It is the borrowers job not to lie. If they do, they should go to jail. There are laws for this. It’s called theft and fraud.

Middlemen along the way are called aiders and abetters or conspirators if they assist in the fraud. They too go to jail.

Why is this all so complicated.

Last time I checked we could bail out the national debt if we fined all these people and sold the assets off to people who really need homes and put the rest of these folks in “the big house”

this is my first glimpse of your discussion/debate and i have to say, it looks really heated. i am a criminologist working on my dissertation (5th year ph.d student) on fraud and the mtg. subprime crisis…you guys may wonder about the criminological perspective of the situation and where the blame lies…look forward to it….Tom

p.s. i also have my mortgage brokers license and was in the industry for two years.
I am working on my dissertation

Upon the supposition: “Predatory borrowing existed and was widespread.”

Let us define that in order to be proven true the supposition must hold in two parts: 1)- That borrowers can effect predatory actions on lenders, and that 2)- Predatory borrowing was widespread.

Were you to take the position of affirming the supposition and I the position of refuting it, you could not assemble an unbiased jury even from your peers at the Times and win a written debate with me.

Want to try me?

Ask your editor to assemble the jury and we’ll have a go in writing here on TBP.

You might carry the supposition on any number of different intentionally fraudulent actions of borrowers, but you could never carry it on the basis of predation.

It’s like Barringo said. The key item lacking in support of that supposition is the element of “borrower’s superior knowledge.” A commonly observed principle of law is that it assigns the greater guilt when judging two contributing parties to the party with the greater knowledge. That was unequivocally the domain of the lenders. They were the only predators.

First, borrower predation did not exist except in some isolated and exotic particular cases, but in no event could such predation by borrowers have been deemed widespread, certainly not enough to warrant your characterization of it, that it “may have been the bigger problem.” The borrowers you referenced have raised children that can’t find Kansas on a map. No predators, they, whether actively or passively guilty of fraudulent misrepresentation. At worst they were attempting opportunistic free-riding.

The key and by far greatest and most widespread predatory element was the lenders’ mad dash for pro-forma EBITDA earnings for the purpose of meeting or beating the earnings estimates of financial analysts and driving their stock prices higher and higher.

They did this in two ways. They strove for leveraged earnings from fees associated with the ordinary conduct of their origination business, but that wasn’t enough to get the real launch on EBITDA earnings. In order for that they also induced borrowers in every active and passive marginally or directly fraudulent means available to them to get them qualified and on the books… on their own books, that is… the books of secondary investment portfolio holdings that they held for their own accounts. That gave them an extra shot of adrenaline-laced earnings for the quarterly meet-or-beat orgies.

But even that wasn’t the end of their predatory practices. Their coup de grâce delivered to the public trust was the establishing of vast derivatives-based hedging strategies to protect those secondary portfolios. That tactic put the very source of their bread and butter – their good faith providers of capital, the buyers of their securities – on a roller coaster ride of volatility and conflict of interest, and if that were not enough, now, they’ve threatened us all with the prospects for a collapsed financial system.

And the second order derivative of that malignant calculus was the equally predatory derivatives-squared market that DID almost lock up the financial system last August and might yet do so now, even in the face of extraordinary and unprecedented tactics for avoiding it presently being conducted by Dr. Benber N. Anke and his happy crew of Deus ex-Machinators.

I’m guessing that… the lenders didn’t care! It was somebody else’s problem. That’s how a daisy chain works. Cowen should have written about the culpability that comes with promoting the idea that we are in a ‘new economic era’ – in which case he and hundreds of those eco talking heads should ask what they were doing. Because the old story was, who needs regulation? who needs a welfare state? the private sector is really finding homes for the homeless, and it is up and up in Bush’s America!

Other types of lending sometimes also referred to as predatory include payday loans, credit cards or other forms of consumer debt, and overdraft loans, when the interest rates are considered unreasonably high.

And Cowen doesn’t just say, there’s blame: he says MORE of it may have been caused by Borrowers.

That, to be subtle, is h*rs*sh*t, and Yves and Brad DeLong, to name two, called him on it as well.

If you really want to claim that CFC or BofA or JPMC or WaMu have too few resources to detect when a borrower is buying three houses, or hasn’t earned anything in the past six months, or is claiming $450K in income this year when last year’s tax return showed an EITC refund, then I have a few Worldcom and ENE bonds with your name on them.

This is Levitt-reasoning at its worst. Let’s be clear: mortgage documents are complex. Errors get made; most of them are non-material. In the grand tradition of the CA health issuer who found mis-statements on applications, but only pursued the ones that made claims, no one WHOSE JOB IT IS TO MAKE CERTAIN THAT THE BANK’S CAPITAL IS ALLOCATED PROPERLY appears to have been able to find these “frauds” until the property was already -15%.

If you want to argue that banks don’t know how to do their jobs, you might have a point. But calling the borrowers “predatory” is like claiming those illegals working for Wal-Mart were “too clever” for a firm whose IT is supposedly head and shoulders above the rest.

Cowen is taking a page from Levitt’s book: never ascribe to inexperience (how many mortgage applications do most people fill out?) what you can blame on malice and fraud. (h/t Daniel Davies) And his definition of “predatory” is so devoid of reality that Barry R’s response is, if anything, UNDERstated.

OK, I give. I guess I just flew over the phrase because I really couldn’t imagine what it could mean. I mean, how does a borrower force a lender to loan? How does a average borrower snooker the pro? I merely took the phrase to mean “aggressive”, “over-reaching” and in hindsight perhaps I was being too kind to the author.

I’m still not sure I fully understand it, but I can see now where Barry might have been particularly perturbed by that particular phrase. I am assuming that it was a cute turn of a phrase on the author’s part and unfortunately one that implied things he didn’t wish to imply.

Regardless of how low rates are, the simple fact remains that many borrowers recklessly took out mortgages regardless of their ability to pay the monthly carrying charges. This was simply reckless behavior, and should be appropriately recognized as such. I was surprised to learn that PIMCO’s fund manager Bill Gross was calling for a bailout. This makes me feel foolish for taking out a mortgage I could actually afford. Had I suspected a bailout of reckless behavior was forthcoming, I would have taken out a $10 million mortgage and gotten a much nicer house . . .

The Ongoing Impact of the Housing Sector