It’s sad that you have to be something of a detective to decipher what passes for content at most major American news outlets. In the case of Michael Grunwald, however, we have a decent set of indicators about the normally hidden agenda. The Politico writer worked with Tim Geithner on his memoir. In fact, I believe he has said publicly that he didn’t know a lot about finance before meeting Geithner. So when Grunwald decides to leap into anything involving this topic, we can assume the end result is not altogether different than what it would look like if Geithner wrote it with his own byline.
The latest example is a nominal review of The Big Short, which is not really a review. It’s an attempt to steer the narrative of what happened, in the financial crisis and its aftermath, to territory that comforts elites. Geithner has repeatedly tried to rewrite that history, as a means to self-flatter about his actions, and to ensure that nothing more punitive or disruptive befalls our money center banks. This non-review review represents another chapter in that story.
I should say that I’m not wholly positive about The Big Short. I wrote when the film came out that it too often put those most powerfully and hideously affected by the crisis in the background. And Yves has admirably explained how the Michael Lewis source material gives too much hero status to the folks who created a wider crisis by creating a market for the worst of the subprime securities (and Lewis didn’t even find the real villains who perpetuated this). Granted, these are more issues with the book than the movie.
But again, Geithner/Grunwald doesn’t care about the movie; he wants to tell you how to think. In the Geithner/Grunwald view, the crisis was just a case of mass hysteria, no different than the Dutch tulip craze, which was financed with short-term capital and collapsed because of a panic. This implicates non-bank mortgage brokers in Florida, homeowners in Arizona, and anyone who came into contact with a mortgage or cash-out refinance from 1998 to 2006. As the saying goes, if everyone’s responsible, then nobody’s responsible.
This is flat wrong on a number of levels, a convenient lie to get people in government and on Wall Street off the hook for the greatest economic disruption since the Depression. The quickest example of this comes when Geithner/Grunwald misinterprets a key scene in the movie, by claiming that America is as deluded as a “Florida realtor who kept insisting that the start of the crash was ‘just a gully.'” But that realtor was a salesperson, perfectly knowledgeable about the state of the market, trying to dump her inventory. America, in this analogy, equates to the guys in the back of that realtor’s car, being spun a story about how housing was impervious to a downturn, how homeowners can always refinance their way out of trouble, how slicing up the mortgages into tranched securities make them as safe as cash. It’s a dishonest inversion of the facts to claim that Americans suffered from a miasma and weren’t actively defrauded.
Mike Konczal did some heavy lifting on the rest of this, showing how the numbers reveal the truth:
…if it was a general mania, you’d expect to see widespread losses among all kinds of mortgage players. But those losses were concentrated in subprime and especially CDOs. From the FCIC report:
Simply speaking, banks holding their own mortgages and government-backed credit (implicitly or explicitly) experienced nothing like the losses that financial securities saw. The bubble also wasn’t driven by consumers. As Adam Levitin and Susan Wachter found, the price of mortgages fell as the quantity increased, pointing to a supply-side movement rather than one driven by higher demand from housing-crazed individuals.
Honestly I would quote Konczal’s entire post if I could. We know that consumer demand didn’t drive the bubble, in part, because people who owned their homes outright in inner city Detroit and Cleveland were getting cold-called by originators. Cash-out refinances represented the majority of subprime mortgages, according to Nocera and MacLean in All the Devils Are Here. These people didn’t come looking for a mortgage, the brokers came looking for them.
We’ve actually seen a housing mania in America – in the LA area in the 1980s, in the S&L crisis to some extent. It wasn’t too bad. The use of mortgage securities and credit derivatives not only fueled the demand for more mortgages to expand bad loans from the regional to national level, it globalized the crisis.
The bubble can be described as a game of hot potato, where the spud symbolizes risk. The non-bank originators, under demands to send them as many mortgages as possible by Wall Street banks who controlled their warehouse lines of credit, passed the potato to Citi and Morgan Stanley and BofA. They passed the potato onto MBS investors, on the authority that these were safe assets, blessed by a corrupt set of rating agencies. They wouldn’t have made the purchase without 30 years of financial engineering, innovating the mortgage bond into something defined and free of prepayment risk. And the unsold tranches were chopped up into CDOs, with the sketchiest bits of mortgage securities julienned into something deemed safe. Without that stamp of approval, you could not possibly have built the bubble nearly as big. The hot potato game created warped incentives for every actor along the long chain of disintermediation, a defining feature of shadow banks. And the swaps and derivatives related more tangentially to this game, and designed to get a lot of people out of their bad trades, magnified the exposure.
It’s also not true that the big banks were “dumb money,” as Geithner/Grunwald puts it, because lots of hedge funds and most notably Goldman Sachs (see Magentar) made the exact same CDS trades that the few outsiders and weirdos did in The Big Short. And as Yves points out, they drove additional toxic subprime demand at the bubble’s peak, by creating time bomb bonds designed to fail. The idea that the banks were appropriately punished for all this because a few people at Washington Mutual lost their jobs (but not their bonuses) is comical. The traders who put together the schemes in real time to profit off the bubble and the crash, with their “IBGYBG” (I’ll be gone, you’ll be gone) mentality, are doing OK. The recklessness made a lot of sense for them.
See also everything Adam Davidson tweeted this weekend, and David Fiderer, who makes a number of these points in more detail, including this:
Invariably, the adherents to the Stuff Happens school whitewash fraud by trivializing it. “Wall Street succumbed to the housing-is-bulletproof delusion,” says Grunwald. He ignores the fact that people on Wall Street have an affirmative obligation to know what’s going on; they represent and warrant the quality of the mortgages being sold, and they have an affirmative duty to avoid any complicity in any fraudulent transactions. Willful blindness is never an excuse.
This is a good time to segue into one of Geithner/Grunwald’s biggest whoppers in his narrative: “The fact that no Wall Street executives went to jail for their role in the crisis, despite a glut of politically ambitious prosecutors who would have loved to frog-march bankers into court in handcuffs, ought to suggest that their activities, however idiotic and irresponsible, were not provably illegal.” If nobody was arrested, there was no crime. This is something that a writer put in a story. Judy Miller must be happy that this gets her off the hook as the biggest dissembler in the history of journalism.
I should just copy-paste my entire book here as evidence to counter this claim, but my publisher probably wouldn’t like that, so let me preview by saying that there were provable cases – remember the millions of pieces of documentary evidence of false mortgage assignments and affidavits fabricated and forged to prove standing to foreclose and recompose chain of title? – that prosecutors ambitious to seek justice did attempt to bring, but the Justice Department shot them down. It happened. And one of the ways that happens is through starvation of resources and lack of emphasis, which former New York banking regulator Ben Lawsky once explained to… Geithner/Grunwald:
With Enron, we put together a whole big group of prosecutors from around the country, the best of the best. We put them in an office and gave them huge resources with the FBI and other agencies to do a really deep-dive investigation into exactly what took place. And that was just for one company. If we had, as a country, devoted the same proportional level of resources to reacting to the financial crisis — a group of maybe several hundred prosecutors and several thousand agents tasked with doing an investigation in the immediate aftermath — we may have seen different results… I guess what I’m saying is, I’ve worked in a U.S. attorney’s office, and there’s a real difference between having a bunch of U.S. attorneys around the country with often limited resources working on different aspects of the financial crisis, and putting together a nationwide task force where you devote very significant resources in one place with one leader who, frankly, probably reports to the top law enforcement officials in the country.
Lawsky is too kind to say that DoJ didn’t put the brakes on cases. I’ll hold my tongue on that for a few months.
(Fiderer also points out the FHFA cases showing clear evidence of securities fraud. I could add Fabulous Fab, the Clayton Holdings findings of poorly underwritten loans in the bond pools that banks used to negotiate after-the-fact discounts from the originators without telling their own investors, the failure to convey assets to the trusts that should have triggered 100% REMIC violations, etc, etc, etc.)
Geithner/Grunwald devotes the rest of his propagandizing to cheerlead for the bailouts and their aftermath. The word “homeowner” never appears in Geithner/Grunwald’s story, appropriately enough. As Konczal writes, “It’s nice to think that the thought of ‘hey, the bailouts made money’ is capable of keeping a homeless family warm at night, though that’s probably not the case.” These 6 million families, who could have been aided by the written commitment of $100 billion in TARP money Larry Summers promised to dedicated to mortgage relief (7 years later the government has spent $10 billion), are wiped out of the picture because they were abused: they had their hopes of lifeline bankruptcy reform to give them leverage over their mortgage servicer extinguished, had their loan modification applications lost, had their time sucked by hours of haggling and heartache, had their servicers turn a foreclosure mitigation program into a predatory lending program, had their homes effectively stolen with false evidence, and had their government hand out worse-than-nothing settlements over the layers of misconduct. There were losses in the crisis, and they were allocated, in the end, onto homeowners. And some investors, who end up paying both the losses of mortgage bonds AND the penalties for banks’ fraudulent conduct. These losses, and the balance sheet deleveraging that they required, stunted the recovery, in the absence of assistance from the Administration.
I could go on. Geithner/Grunwald is apparently thrilled that Dodd-Frank is causing banks to “break themselves up voluntarily to avoid some of the stringent new rules,” even though he wrote a whole article discounting bank size as a problem and opposing the idea of breaking them up. Geithner/Grunwald argues that nobody on Wall Street foresaw a bailout, but this little bit tossed into a 1991 update of the Federal Reserve Act suggests otherwise (h/t Matt Stoller).
Geithner/Grunwald salutes the clearing of derivatives, a reform brought into Dodd-Frank (against Geithner’s wishes) by Blanche Lincoln, who was scared of a progressive primary challenge, and he fails to mention that the biggest derivatives traders – all the big banks, incidentally – moved nearly all of their swaps trades overseas to avoid regulatory oversight (in this sense, Big Short director Adam McKay, who is being derided for saying that we didn’t get a real derivatives clearinghouse, is more right than wrong, actually). Geithner/Grunwald says the film “is appropriately brutal to Wall Street and the financial sector,” so he can point to that single line when people like me come after him for his concerted effort to throw Wall Street a lifeline.
This is far more than a movie review. It’s something that the finance lobby can forward people on Capitol Hill to subside any residual anger lawmakers (more appropriately, their constituents) might have from The Big Short and its fallout. It’s an attempt to mold history, to put a filter on the past so nobody will make any changes in the future. The elites who want the status quo to continue feel the debate slipping out of their hands. If they want to regain control, they’re going to have to do better than Geithner/Grunwald and his fairy tales.
Geithner, Bernanke, and, and (I am waiting for Paulson’s fairy tail). If you are outside of their little, but heady, bubble then the ’emperor’ narrative is obvious. I am never quite sure if they do it because they believe their own propaganda or because they need some story which absolves them of blame, but which of course makes them the hero of the plot.
For the most part, sadly, people are unthinking. Their lackeys can read their books though to give them a little extra reason for their own servitude.
The central reason for all this are the crony bailouts waived through by corrupt politicians, and a judicial system staffed by career bureaucrats without a spine.
My dad, a banker from 1940 (page boy) to 1984 (vice president) minus 3.5 years volunteering in the Pacific fighting the Japanese told me you never, ever accept collateral at 100 cents on the dollar. First they did it with the MBS, then with the CDOs. That was criminal negligence right there. The tranche shenanigans and the fake AAA ratings were just the icing on the cake.
How about evidence that one mortgage was in multiple mortgage backed securities? I’d say that was fleecing the certificate holders.
When you [Grunwald] have lost Adam Davidson, you should just give up.
As the mortgage crisis played out, Davidson and his Planet Money team were at the forefront
of trying to explain away the criminality as basic human psychology.
You see, corrupt mortgage brokers were just trying to be nice to their
Nothing about Wall Street’s insatiable appetite for crappy mortgages.
Just simple people folks trying to be helpful.
Reminds me of a member of the Pennsylvania Turnpike Commission, Egidio Cerilli, who in the 70s went to jail for extorting bribes from contractors, and for taking money in exchange for jobs in the department. His excuse: “I was just trying to help people.”
Planet Money…it’s not bad entertainment and can be interesting, even informative from time to time. That they claim it’s journalism they’re doing tickles my funny bone no end. A finer collection of naifs and neoliberal stooges would be hard to find. Panglossian would probably best describe their “reportage.”
Speaking of crappy mortgages, in 2006 when we bought a place the banks and lenders were sagely advising us that we qualified for a 600,000 loan. In no known universe was that actually the case–except this one.
Thank you for continuing to keep the financial crimes in the forefront. There are many of us still fighting these criminal entities. We are almost completely forgotten.
So, I thank you.
Let me add my thanks. I’m not able to contribute in any way to a continued fight against these monsters, but my rage still burns. Thank you.
Ditto! THANK YOU NC & contributing writers for continuing to give us victims a voice.
Procopius, I think you’re wrong when you say you’re not able to contribute in any way to “fight these monsters”.
You still have the right to vote when the time comes. Use it.
While I have no further legal recourse as I lacked the money for representation to save my humble home of many years & all SOL’s have run out for me (& I remain the brokest now in my 64 yrs of life after losing everything), my rage still burns, as well. It has not been “my” govt for far too long now, as has been continuously proven to us victims.
But I still love this country & want it back from a govt that sold out to the banksters, so remain involved & informed.
Why do so many not realize that if 1% holds most of the monetary wealth, that leaves 99% who therefore far, far outnumber them in population?
Think about that. Try to imagine 99% of the population saying, “Enough is enough!” at the polls. That would be a voice with a strength heard ’round the world.
Power in numbers & our voices will be heard, if loud enough.
Express your views & disgust to others, & VOTE.
And vote for the change you want, rather than just jumping on a bandwagon for whom you (have been programmed to) think will win, for fear of backing a “loser”.
In the alternative, because I believe that voting is even rigged, please keep asking your friends, employers and family members to move their money from these crooked banks.
Ask the banks in your neck-of-the-woods whether they are PORTFOLIO LENDERS. This means they retain the mortgage note. This is important. Please reward the portfolio lenders with your deposits. (Rather than some random credit union, as credit unions will also use MERS and sell their loans to Freddie and Fannie)
BTW, I am so sorry these banks got your house. I am still fighting. But even our judicial system is rigged.
I’m so sorry to hear that, crittermom. That whole houses were stolen, and no one actually responsible has gone to jail, just boggles my mind and burns me up.
I admire your ongoing resolve. You’re not forgotten. I wish I could offer you more than solidarity.
Just your assurance that the homeowners who have been fighting are not forgotten is enough.
You make a good point about the banks, but even smaller banks have gone beyond reason.
The closest (only) bank where I’m now forced to live is an hours drive away.
I went in there to ask for change for a $20. They wouldn’t give it to me because I don’t have an account there, & sent me to a gas station for change! What?!
If you can’t get change at a bank, then where?
If you don’t have an acct there but try to cash a check drawn on that bank, they charge you over $5 to cash it. What?! Since when did THAT become the norm?
I’ve come to the conclusion that ALL banks have gotten totally out of hand. But then, look at what a good example the big banks has set for all banks in conducting business. Wow.
Regarding my home (ranch), I had been making my modified pymts on a refinanced (predatory) loan of $140,000 for a year when Chase began refusing my money (sending it back!) & took my ranch.
Freddie Mac “bought” it at auction for $50,000 more than I owed, & then sold it for a mere $65,000 total!!! Huh?
So I was happily making pymts for more than twice that amt & current on ’em when they stole my ranch & sold it for pymts of less than half that amt.
So nice to know CEO’s such as Jamie Dimon got a $1.8 million bonus for such behavior. (yeah, I know. He was rewarded for making such a good closed door deal with Eric Holder on how little of a fine the bank would pay for other illegal behavior)
Yeah, I am just as pissed almost 5 yrs later as I was then, & would love to show Jamie Dimon or any other bankster as well as certain members of govt (past & present) the true meaning of “underwater”, if they’d only come fishing at the little lake down the road from me…
For those of you who still have a fighting chance, don’t rely on the govt at all to help you. I foolishly thought they would & filed complaints with every branch I could name. The result? Each & every one told me, “Sorry. You may want to hire a lawyer.”
Problem? I only owed $137,000 (according to Chase) on my loan, & a good foreclosure defense atty cost $200,000.
I remain pissed at the govt for pushing a program (HAMP–“Hellbent At Making Profits”) under the guise that it was to help the middle class, when in fact 84% of us were denied permanent modifications (read the SIGTARP report sent to Congress the end of August 2015).
It seems only those with loans of $400,000 or more & who could afford attys got mods. It DID NOT help those of us (the former middle class) that is was touted to, at all. Instead, only those who could afford high dollar legal representation, which was NOT the middle class.
While I now question even the voting process, I must still believe that if enough of us voice our opinions at the polls (remember–we’re 99% & they’re only 1%), we will be heard.
I’ve signed petitions against the TPP & saw it go down in the first round.
I’ve signed petitions regarding net neutrality & saw that fight won in the first round, as well.
So I’ve still gotta believe our voices can be heard if there’s enough of us.
For all those still fighting, this beaten-down weary old soul is still behind you, & wishing you all the best. My fight may be over, but I’ll continue to fight for those who have not yet lost.
Strength in numbers, folks. We far outnumber the crooks, & don’t ever forget that.
I’d like to add my “thank you” as well, David. I’ve forwarded this to several friends with my own explanation of why it’s important that they read it. It’s really useful in educating those who haven’t been as immersed in big bank fraud as we regular NC readers have.
Your closing remark is a gem:
In anticipation of the “finance lobby” forwarding Grunwald’s dreck around, we should be inoculating our friends, family and representatives with the true story.
I have always wondered whether an analysis exists of the “investors” who were stuck with the non-performing financial assets. I always assume that pension funds were the largest class of investors stuck with this junk – say, Calpers, as a guess. We know that some foreign pension funds were stuck with this junk. Has this study been done.
Rewriting history seems to be an obsession with these ego driven lunatics.
Hey Dave, congratulations on winning the Studs and Ida Terkel prize for the book. Can’t wait to pick up a copy. It will go next to ECONNED on the shelf.
One has to look at mortgage origination, and in mortgage origination the Underwriting Standards (aka: Underwriting Guidelines).
The Underwriting standards, especially stated income loan standards, were manipulated to generate a huge number of loan originations, and about the same time in 2005, the bankruptcy law were changed.
This in an environment when the Bush administration were touting the “ownership society.”
Personally I perceive systemic fraud perpetrated from the White House down, with the lenders as willing accomplices, the lenders protected by the their insistence on modifying the bankruptcy laws.
Read the McClatchy link that David added. It shows that NINETEEN YEARS before the melt-down, the Fed was already preparing for a government bailout. This, and other evidence, is irrefutable proof that our government participated and profited from the melt-down.
That’s how it looks to me, too.
“Ownership society” was code for “we own everything, and WTF are you gonna do about it, hmmmm?”
“We know that consumer demand didn’t drive the bubble, in part, because people who owned their homes outright in inner city Detroit and Cleveland were getting cold-called by originators. Cash-out refinances represented the majority of subprime mortgages, according to Nocera and MacLean in All the Devils Are Here. These people didn’t come looking for a mortgage, the brokers came looking for them.”
This was true everywhere. I was living in a condo in Sarasota in 2006 that was undergoing extensive rehab. Every carpenter and painter on the rehab crew was getting cold-called almost nightly.
We had S. Cal version. On weekends at the beach, Wells Fargo had a lineup of about a dozen string bikini clad cheerleaders doing the high kicks, waving pompoms furiously, and chanting the Wells Fargo Loan Cheer.
You had to be there. I went as often as possible.
Bikini clad Wells Fargo cheerleaders?
My two WA state senators still won’t tell me what their voice vote was on the Hank Paulson confirmation. The recently announce $5.1 billion Goldman Sachs settlement is for fraud that occurred when Hank was CEO.
I hope you join me in voting out those 2 lying runts.
I will join you in asking for how they voted.
Add another voice from the Evergreen State to that.
Just how much of these failed mortgage loans though are still on the Fed’s books? Still haven’t seen a valid followup article in the past year or two on this topic.
The substantive issue I have with the movie is the constantly repeated statement that “nobody knew”. That might have been true in 2004 into 2005, but by then it was clear that bankers knew. They knew how those loans were being made, and they knew they sucked. By 2006, it was clear to all of them, and in 2007, the rats started for the door.
The movie actually shows that they knew. At the end, the suspense is whether Burry and the others will run out of money to pay premiums on CDSs. They couldn’t believe premiums were so high when the bonds were obviously failing. The reason the premiums were high is that the giant banks who made the only markets in that garbage could point to trades they made in those bonds to the greater fools at ridiculous unfounded prices.
And the thing about Obama, Holder and the odious Lanny Breuer that just sends me through the ceiling is their boldfaced lie that the banks were greedy, not criminal. I don’t know how anyone could believe that.
They were paid very well to believe that.
Obama, Geithner, et al, will all leave office very wealthy men.
There was clearly a panic in 2008 starting with the Money Market funds, and the banks. Reading Bernake’s book it implies the panic started with BNP suspending some of its funds in mid 2007. So perhaps the lead up to 2008 was not a panic but in 2008 there definitely was a panic. So yes the mortgage issue was not a panic, but Bernake claimed that absent the panic and resulting severe job losses it might have been contained as they thought earlier.
So it depends on the time frame you are looking at. But by Sept 2008 there was a full blown financial panic as everyone was not sure who would be in Bankruptcy tommorrow.
The issue with criminal prosecutions is can you show beyond a resonable doubt that it was not just sheer stupidity and ignorance that lead up to the problem. One part of it is the last institutional memories of the great 1930s depression had left the scene (here I mean that the folks leading the institutions only knew about it 3rd hand, as their mentors had learned about the depression first hand from their mentors)
Yes, without a doubt. As Dayen says, read the material and the exhibits of Clayton Holdings in the Final Report of the Financial Crisis Inquiry Commission for the easy evidence. Shorter: https://shadowproof.com/2011/02/18/statute-of-limitations-for-securities-fraud-burns-us-attorney-for-sdny-fiddles/
Note that this is real time. Holder and the noxious Lanny Breuer simply refused even to investigate the facts that were front and center. And there were plenty more of people saying so, but of course, it was just the left so it was easy to ignore them.
The bank just took my home here in North Carolina
When someone moved my Job
All the way to China
Something Good is gonna happen today…
Something Good better be coming my way…
One reason the Feds were able to get away with their shabby treatment of homeowners who had been abused and defrauded was long standing intra- class divisions. These were reinforced and crystallized by Rick Santelli’s infamous comment that mortgage relief would be help to losers. He played effectively to the anxieties and anger of the many homeowners who were struggling barely to make it. Mortgage relief has to take a more universal form encompassing all debt. Economist Steve Keen has suggested a debt jubilee with $50,000 to go to all citizens on the condition that the money first be used to pay down debt. Those already debt free along with those struggling would also benefit. That the US cannot afford such a program is ludicrous in light of the huge subsidies to the investment banks. Beyond this policy initiative more in the way of personal stories needs to be presented in order to counter the ugly stereotypes of the Santellis of the right.
The PSA for every MBS ever sold states that there will be 2 (two) true sales of each note before it is deposited into the Trust. Collectively we have examined thousands of notes from hu dreds of trusts, and NOT ONE was ever properly securitized. This means that legally, each “Trust” foreclosing someone’s home does not exist. There is no res. this is IRC, NY Trust law, and SEC rule mandatory. Yet it was never done, and no one has done a thing about it.
Sickening. And illegal as all hell.
I just recently picked up a copy of Mike Grunwald’s book on one of the financial crisis’ champions, Timmy.
It is a wonderful read and I hope the world finally understands the huge contribution made by Timmy to save the world from imploding.
If we hadn’t allowed mortgages to be registered and assigned thru the MERS system .. hmm
Thank you DD
The movie will beat the reality every time. The myth is the motivation. Money, Ideology, Compromise, & Ego. Movie stars are heroes. Nobody remembers but a few of the director’s names. Bush was our Andropov. The first one. Right in front of our faces Iran. Starve the beast? Which one? Page was a CIA front. They sold fuel to Corporate jets. RITs President was CIA. Intelligence takes over the Universities. Do I really think these banks, hedge funds, Shadow banks, don’t answer to some bunch protecting their off book fronts? Who thinks the TPP is really good for US workers? What, they are all so stupid they simply can’t imagine protecting our own with a tariff that protects the immature businesses? What can this be when the President who is a trained Constitutional lawyer wants to go ahead and approve this NAFTA like thing with a Court like Napoleon got to give him the right to destroy Haiti? I need to dig some more. Which one of these banks is the one run for and by all the spies? I admit this is just a thought that appeared in my brain after all the reading.
Words that may describe Geithner’s position well:
– Beware of the intellectuals and keep them away from power!
– In government the scum rises to the top!