Former Award Winning Chase Banker Describes Predatory Mortgage Lending Practices « naked capitalism

Thursday, December 1, 2011

Former Award Winning Chase Banker Describes Predatory Mortgage Lending Practices

Readers need to read today’s op ed by Nicholas Kristof in the New York Times, and pronto. It is a former insider debunking of the idea that borrowers rather than bankers bear primary responsibility for the housing bubble and aftermath.

I’ve not been a big fan of the “greedy borrowers” theory of the mortgage crisis, particularly now, since the people who clearly bought too much house relative to their incomes defaulted quickly, in the 2007-2008 time frame, and are different than the people who are hitting the wall now. The current group in large measure is people who have suffered a setback, either as a result of the crappy economy (caused by the financial crisis, remember?) or personal disasters, such as a medical emergency.

But even for people who did stretch to buy a house, “greedy” is not necessarily the right moniker. The standard advice has long been to buy as much house as you can afford, with the assumption that people early in their careers will see income gains and have a comfortable margin in a few years. Another reason buyers strained to buy better homes, as Elizabeth Warren set forth long form in her book The Two Income Trap, is the competition for better schools. The premium for houses in decent school districts has gotten larger over time.

And a former Chase banker, as recapped by Kristof, gives the most fundamental critique: banks really were pushing borrowers into risky loans. It is critical to underscore that this is NOT an equal relationship. Borrowers throughout history are assumed to be greedy, stupid, or simply overly optimistic. The job of the lender is to protect himself from them, and by happenstance, them from themselves. And a lot of borrowers would therefore assume if the bank said they could afford a loan, then they must be able to afford it.

But Kristof’s source, one James Theckston, “fully acknowledges that he and other bankers are mostly responsible for the country’s housing mess.” And he describes a practice that has been well documented statistically but not discussed enough in polite company: the way minority borrowers who qualified for prime loans were steered into subprime products:

As a regional vice president for Chase Home Finance in southern Florida, Theckston shoveled money at home borrowers. In 2007, his team wrote $2 billion in mortgages, he says….

“If you had some old bag lady walking down the street and she had a decent credit score, she got a loan,”…

Theckston says that borrowers made harebrained decisions and exaggerated their resources but that bankers were far more culpable — and that all this was driven by pressure from the top.

“You’ve got somebody making $20,000 buying a $500,000 home, thinking that she’d flip it,” he said. “That was crazy, but the banks put programs together to make those kinds of loans.”..

One memory particularly troubles Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. So they looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans.

These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended up paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up.

Theckston, who has a shelf full of awards that he won from Chase, such as “sales manager of the year,” showed me his 2006 performance review. It indicates that 60 percent of his evaluation depended on him increasing high-risk loans.

Of course, Chase has a pious explanation of sorts:

When I called JPMorgan Chase for its side of the story, it didn’t deny the accounts of manic mortgage-writing. Its spokesmen acknowledge that banks had made huge mistakes and noted that Chase no longer writes subprime or no-document mortgages. It also said that it has offered homeowners four times as many mortgage modifications as homes it has foreclosed on.

Having worked in investemnt banking, where cutting numbers to tell a flattering story is a major part of the business, I’m plenty skeptical of Chase’s “We are trying to do better” tale, particularly when I hear regular reports from Florida of how Chase is one of the most abusive servicers. First, there are plenty of homes that have not been foreclosed upon but are beyond the event horizon. The foreclosures have been delayed due to a combination of: hopeless documentation mess (as in if the borrower fights, the bank knows it will have trouble foreclosing, or the foreclosure is in a jurisdiction like New York or Nevada where the parties involved in prosecuting the foreclosure are at serious risk if the chain of title isn’t clean); overloaded court dockets; huge foreclosure inventories (meaning the homes won’t sell anytime in the foreseeable future anyhow, so why not keep the borrower in the home for now and liable for property taxes).

Second, I’m also not terribly impressed with the “mods offered” part. Borrower attorneys have showed me mod offers that were jokes, proving minimal current relief and adding a ton of junk fees that the borrower contested to principal. In addition, I am certain this total includes HAMP trial mods, and as readers know all too well, many did not result in permanent mods (and those “permanent” mods were underwhelming, mere 5 year payment reduction plans, effectively a bet that housing prices would rise over that time frame).

I’m glad to see some bankers have a conscience, but Thecskston can afford to. Chase fired him in the downturn. How many who are still in the saddle have great rationalizations for the behavior that Theckston depicts as reckless and predatory?

60 Comments:

SH says:

December 1, 2011 at 2:49 am

I’m all riled up at this point. How bout I just buy a generator and sell it to a Connecticut native when they run out of power and get some food and services in exchange?

Because, I don’t live in Connecticut, don’t own generators and don’t think they I can find equal offers in exchange for a generator.

So why don’t I just save?

Because I’m a small player in this game and holding game credits is a risky bet.

So why don’t I just hold gold?

Because I can’t buy anything with gold. I got to sell it to a gold buyer then pay the spread and take my newly acquired dollars to the store to buy generators to get back in the game when the power goes out in Connecticut where I don’t live.

Bottom line, people should be able to store value without having to take into account all this bs.

Am I even on topic?

brazza says:

December 1, 2011 at 5:13 am

You’re on topic in the sense that you’re voicing the genuine mix of anxiety, disgust, and confusion that snakes through the majority of the world’s people today regardless of state or country. Does this world deserve to survive another day ? Do you blame the salesmen for doing their job … or a society that teaches them its ok to climb over bodies to reach personal goals? Where its not just acceptable to lie … its expected – whether its a politician or a CEO discussing his company’s outlook. Its all spin, twirl, position, appearance … fraud.

This ‘feels’ like the out of control train in The taking of Pelham 1,2,3. Its Lars Van Trier’s Melancholia …

Brian says:

December 1, 2011 at 3:20 am

I agree that the “greedy borrowers” theory is not only built on a foundation of stilts, but I would go even further and claim that the borrows can’t be held responsible, greedy or otherwise.

So what if they’re greedy borrowers? Who ultimately has control of the release of the funds: the lender. The lender is making a business decision and they should measure their risk by the interest rate and be held to due diligence themselves (especially with unsecured credit).

Only two things need to be done: (1) enforce the rule of law–you start to put the “fat cats” in jail for fraud then it’ll stop. (2) Liberalize the bankruptcy laws to more favor the borrower. Capitalism will not work properly without liberal bankruptcy laws that encourage risk taking by entrepreneurs, check irresponsible lending, and it also gives the lender an incentive to help the borrower succeed.

Furthermore, it is not only the responsibility of lender to utilize their funds in a responsible way, but they are the experts, or supposedly, and therefore the burden should be on them to not lend recklessly against assets that are over priced.

I also see two other culprits in this mess: politicians and the Federal Reserve. I have no doubt that inflation has been tremendously higher than reported over the last thirty years, give or take; and what happens when wages and interest rates on savings do not keep up with inflation is it forces the working class to become more speculative with their money (which they tend to be somewhat conservative with) in order to keep up with the cost of living. Many people did speculate in housing and stocks in the hopes of cashing out.

The “greedy borrowers” theory is simply a propagandized appeal to morality in order to invert responsibility. I say, “so what” to the “greedy borrowers” theory.

casin says:

December 1, 2011 at 10:25 am

Good to see you are making sense now. I guess it helps to get educated, no?
- JTFaraday says:
  
  December 1, 2011 at 11:28 am
  
  He didn’t come up with that up overnight. He just stopped being what he accused everyone else of being. ie., hysterical
  - JTFaraday says:
    
    December 1, 2011 at 11:48 am
    
    Although, the question does remain that if people holding bubble inflated mortgages are not only not guilty but the victims of a bankster driven bubble, then why not write them down?
    
    (Let the hysteria begin?)

proximity1 says:

December 1, 2011 at 3:40 am

“Greedy borrowers” –the next-to-last refuge of rationales and excuses offered by morally depraved financiers.

Imagine a banker condemning others as “greedy borrowers” ! I mean, really, think about the truly amazing audacity of that charge. That such utter nonsense could even be thought of as an excuse is really a measure of how very far gone is this sick society.

vlade says:

December 1, 2011 at 4:05 am

The funny thing it, accepting the greedy borrower theory means that the bankers are clearly incompetent, stupid and not fit to carry any of their duties. Or, alternatively, they knew all the time but didn’t care in the first place.

I.e. whether you accept greedy borrowe theory or not, it is inconsequential to the evaluation of the “quality” of bankers and their behaviour; and as such is, at the best, an attempt to move the focus elsewhere.

Middle Seaman says:

December 1, 2011 at 5:16 am

The greedy borrowers is the new version of Reagan’s time the lady on welfare driving a Cadillac. Neither is anything except a smoke screen for robbing people of their money. The fact that some rich guy that used to suck our blood is now opposed to such sucking is of absolute no merit. Who the hell cares what some guy says? Not surprisingly, Kristof, with a limited thinking and fairness ability finds this meaningless testimony meaningful.

ambrit says:

December 1, 2011 at 5:24 am

Friends;
The described behaviour of the originators perfectly demonstrates Greshams Law. Bad financial practice has driven out good financial practice. The next time one of my Libertarian leaning aquaintances throws the Deregulation Theory at me, I’l toss this back. Deregulation has fostered bad practice that is blowing up our economy.

bmeisen says:

December 1, 2011 at 5:58 am

Bankers trained consumers for decades to care for their credit rating – and then they hand out Ninja loans as soon as their bonuses depend of them!

American consumer rats were conditioned with credit rating shocks, and then the psycho lab techie began supplying the mortgage reward for what seemed like random behavoir and the rat-minds went bezirk!

Jill says:

December 1, 2011 at 9:01 am

bmeisen,

May I suggest another explanation to you than rat minds going crazy. Most of us cannot make it on paychecks. Those paychecks have not kept up with inflation. People who are on disability or needing welfare are in the same plight. Credit cards and home refinance helped people put food on their table, pay medical bills and ironically, to keep paying their mortgage. It really is that desperate for many people.

People were/are putting their groceries on credit. Obviously, this isn’t sustainable. When that credit runs out, people don’t eat. Our food banks cannot meet the need for food. People are being kicked to the curb. Now they live in cars or shelters (if they are lucky).

I only write this because I think higher income people do not understand the level of desperation in those whose income can, in no way, match even the payment for necessities.

As to greedy borrowers, and I am not saying that’s what your post was about, I would like to agree with others who put the blame squarely where it belongs, with the banksters.
- bmeisen says:
  
  December 1, 2011 at 10:19 am
  
  Thank you Jill. The Banksters own this thing. I am willing to give politicians a pass for hanging out at the corner. It’s the Johns who make the market. Financial industry executives are virtually uniform in their complete lack of responsibility and cowardly self-service. Today Yves notes one former Chase executive who 5 years after the fact starts to fess up a little.
  
  American culture is suffocating the critical abilities of Americans. How many of us have objectivity about credit ratings and how they shape our beahvior? About checking? About the home ownership ideal and rental conditions?
  
  Many of us are so stiffled that we can’t discern healthy responses like voting for candidates who call for accountability among the corporate class, mortgage relief, and regulatory reform, to mention a few of the finance market issues that need to be addressed. Closely related to these issues are public health and education. Reforms must include the introduction of universal public health insurance and massive investment in education at all levels, leading to virtually free early childhood care and virtually free higher education.
  
  I worked in American retail hell for 5 years, living from pay check to pay check, not knowing how I would pay for a new car if my old one died, biting the bullit hard each time a check of mine at the grocery store bounced.
  
  Then I moved to Germany. Shortly after arriving I opened my first bank account and the clerk asked: “Wieviel Überziehungskredit wollen Sie?” I didn’t understand him. I looked at my friend, asking what does he mean? She said, “He wants to know how much of an overdraft limit you need.” I almost fainted. Holding myself steady at the counter I looked up into the humble atrium of the Volksbank and whispered, “Thank you God – I have died and gone to heaven.”
  - JTFaraday says:
    
    December 1, 2011 at 11:37 am
    
    “I am willing to give politicians a pass for hanging out at the corner.”
    
    I don’t give the politicians a pass. They have everything to do with why so many people can’t afford to pay the rent and eat at the same time.
    - bmeisen says:
      
      December 1, 2011 at 4:08 pm
      
      Where I think the Dems and Reps have been most destructive is in refusing to reform elections and political funding. For example Teddy Kennedy, golden boy of Liberalism, sat on his seniority so long that they finally found a way around him, i.e. buy your senoirity.
      
      OK there’s a lot of blame to pass around but like I said it’s the johns who deserve tarring first.
    - JTFaraday says:
      
      December 1, 2011 at 8:33 pm
      
      Baloney. They have the power to go into Congress tomorrow and free themselves. They have more power than any people on the face of the planet. They just refuse to use it the way you/we want them to.
      
      Stop making excuses.
  - casin says:
    
    December 1, 2011 at 1:14 pm
    
    The politicians are the reason why there is NO adequate safety net, let alone health insurance or public education…
    
    As much as the Banksters looted anything they could, hadn’t the politicians facilitated their behavior with laws that virtually gave them carte blanche, most of this disaster would have been prevented…..
    - EconCCX says:
      
      December 1, 2011 at 6:28 pm
      
      Banks gamed the power of free-ride money creation before any active politician was born, and before women had the vote. From that moment, the die was cast. Politics is now a wholly-owned subsidiary of Global Usury.

Richard says:

December 1, 2011 at 6:22 am

If I am not mistaking, the servicer is responsible to ensure payment of property taxes on a home in foreclosure. It is stated in the PSA. Better yet BOA sent me the yearly notice they paid my property taxes as I am going on three years in court fighting these banksters. A suggestion to all, nevervadmit you are in default, the trust was paid off/satisfied and possibly no longer a viable entity due to CDS, govt bailout. or 3rd party insurance (MBIA). If the trust is not closed then they surely recieved 3rd party payment(s) from the above mentioned. Note, you will find oil in your backyard before the servicer will disclose true accounting to the court in discovery. Lastly, the servicer has accepted the role to make monthly payments to the trust on a non performing loan. Which brings us to the UCC 3-602(a) argument. Cheers.

patricia says:

December 1, 2011 at 6:23 am

Nicholas Kristoff writes that the 7.8 trillion was repaid. Is that true?

nowhereman says:

December 1, 2011 at 7:15 am

Nope, the Fed has it on it’s books as marked to fantasy assets.
- annieb says:
  
  December 1, 2011 at 7:36 am
  
  Yes, if only someone so high-profile as Kristof would take on that “it’s been repaid” meme instead of parroting it, that would be a huge step.
- patricia says:
  
  December 1, 2011 at 9:38 am
  
  Somewhere recently I read that some billions had been repaid–that which was originally presented by the MSM and gov’t as the amount “lended”. This sum has been used by TPTB (and all parrots) as proof that “it’s all been paid”. This is presumably what Kristof is schmoozing?
alex says:

December 1, 2011 at 12:24 pm

“Is that true?”

I don’t know, but even if it is it ignores the open market operations that bought over $1T in commercial trash securities at full face value. They’ll never get that money back if they decide to sell them. The Fed was printing money, plain and simple. Apparently that’s a big no-no if you print it for the government, but ok if you do it to bail out holders of commercial trash.

Lafayette says:

December 1, 2011 at 6:25 am

THE CONTEXT – THE LOW COST OF MONEY

I’ve not been a big fan of the “greedy borrowers” theory of the mortgage crisis, particularly now, since the people who clearly bought too much house relative to their incomes defaulted quickly, in the 2007-2008 time frame, and are different than the people who are hitting the wall now.

Perhaps.

But the above does not defuse the argument that Greenspan had lowered the cost of money (interest rates) in the hopes, within a Credit Economy, of promoting Consumption and therefore Employment – thus keeping Republican Presidents in office. It is not a bad tactic, but one must be very careful of the Demand side of a Credit Economy.

Which reacts inordinately in our society because people fixate on spending ala “Shop till you drop”; meaning we live beyond our means. Moreover, there were those consumers who accepted the predatory lending of subprime loans because they thought they were “smarter than the market” in a asset-price bubble – by getting in a out of the market to make a quick-kill.

Yes, most of those, now five years down the road since “flipping a condo” was in its heyday are now also being foreclosed due to long-term unemployment. But that does not negate the initial economic premises detailed above.

We cannot escape this factual evidence, particularly in America. Because if we wish to push it aside and blame only the bankers – which 99.9% of bloggers do – then we prepare the ground for the next SuperMess that will befall us. And I submit that it will not take another 80 years, the distance between the Great Recession and the Great Depression. It will come much sooner.

And I need not quote Santayana again. It’s wisdom is evident to anybody with a respect for historical recurrence in the development of mankind.

THE BANKSTERS

Yes, the bankers were indeed part and parcel the instigators and manipulators of low-interest induced lending. The SubPrimes should never have existed as a financial credit product. They should never have been consolidated into debt-instrument packages and assigned Triple-A ratings, then sold to investors in the US and around the world.

All that smells to high heaven of fraudulent commercial practice, and, yes, somebody should go to jail. That somebody should be in a very high place so as to make a salutary lesson to the rest of the industry. Because apparently they have learned nothing. So the next time around, a different group – but every bit as avaricious – will try making a megabuck-a-month by means of some sordid financial engineering machination.

And the above are not the only ingredients of the Present Mess:
* Reagan’s precipitous lowering of marginal income tax rates to ridiculously low levels primed the machination pump.
* Our regulatory oversight agencies, which should have reacted to the realty asset-price bubble vigorously by means of auditing banks for the creditworthiness quality of their loans, were also asleep at the wheel. Why? Because the Bush Administration neutered their efficacy in the matter of market oversight, one of their primary responsibilities.

MY POINT

What happened was no more nor any less than the same phenomenon rife in pre-1929 Wall Street – people trying to make a quick buck on asset-price appreciation. No one foresaw the calamity possible from their behavior.

It was also known as the “Roaring 2Os”. Thus, in a helter-skelter, winner-take-all economy, the worst scenario possible did happen – the consequences of which took a full decade and a world war to repair. As well as much misery across America. Have we already forgot Steinbeck’s “The Grapes of Wrath”?

Well, they are on the table again …

F. Beard says:

December 1, 2011 at 6:43 am

Because if we wish to push it aside and blame only the bankers – Lafayette

Occam’s Razor, history, logic, the Bible, mathematics and many of mankind’s greatest thinkers indicate that the banks are solely to blame.

Furthermore, banks are not even necessary for investment. Common stock allows the necessary economies of scale without usury.
- mansoor h. khan says:
  
  December 1, 2011 at 10:38 am
  
  F. Beard,
  
  It situation is even more beautiful than that. Money if spent into circulation rather than being lent in circulation will act as an equity share in the world economy.
  
  Which means it will reveal its true natue (which deposit insurance hides). Therefore, money will start to emphasize our “connectedness” rather then how it falsely looks as to emphasizing our “individuality”.
  
  How beautiful the universe is. When used correctly it will shine light on the good expressions of our individuality through the efficiency of its connectedness via markets.
  
  Mansoor H. Khan

F. Beard says:

December 1, 2011 at 6:37 am

“Greedy borrowers”?!

Banks are essentially counterfeiters who lend, not spend their product into circulation. Those who don’t borrow are priced out of the market by those who do. It is a “Tragedy of the Commons” situation.

And making banks lend more “prudently” only means the rich and other so-called “credit worthies” qualify for the new money thus leaving the poor even further behind.

EconCCX says:

December 1, 2011 at 5:39 pm

Since the repeal of Glass-Steagall, banks can use that newly-created overdraft-money to buy properties on their own account, and thus have every incentive to book fraudulent loans. Thank you William Jefferson Clinton.
Foppe says:

December 1, 2011 at 6:36 pm

Yes, whenever Lafayette shows up, it is to remind us of “greedy borrowers”, and of “a mindset of rampant consumerism”, while he enthusiastically ignores the fact that the latter could never have gotten off the ground without the deregulation of the FIRE sector, because all existing institutions, according to Lafayette, are right, and the only reason they were corrupted was because of Reagan. Never ever may you mention the active role played by Clinton and the Rubinites, and never may you suggest that Obama is actively choosing to do as little as possible. The status quo must be conserved, since it is impossible for anything better to replace it, and any suffering in search of a higher goal is reprehensible, while any suffering caused by the system is acceptable.
- Lafayette says:
  
  December 2, 2011 at 4:22 am
  
  Foppe: Never ever may you mention the active role played by Clinton and the Rubinites, and never may you suggest that Obama is actively choosing to do as little as possible.
  
  Wrong again, fop.
  
  I have mentioned many a time (though perhaps not in this forum) the wrong collusion between Clinton and Rubin (and Summers) as regards the demise disastrously of the Glass-Steagal Act. Rubin clearly wanted to return to Wall Street with that “prize trophy”.
  
  Clinton has admitted publicly that it was perhaps “not the best thing to do”. (Which is an understatement of the consequences.) Perhaps he was motivated by the fact that he knew Hilary would make a run for the presidency and Wall Street money would always help …
  
  We have become too fixated upon money, money, money – particularly in politics. It will be our downfall.
  
  Of course, if we, the sheeple, wanted to do something about it we we could. But, like you, we prefer bitching-in-a-blog rather than getting off our duffs and militating for the reformation of our governance – from top to bottom.
  - Foppe says:
    
    December 2, 2011 at 5:07 am
    
    “bitching-in-a-blog” — oh, how neat a way to chastise anyone while on a blog. Because there is of course no way to disprove your accusation, as it is trivially true.
    
    As for “we, the sheeple” — talk about passive aggression intended to once again put the onus for elite corruption on the ordinary man. As for your suggestion that I am wrong to say that you never place blame on Clinton: please take a look at your reply to me here. All you do is cite Clinton admitting to “a lapse in judgment”, while immediately offering excuses for his behavior. Get it through your head: these euphemisms and apologies of yours, as well as your willingness to largely accept the euphemisms of others, are entirely inappropriate given the scale of the problems caused by these policies.
Lafayette says:

December 2, 2011 at 4:04 am

And making banks lend more “prudently” only means the rich and other so-called “credit worthies” qualify for the new money thus leaving the poor even further behind.

And so what? The difference between the relatively better off and the relatively less better off have always been attributes of a market economy.

Such diversity is inherent market economies that asks for and pays for talents/skills of varying capacities. What is dead wrong in market economies is when the income sharing becomes so glaringly unfair and Income Disparity produces a two-class society, including plutocrats at the top of the pyramid.

That dysfunction can best be solved by appropriately progressive taxation schedules. Economists Diamond and Saez have got it right when they state (see here) that the “optimal income tax rate” at upper levels is at least at 70%.

Which is where it was before Reckless Ronnie pulled the rates down to the ridiculous levels of today. (Note that income tax includes both salaried and capital gains incomes.)

Lafayette says:

December 1, 2011 at 6:38 am

It has become very evident that some American banks are “TBTF”: Too Big To Function properly in the best interests of the American public.

They need cutting down to size, like a giant tree so tall that it is threatening the house in case of a powerful storm.

F. Beard says:

December 1, 2011 at 6:47 am

What is necessary is for government to provide a risk-free fiat storage and transaction service that pays no interest and makes no loans AND the abolition of government deposit insurance.

The above would leave the banks with few reserves to play with. And yes, the lender of last resort must be abolished too.
- Lafayette says:
  
  December 1, 2011 at 5:56 pm
  
  What is necessary is for government to provide a risk-free fiat storage and transaction service that pays no interest and makes no loans AND the abolition of government deposit insurance.
  
  Piffle.
  
  The last thing the government should do is get into banking.
  
  Banking is well within the realm of private enterprise, except when it is poorly regulated (or not regulated at all), which has been the case.
  
  You are making the argument of “victimization” and suggesting/exaggerating that victims should be protected by the government. Which is not necessary, because the real failure is lack of adequate market oversight by regulatory agencies.
  
  I will remind you that interest bearing accounts and FDIC work perfectly well. What doesn’t work well is investment banks merging with commercial banks. The latter are risk averse, the former are risk prone.
  
  Never the twain should meet.
  - Foppe says:
    
    December 1, 2011 at 6:26 pm
    
    “Piffle” is not an argument. What’s worse, “Government protection is not needed,” but “regulation (=protection) by government agencies is” is contradictory.
    
    Furthermore, as we have seen, however long they behave decently, it will happen that so long as financiers exist, there will always come a day on which they convince the politicians to deregulate them again. Why do you accept that uncritically?
    Consequently, so long as governments tax in order to redistribute wealth and to fund structural investments, consumer banking should be a utility, with bonus structures appropriate to a utility company — i.e., none.
    - Lafayette says:
      
      December 2, 2011 at 4:29 am
      
      GADFLY
      
      “Government protection is not needed,” but “regulation (=protection) by government agencies is” is contradictory.
      
      Stop quoting out of context, fop. You’ve become a forum gadfly.
      
      I was responding to a post that suggested that private banking be suppressed and replaced by a government bank, which is not necessary.
      
      Will you read the posts before shooting off all-azimuths? You need to take some classes in the English language.
    - Foppe says:
      
      December 2, 2011 at 6:06 am
      
      Such a curious collection of ad hominems.
- mansoor h. khan says:
  
  December 1, 2011 at 9:16 pm
  
  Lafayette,
  
  Bankers are issuing currency. That is what the problem is.
  
  This (lending currency into existence) causes inflation and deflation and depressions. F. Beard is not suggesting that government get into traditional banking but only provide a safe storage of non-lendable fiat money and check clearing service.
  
  Mansoor Khab.

Deloss Brown says:

December 1, 2011 at 7:38 am

Oh, golly, I hope that all this furor actually creates some change. WE know what happened. Do other citizens?

Thank you for running this wonderful blog, Yves.

Jim A says:

December 1, 2011 at 7:48 am

“Borrowers throughout history are assumed to be greedy, stupid, or simply overly optimistic. The job of the lender is to protect himself from them, and by happenstance, them from themselves. ” Of course this changed when the demand by Wall Street for mortgages meant that the “Lender” issuing the mortgage was no longer exposed to the risk of default because he was going to turn around and sell it immediately to a banker who would securitize it and sell the bonds.

lambert strether says:

December 1, 2011 at 7:52 am

Ism’t the commission structure that Theckston describes part of how accounting control fraud is structured by the higher ups? (Step 2 of the 4-part recipe: making awful loans at a premium yield).

If so, then the banksters’ behavior isn’t reckless and predatory, but cold, calculating… and predatory.

PL says:

December 1, 2011 at 10:52 am

Exactly, predatory lending by design. That little tidbit about commission structure provides insight into what kind of results the banks wanted.

Jim3981 says:

December 1, 2011 at 8:15 am

The bankers set up the system so it was a win win.

They took zero risk accomplished by securitizing loans, the ratings agencies, and bond insureres like AIG that allowed the bankers to sell the garbage around the world.

Home loans have been a way to extract wealth from the consumer, until recently where it is a tool of the elites to collapse the western economies.

Housing is a depreciating asset and many incorrectly believe that it is an asset to store wealth. Almost all wealth for many unfortunately with this engineered collapse.

I bet if somebody went back through the mainstream media stories, they would find many articles persuading consumers they would get rich from owning real estate……

Jim3981 says:

December 1, 2011 at 8:18 am

correction:

“Housing is a depreciating asset and many incorrectly believe that it is an asset to store wealth. Almost all wealth for many unfortunately with this engineered collapse.”

Housing is a depreciating asset and many incorrectly believe that it is an asset to store wealth. Almost all wealth was actually destroyed for millions of westerners with the lovely leveraged asset called housing…
liberal says:

December 1, 2011 at 1:13 pm

Housing is a depreciating asset and many incorrectly believe that it is an asset to store wealth.

Yes and no.

Housing, meaning “a house,” is definitely a depreciating asset.

However, that’s not what the bubble was all about.

The bubble was about LAND. Land is usually not a depreciating asset. (“Usually,” because one can imagine exceptions like someone dumping nasty chemicals and rendering the land useless.) In fact, the tendency of land value (particularly well-situated urban land) is to increase with GDP.

The entire reason why land lends itself to bubbles is that it’s in fixed supply.
Lafayette says:

December 2, 2011 at 4:36 am

I bet if somebody went back through the mainstream media stories, they would find many articles persuading consumers they would get rich from owning real estate……

There is very old investment advice that suggests that one divide one’s total net worth amongst three kinds – low, moderate risk, and highly risky.

It’s all a matter of timing. And it is foolish to put all one’s eggs in the same basket.

Eric says:

December 1, 2011 at 8:34 am

Blaming the borrowers is a joke of the highest order. All those loan programs were developed by bankers and rolled out to be flogged by L.O.’a in RE offices.

I used to hustle mortgages for Margaretten in DC. They got bought out by Chase mid 90′s. I know of what I speak. Margaretten/Chase didn’t have much beyond CRA loans and 20-25% down no docs while I was there as I recall.

I was amazed when I got rate sheets from Mannie Hannie and Wells Fargo being touted in RE offices about 1990 or so. A mass of different rate structures tied into credit scores and down payments. I knew this stuff wasn’t Freddie/Fannie and wondered what would happen with a down turn. I mean, Jeez, they were still cleaning up the S & L crisis and I’m looking at this crap!!

Margaretten started doing 25% down no docs, purchases and cash outs, early 90′s that weren’t too bad and made some sense. That said, I had friends call me up and ask about cashing out which they did and I warned them about the “slippery slope.” They proceeded to use their houses as ATM machines long after I left the scene and have lost their houses or are hard pressed now. They gambled it away in the market, or spent it on life style enhancement.

Glad I got out of the LO business in ’97, but I watched with absolute horror the bubble develope. Dumped my Chase stock in ’98 when LTOM was developing cause I thought that would be “the big one.” Sold my parent’s house early 95 with great rejoicing on my part but the neighbors complaining I sold too cheap.

I think it was Atlantic Monthly that had an article on derivatives in the early 90′s. Had a picture of a giant inverted pyramid with the bottom point over top a tiny dollar. Who couldn’t see it coming??

As Groucho said in, I think, “Cocoanuts”: “and you can even get stucko… Boy, can you get stucko!!”

indio007 says:

December 1, 2011 at 9:12 am

I remember in during the height of the bubble in Massachusetts real estate values went up 23% in one month. The month before was 18%.

The appraisal fraud is massive. Often they worked for the bank handing out the loan. Is there not a conflict here?

Banks are still getting pad bubble prices even now via FHA insurance claims and by buying up properties covered under FDIC loss share agreements.
This is disgusting how this “crisis” is turning out.

Capt. Jack says:

December 1, 2011 at 9:44 am

Martin Andelman knocks the “irresponsible borrower” stereotype out of the park in a recent article he wrote. It is definately worth a read.

Our future hinges on just ONE thing…

What do you suppose would happen were a hospital to aggressively market “No Check-Up, No Illness Required, No Money Down” meds?

Once the patients starting getting sick and dying from picking their own meds how easy would it be to simply place the blame on them? Nobody put a gun to their head, right?

Using the absurd to further illustrate the obvious, how great would it be for the same hospital to take out multiple life insurance policies (as the beneficiary) on these same reckless patients?

Replace the hospital’s RX pad for Assignments of Mortgage and it kinda explains all this robo-signing crap.

1whoknu says:

December 1, 2011 at 5:04 pm

Great Link, there is a lot of excellent information and logic in that article.

rps says:

December 1, 2011 at 9:47 am

Since when did the “borrowers” have the Power? NEVER. Banks have always had the Power. When was the last time a bank had to jump through hoops to prove they are “worthy” lenders? NEVER

rps says:

December 1, 2011 at 9:56 am

Language is power. Whoever controls the language, controls the path of ideologies and discourse. Capture the language, and you have enslaved the population. Why else have educational institutions been beneficiaries of chair endowments and foundations? To control ideologies, theories, and policies.

Critical Thinking and critical analysis have been held prisoner in the dungeons of academia for over 30yrs.

Using the banker’s terms such as “g- borrowers” is giving them the Power of discourse

LAS says:

December 1, 2011 at 10:03 am

It is funny how executive greed is characterized as good – it is said to generate jobs, result in the making of innovative products, blah, blah, blah – whereas the greed of the victimized is said to be bad, what they deserve, blah, blah, blah.

Break labor contracts (those teachers and firemen are just so greedy, even though they educated our kids and saved the home from burning down) but keep the CEO golden parachute contract (even though he brought the economy down).

Funny how morality correlates so well with ass-kissing the powerful and shafting the weak.

PL says:

December 1, 2011 at 10:39 am

This information is not really so surprising. The basic facts behind fraudulent mortgage originations have been known or highly suspected for some time (not including specifics such as commission rates for different types of loans.) The mystery is how these known facts have led to the federal government’s unstated but obvious policy decision not to prosecute. Ditto at the state level with a few notable exceptions. That’s an op-ed I’d like to read.

orionATL says:

December 1, 2011 at 11:42 am

the banksters’ exculpating excuse, “greedy borrower”, can be dismissed with one word:

“underwriting”.

let me repeat that magic word:

“underwriting”.

see how the phantom excuse fades away?

Masonboro says:

December 1, 2011 at 12:01 pm

Over at FOX the alternate reality is that Liberals forced bankers and used Fannie to lend to undeserving people of color (Barry Ritholtz’s “Big Lie”). A letter to the local fish wrap actually blamed Dodd-Frank for “destroying the housing market for a decade” despite the fact that the house price collapse preceded Dodd-Frank(2010)by several years.

Unfortunately the revisionist history is becoming reality through repetition.

Jim

Ben says:

December 1, 2011 at 3:14 pm

Long time reader first time poster here. Thank you Yves and regular posters for all that you share!

Yves, in the spirit of Naked Capitalism I am thinking your next book title could be…..THE CAPITALIST HAS NO CLOTHES.

Ok back to article above…

The spirit of this article touches on a core value of our society that has bothered me for years. Personal gain trumps greater good. Profit at all cost. Profit from the misfortune of others.

Individual responsibility has been diluted by the system /corporation. Comply or move on. The party that has the most power, authority, or resources has the “advantage”. The party with the advantage should also own a majority of the responsibility. This part doesn’t happen. They use their power to shift their responsibility elsewhere.

I worked for one of the fastest growing national brokerage firm of the 90′s. It was a great company but I saw many (not all) genuine honest people grow into overconfident, arrogant, corporate “pushers” as they got promoted. Comply or die. Their behavior was validated by bonuses and stock options. The more they were paid the smarter they thought they were. Many used their “educated” minds to navigate the letter of the law to rationalize anything for personal gain……bending rules or laws to make it happen. No respect for the original intention or spirit of the law or ethics. This is one of the curses of capitalism.

I believe in free markets, but not unbridled capitalism. Profiting from the misfortune of others is not capitalism it’s “victimism”.

Spirit of the law vs letter of the law. Ever notice the more detailed a law is the easier it is to determine what is not written. What is not written is what gets exploited.

The spirit of our country is being compromised by smart savvy individuals exploiting what is not written in a law.
A law says “x” is illegal but doesn’t say anything about y.
So lets exploit y until someone stops us. Our defense will be ambiguity and (willful) ignorance.

Morals, ethics, and greater good are based on emotion and spirit not on the letters and words some writer uses to describe them.

Let the Courts and Judges hold up the spirit of a law. Then we can have less arguing over all the words used to write it.

freedomny says:

December 1, 2011 at 9:29 pm

As an ex Chase mortgage banker, who did prime loans, I can attest to everything this banker said. I would like to add one very important point though. Prior to Jamie Dimon’s employment as CEO, Chase’s subprime department was almost non-existent. In one of the largest cities in the US, it consisted of 2 guys. After Dimon came aboard, this department blossomed. Those of us who originated prime loans, were continually “threatened” in a subtle way, to refer to the subprime department. The reason given was that these loans were “very profitable” to the bank. We were also told to put a home equity line of credit on at least 80% of the loans we originated, as these too were “very profitable” to the bank. Ironically, after the home equity department imploded, the guy who headed it was promoted to a higher position. It is even more ironic when you consider that a Chase teller will get fired unless he pays back any shortfall in his money draw at the end of the day. Dimon was considered one of the best US bankers after 08. But the truth is he just has excellent PR. He didn’t really focus his attention to subprime mortgage until 06 or so. Had he come to the dance party earlier…Chase would be in the same position as Citi and BofA.

Fast forward. I actually left Chase because of its behavior, greed and treatment of its customers. I am now at a small bank who lends on their deposits, keeps the loans on their own books, has skin in the game, and treats their customers like gold. They also happen to be extremely successful.

Banker supporting OWS and ethical capitalism.

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