursuit of happiness of the People.
    The plutocratic traitors can play Monopoly in prison for the rest of their natural lives, shortened by poor nutrition and denial of medical care, and COMPETE to become the richest Monopoly player in history.
    Only returning to the Founders’ inalienable rights to life, liberty and the pursuit of happiness will stop the destruction of America and the World, the overthrow of Democracy and the establishment of police state tyranny.

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