Remember that housing/derivatives/credit crisis that almost destroyed the global economy? Some of the people whose ideas helped to create it are still busy trying to duck responsibility for what they did. (This is true for what occurred both before and after the Great Recession).

The radical deregulation of derivatives, the waiving of leverage limits, the separation of depository and investing banks, were all part of a 30 year long effort to let Wall Street self regulate. It was a miserable failure, and the ideas behind have been, for the most part, discredited.

But that has not stopped the continual attempt to deny reality and rewrite the history of what occurred. We’ve seen this from people ranging from the rational to the batshit crazy.

Take for example Edward Pinto, who in a frenzy to blame anyone but the banks has tried to pin the crisis on: Acorn,  the FHA, Community Reinvestment Act, (aka the CRA), Fannie Mae and Freddie Mac. There is no intellectual consistency or honesty here, just an ideologicial flailing he seems to have learned from his AEI colleague, Peter Wallison.

The cognitive dissonance caused by the collision between facts and previously held ideas, beliefs, or ideologies overwhelms the brain. The dissonance occurs when the facts are discarded in order to preserve the newly disproven belief system. This leads to some genuinely odd outcomes as reality gets discarded in order to protect a narrative which become increasingly irrational.

Which brings me to this column today: ‘Mortgage Nanny’ Added to Lender Job Description. I usually love Caroline Baum’s approach to shredding bad thinking. We both agree that the latest bank regulations are not helpful and won’t prevent a new crisis. Indeed, the banks, via their ownership of congress, made sure to neuter most of the new rules.

Where she gets caught in a trap today, however, is this bit of AEI silliness:

“And here I thought it was the borrower’s job to determine if he has the means to repay a loan.”

It used to be. Homebuyers would look at their income, assets, monthly cash flow, job security, debt outstanding and things like that to determine if the family could afford to own a home. The lender’s job was to perform adequate due diligence and protect against loss by requiring a down payment.

No. That is Wrong. It so wrong on so many many levels that I have to stop what I was going to be doing this morning and respond to this silliness instead:

1. Banks — not borrowers — are the ones who actually make the loan decision.

2. Banks have access to capital. Depositors give banks money (FDIC helps that) and banks also can tap the Fed for even more capital. The banks have obligation to all of these entities to adhere to good lending standards.

3. It is the banks job to determine credit worthiness. THAT IS WHAT THEY DO. If they do not care to be bother to make this determination, then perhaps they should consider something other than the money lending business as a vocation.

Left to themselves, most humans would borrow much more money than they can reasonably handle. This is not a political statement, it is an observation about Human Nature.

Banks and other credit sources know this — that is why they review income and FICO scores and past payment history and debt load and employment record and tax returns. It is to verify the credit worthiness of the applicant.

No, this isn’t an exercise in due diligence — “Hey, figure out what you can afford, and we will check your work for you.” That is not what maintaining Lending Standards means.

This is why the no doc, no credit check, liar loans were destined to fail.

To reduce what banks do to a mere “due diligence” exercise in validating the home owners decision is not only wrong, it may be the single silliest thing Ms. Baum has ever written.

Further, the column was caught in a classic false equivalency. Ms. Baum could not help herself to bring up the usual bugaboos: “Without re-litigating the cause of the housing bubble — greedy bankers or government housing policy” — that’s because that debate is over, and the Peter Wallisons and Ed Pintos of the world overwhelmingly lost it.

The only reason to go back to that debate — as was done repeatedly in the column — is because the outcome of that disagrees with your ideology. The statement “Government housing policies caused the crisis” is enormously useful, however, as it signifies cognitive dissonance on the part of its proponent.

 

 

Previously:
Wallison: Still Wrong About Genesis of Housing Crisis (July 2007)

Why is AEI Scrubbing Wallison’s Name From AEI’s Financial Deregulation Project? (December 2010)

Dogma Versus Reality (December 2010)

Source:
‘Mortgage Nanny’ Added to Lender Job Description
Caroline Baum
Bloomberg January 16, 2013
http://www.bloomberg.com/news/2013-01-16/-mortgage-nanny-added-to-lender-job-description.html

Category: Bailouts, Credit, Real Estate, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

35 Responses to “More Ideological Excuse Making for Bad Banks”

  1. aabramson says:

    As I was listening to Caroline on Bloomberg radio this morning, I was thinking the exact same thing. It is the banks job to decide on the creditworthiness of the borrower. And it always should be–although often times it was not in the heyday that led to the financial crisis. No blame needs to be assigned–people just need to do their jobs

  2. normal1 says:

    It does make me uneasy to read such comments by people who, IMO, generally seem to be thoughtful, and can tell what’s BS and what isn’t. It’s when more and more join in the chorus, repeating the same BS that it starts to become familiar, and it doesn’t seem so outlandish to think that the banks were unfairly targeted. They could only do so much, because, remember, they’ve always got the gov’t on their backs. Sure, they got their deregulation, but they’re still under the boot of big gov’t.

    While reading the article, I was checking off all the target points she was making that fed into the conventional wisdom that gov’t is always bad and businesses are always at the mercy of the regulators. Just a few oldies but goodies she zeroed in on: the poor dumb homeowner who doesn’t want to educate himself and would rather the gov’t force the banks to cater to his needs, referencing the good ole days when FOLKS pulled themselves up by their bootstraps and made deals by handshake (all destroyed by instrusive gov’t regulations), how Congress doesn’t address the problem adequately (instead choosing to pander to the poor) but never detailing the influence banks have had to gut the laws.

    To sum it up, this is the kind of article that my many of my older relatives would find reassuring, I imagine. This completely fits into their ideology that gov’t can do no good and just need to leave businesses alone.

  3. DSS10 says:

    This is just one of many coordinated efforts to spin the proposed CFPB mortgage rules. Here are the new servicing rules released today:

    http://www.businessinsider.com/cfpb-rolls-out-new-mortgage-rules-2013-1

    Expect the BS to fly from all of the expected parties, especially for regulation “Z” which has new rules for conforming mortgages (20% down and debt and income verification).

    http://www.consumerfinance.gov/regulations/ability-to-repay-and-qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-z/

    It will be interesting to see how effective NAR and ABA will be at gutting these regulations…

  4. Petey Wheatstraw says:

    The banks and corporations and their lobbies are far more powerful than the government.

    To put it in Col. Kurtz terms, the government is “. . . an errand boy, sent by grocery clerks, to collect a bill.”

  5. cynical says:

    You are just as wrong.

    An individual suggests to the bank how much money they would like to borrow and provides evidence to support their ability to repay. The bank can choose to agree/disagree/counter offer. It is a negotiation. It is not mother may I. If the bank says hey I can approve $x more or less you choose to take it or leave it.

    Yes banks determine what they believe to be your creditworthiness as do you when you make an pitch (or application) to borrow. Maybe an individual borrower does not put a number or score to it does not mean it was not a conscious decision about one’s ability to repay.

    ~~~

    BR: When lenders do not even ask to see income or credit history or employment, records, it is because they are selling the hot potato to a secruritizer. That is what I was discussing, and the context of the gummint caused the crisis debate.

    As to a negotiation with the bank: The individual does not “suggest” to the bank — its not “Hey, how does this tie look with the is shirt, whattaya think?”

    You apply for a bank loan or mortgage or auto loan. It is I want to borrow THIS MUCH MONEY — here is my application. If the bank wants to offer less, that is their option –BUT THEY ARE STILL MAKING A CREDIT DETERMINATION BASED ON THE FACTS OF YOU AS AN APPLICANT.

    As opposed to what was actually done in the case of no doc mortgages.

  6. GeorgeBurnsWasRight says:

    Ye Gods, if it’s not the banker’s job to determine the ability and commitment of the borrower to repay a proposed loan, can we please replace them with chickens in cages pecking at colored lights. Besides being cheaper, it would be more entertaining.

  7. Petey Wheatstraw says:

    cynical:

    The banks made bad loans, knowingly. Their haste to launder that money via MERS and the subsequent chicanery are all a reasonable person needs to know about why the banks blew this bubble. Heads, they win, tails, the citizenry loses.

  8. Gnatman says:

    67% of the populace does not know how to compound interest.

    So – they would surely be on equal footing with the mortgage company to debate amounts to be lent and ability to repay.

  9. VennData says:

    The American Enterprise Institute, Heritage Foundation et al are wondrous levelers. As their followers “believe” the ilogical, nonsense, and ideology…their wealth will be slowly taken away from them. They missed the rally from ’09, dumped their leveraged RE, continue to sit in cash and finance their gold positions.

    Let the right wing think tanks, Newsmax, The Blaze, Fox News do their historical re-writes, they are knocking off their financiers by stupefying them. Right Wing idiocy: the road to serfdom.

    They ones who join the RIPO (Republicans In Primaries Only) who split from the Teahadists to support Obama, and will split again to have rational spending cuts from the “We must shutdown gov’t to get Obama’s attention”, will split to outlaw automatic weapons, will spit to have an immigration policy, etc fringe still have a chance.

  10. louis says:

    Masterful Reply BR

    We are only a deadbeat nation when banks need to be bailed out and regulators fail to do their job.

    http://www.youtube.com/watch?v=DV7yx2y3TtY

  11. rd says:

    The big problem that occurred was the responsibilities became separated from the actions and the refusal to prosecute individuals means that this has not been remedied.

    Historically, banks kept many of the loans on their books or sold it to some other party who would scrutinize the loans carefullt. The financial “innovation” that occured over the past 30 years was to throw all the loans in the blender, strain them into different tiers and tranches, and serve them to people who had virtually no way to know the details of what they were buying.

    The buyers essentially had to take many of the representations at face value. Because the audit trail broke down, the salesmen were left to their own devices on what loans to accept instead of having to meet strict standards that would be checked. there are always people looking to get loans that they should not get. One of the historical jobs of the banks was to take away the punch bowl if they were about to get too full of loans. Instead, the banks started to push more punch bowls on the people who had too much loans because they didn’t bear the consequences of failure.

    Theoretically, this system would be self-correcting after a few loans blew up and the MBS buyers would push back. However, the problem got so big that everybody decided to ignore the elelphant in the middle of the living room.

    As a result, the main lesson the banks learned from this crisis was that it is essential to become “Too Big to Fail” and to make problems so big that nobody wants to prosecute or sue. Since they have lawmakers and regulators on retainer or on loan to the government, they can position themselves this way. This is hardly a path to long-term sustainable stability.

    ~~~

    BR: Keep in mind there was an entire class of lenders who existed solely to sell these loans to securitizers.

  12. Jim67545 says:

    BR, re your response to cynical. As I stated in my prior comment, lending is a statistical or, if you prefer, handicapping exercise. No doc, ninja, etc. loans began as loans for higher net worth, higher down payment loans made to people with excellent credit who, for various legal and illegal reasons, could not document their income. Many small business owners would fall into this category. The early experience with this type of loan (I was a senior loan officer and we did not make these) was favorable in part because the housing situation was heading straight up and any foreclosures resulted in no or small losses. But over time the criteria were relaxed based on the good experience and nobody said, “Hey wait, we have crossed the line here.”

    It is an unfortunate fact that in lending sometimes loans are made for reasons that do not coincide with the best interests of the borrower. In a commercial lending setting an example might be a loan made simply because the collateral is so good it seems to offset all other weaknesses. Other examples might be a small consumer loan made to hit end of month goals or to court the business from an auto dealer. For these, and other situations, the borrower needs to protect themselves – the point I tried to make.

    ~~~~

    BR: Again, my beef is with those who excuse the banks and blame the borrowers or gummint policies — thats simply crap.

  13. Bridget says:

    Statements like “Relying on rules, rather than market forces, to allocate credit will turn out to be a mistake” are the height of silliness.
    However, if she is correct in her analysis that the new rules are inadequate in that they do not specify rigorous standards for all three of the Cs (credit score and history, capacity, and collateral), then she is absolutely correct that the new rules will not fix the problem. Her conclusion that down payments aren’t required because Congress views it as discriminating against the poor may be wide of the mark, (Congress may view it as an impediment to the housing construction industry) but she’s shooting at the right target.

  14. RW says:

    A very logical and, judging by the ongoing drumbeat of false narratives in public venues, it appears quite necessary sequel to Bailout Nation would be a book titled Deadbeat Nation with a chapter devoted to ideology as cognitive bias and another devoted to the refusal of elites to acknowledge error or accept responsibility.

    Just thinking out loud FWIW.

  15. flocktard says:

    “3. It is the banks job to determine credit worthiness. THAT IS WHAT THEY DO. If they do not care to be bother to make this determination, then perhaps they should consider something other than the money lending business as a vocation.”

    Correct! And you have no idea how hard this is to get into people’s heads. I got into a flame war with someone on LinkedIn some months, whose profile stated he was a Wharton graduate and CFA charterholder, who could not understand what every 23 year old loan officer at a bank knows: IT IS UP TO THE CREDIT GRANTOR TO PERFORM THE CREDIT DECISIONING, NOT THE APPLICANT.

    I’ve looked over the new mortgage rules and the mandated Debt to Income levels and required income documentation raised my eyebrows.

    “No Doc” loans were a basic staple of some banks. Barry will probably remember Greenpoint Savings, which specialized in this sort of loan. However, it’s not as if you could be a waiter at a diner and ask for a $500k loan- the credit report had to evidence some income, i.e., if you had a $700 a month lease on a Range Rover that was paid on time, and showed high credit balances on loans and credit lines that were paid down to zero, one could get a mortgage. These products were designed for the self employed or those who owned cash businesses who could not prove income with a W-2. It looks as if they have now been shut out of the mortgage market, even with 40% down, if I read these new rules right.

    As far as Pinto goes, his recent AEI piece is a study in mendacity: he is blaming the new rules for imposing the very underwriting rules he claims the GSE’s ABANDONED!

    Years ago, the famous car designer Giorgetto Guigiaro once stated in response to a question “If auto safety is your only priority, we should all be driving the same car.” If you want to eliminate risk out of the mortgage market completely, maybe we should all have the same mortgage.

  16. faulkner says:

    Or is it that conservative think tanks and media are better at deliberately using the cognitive biases investors and the rest of the public fall for? (Addressed in the Thursday AM reads entry “Ideology as cognitive bias (Stumbling and Mumbling).” How? A simple story with vivid images repeated over and over again so it becomes familiar and taken as true. A sufficient number of “separate sources” to trigger a herding effect. A sufficient passage of time (with media images) to support the confirmation bias and readily trigger a recency effect.

  17. howardoark says:

    Most conservatives believe in personal responsibility and that there should be consequences for bad decisions whereas progressives believe that the government should try to prevent people from making bad decisions and then shield them from the consequences if they mess up. Whereas psychopaths believe that these disparate views on human nature provide them with the opportunity to make bundles of money. The bankers were neither conservative nor progressive, they were jerkweeds in it for themselves. The result of their actions was the people who made bad decisions were mostly winners (many living rent free for years), the bankers were mostly winners (kept the money, didn’t go to prison) and the losers were fiscally conservative people who didn’t take out loans they couldn’t afford and now see their rents rising. As I see it, we’re rewarding bad behavior and punishing good behavior. Expect more bad behavior.

  18. san_fran_sam says:

    BR said “3. It is the banks job to determine credit worthiness. THAT IS WHAT THEY DO. If they do not care to be bother to make this determination, then perhaps they should consider something other than the money lending business as a vocation.”

    this is so true. back in 1970 my mother worked in a small bank. the bank turned down a couple for a loan. but she felt sorry for them and made them a personal loan out of her own funds. Naturally, they skipped and never paid back a dime. It was $1500 which was a lot of money back then. Boy was my father PO’d.

  19. louis says:

    Financial golpe de estado

  20. Greg0658 says:

    ‘they’re still under the boot of big gov’t’
    Yah – do something – make something happen – we need exchange revenues
    government is us

    Petey @0849 thats what the law is .. *all of this will self correct after feudalism castles take hold of the real property

    generally the DualNovas again
    .)(.
    the OpSys was eating each other for exchanges
    and throw the 10:1 (riiiight) reserves on top of another brand of paper reserves on top of another brand of paper reserves on top of another brand of paper reserves

    thread “Sell Side Indicator Model: Wall Street proclaims the death of equities”(riiiight)*

    sometimes I wonder what worldly knowledge I missed by not reading AynRand AtlasShrug’d – there must be some secret decoder ring message between the lines

    MasterBR – “I’ll get mine – you’ll be gone”* .. sorry kids

  21. jjsocrates says:

    Banks have a certain rate of defaults built into their lending models. Its assumed that borrowers with better credit scores and higher incomes have lower default rates (i.e. 750 has a 2% default rate, 700 has a 3% default rate and so on). Even the most attractive looking borrowers will still have SOME risk of default – so banks still need to count on SOME default rates. So to offset those losses, riskier borrowers get higher rates so that the banks can make more revenue and offset some of those expected losses. And to limit their exposure, they lend smaller amounts to borrowers who have lower credit scores and are therefore more at risk of default.

    That’s Banking 101. I have no idea what all this nonsense about Freddie/Fannie lending standards/regulations has do to with that. What I DO kn0w is that when you bundle a pool of mortgages together, you theoretically reduce your overall risk – allowing banks to lend higher amounts and accept more credit risky borrowers. Especially when that bundled pool of mortgage is then sold off to secondary lenders and as financial instruments.

    But what I never understood is how pooling these mortgages together actually reduced overall risk. If you have a customer with a 650 credit score and $80,000 household income and your models say that they have a 4% default rate, then bundling that customer together with 999 other similar customers doesn’t necessarily reduce your overall risk. You just have 1000 customers with a 4% default rate – so you’d expect 40 of them to default. You have reduced your risk of one customer defaulting, but not your risk of 40 defaulting. You can’t bundle these 4% folks together into a portfolio and claim the default risk is now 3%. Your risk went away by simply having more than one customer.

    We know the reason for the mortgage collapse was these financial derivatives made banks think that a portfolio of mortgages was somehow less risky, causing them to lend more to riskier borrowers. And these financial derivatives have banks the false belief that they could leverage up beyond belief because they had reduced overall risk.

    They all violated Banking 101. If your credit model says that a borrower has a 5% default rate, there is nothing that you can do to reduce that default rate down to 4% allowing you to lend them more money.

  22. cynical says:

    BR and Petey – I responded but not sure where it went. Here are cliff notes. I never defended the banks or borrowers w/r/t the legal/ethical standards in liar’s loans.

    My only limited point is the the borrower asks for what they think they can afford and/or need. And banks agree/disagree. I agree fraud (and stupidity) sometimes happens and alters that. Not excusing the banks if they committed acts of fraud or stupidity.

  23. gordo365 says:

    It may be banks job to determine credit worthiness – but not determine how much to borrow.

    This is just silly “Left to themselves, most humans would borrow much more money than they can reasonably handle. ” Like saying “Left to themselves, most humans would drink from a keg of beer until they throw up or pass out.”

    Asking a bank how much you should borrow – is like asking an aluminum siding salesman how much aluminum siding you should buy.

  24. Bridget says:

    jjsocrates said:

    “What I DO kn0w is that when you bundle a pool of mortgages together, you theoretically reduce your overall risk – allowing banks to lend higher amounts and accept more credit risky borrowers.”

    What I wonder is, who thought it would be a good thing for banks to be allowed to lend higher amounts and accept more credit risky borrower?. And, are the new rules designed to stop the madness? And, if not, why not?

  25. David Merkel says:

    This is not either/or. This is both/and.

    Rules and discretion, the greater of.

    Bank and borrower both responsible, but for different things. Bank: is this a good loan? Does it follow the rules, and are the softer factors of the borrower basically in line? The reason for rules at any financial institution are twofold. 1) Market conduct — preempt fraud if possible. 2) Solvency, particularly under stress scenarios when lots of things are going wrong. Lack of rules will lead to concentrated defaults from badly underwritten loans.

    Borrower has to ask, can I really afford this?

    Both have skin in the game — either or both deserve blame when a loan goes bad. It takes two to tango; it takes two to make a loan.

    PS — let’s toss in the lousy regulators. They had strong powers over underwriting regulation prior to the crisis. They did not use those powers in any significant way. They deserve a lot of blame. As it is, the new rules seem kinda wimpy to me. I was not impressed. I was less impressed to hear the banks and their apologists complain.

  26. Tarkus says:

    The fixation on the “bad loan” is myopic imo.

    The entire process from applying for/granting/securitizing/mis-rating was corrupted. That chain of events takes a lot of money.

    So where did the money come from to rot the entire process from the leaves to the roots? The migrant strawberry picker with empty pockets wanting to buy a mansion? Get real.

  27. cbjohn1 says:

    It is the responsibilities of both parties. Banks are always going to allow people to get more into debt than they reasonably should. It is up to the borrower to determine if a loan is right for them, not the bank. The bank’s role is to determine whether or not the lending terms accurately reflect the borrower’s ability to repay – nothing more, nothing less.

    It turns out that both parties failed miserably to do either in the crisis and cannot be trusted, as you pointed out. However, placing all of the onus on one party or the other will do nothing to alleviate the problem. The banks will quickly find new ways to entice borrowers into debt slavery, regulators will be slow to respond and ultimately the borrwers will still suffer while the banks get bailed out.

    The correct solution is to restrict lending to retail borrowers to extremely transparent, straight forward guidelines. This way we can keep lending within the sweet spot where both lenders and borrowers have incentive to do the right thing and there isn’t the “hot potato” situation, that you mentioned.

  28. Doug of North Texas says:

    Geez, I am rereading “All the Devils are here” by Joe Nocera and Bethany McLean, particularly the chapter “The Three Amigos.” Per this, Wall Street coveted the RMBS business to be their’s alone and have always wanted Fannie and Freddie out so they could fee-load the entire process. The blame game from Baum just means they still want Fannie and Freddie out, whatever the facts — and that Baum and AEI are on the Wall Street payroll. Wall Street essentially created the high-volume subprime conduit so they could do for that segment what they intend(ed) for all mortgages – see the book, Yves Smith, Michael Lewis if you want more support.

  29. ih says:

    cbjohn1 are you really serious? “Banks are always going to allow people to get more into debt than they reasonably should.” NO NO NO!!! As BR pointed out, banks get their capital from depositors like us or the Fed … so it is their fiduciary responsibility to be good stewards of this capital. Allowing people to get more credit than they “reasonably should” is grounds for allowing those banks to GO BANKRUPT.

  30. Slash says:

    Before all this went down, I assumed (naively, I guess) that banks had people who verified income and other information on loan applications. I wish I had known then that they verified it with the same sort of professional responsibility as all the people who reported on that football player’s fictional dead girlfriend, before everybody knew she was fictional.

    I could have gotten in on the mortgage gravy train before it derailed. Apparently, all you needed to be a mortgage broker back then was lack of integrity and a pulse. Then when people start bitching about how you didn’t do your job, you just blame it on the least experienced participant (the home buyer) and call it a day.

  31. Slash says:

    Apparently, everybody who has ever bought a house is now considered equal in financial risk assessment skill as a bank loan officer. If it’s not the bank’s job to determine who should get a mortgage and how much it should be, why the hell do loan officers exist at all? Not to mention all that freaking paperwork people bitch about having to read and sign. If it’s as simple as this:

    Loan applicant: Hey, I’d like to borrow $500K.
    Bank: OK, you look like you’re good for it.

    You should be able to process a loan with a single piece of paper.

  32. 873450 says:

    A favorite Big Lie narrative promoted by government hating propagandists identifies a specific statement attributed to Barney Frank on a specific date (1998 or 1999) as the proiximate cause of an international financial crisis 10 years later.

    Always refer back to this:

    “There’s no question about it, Wall Street got drunk, that’s one of the reasons I asked you to turn off the TV cameras. It got drunk and now it’s got a hangover. The question is how long will it sober up and not try to do all these fancy financial instruments.”
    POTUS George W. Bush (07/18/08)

    The president was taking questions from a gathering of his most longstanding, most loyal, most generous political patrons attending a GOP fundraiser in Houston. Clearly, Bush was uncomfortable with his remarks and did not want them disseminated to the public at large. His wealthy constituents would have felt better if he blamed the growing crisis on tens of millions of reckless, over borrowing, deadbeat Americans defaulting mortgages they could never repay. Instead, speaking confidentially and unaware he was recorded, Bush spoke truth and nailed it.

    The Bush administration already concluded rabid Wall Street machinations; specifically complex derivative trading and innovative “fancy financial instruments” destabilized the global banking system. In a shameful example of blind ideology trumping common sense, Bush privately informed trusted benefactors his government intended to do nothing. Wall Street will instinctively sober up and stop playing Russian roulette. After all, everyone knows U.S. style Capitalism is inherently perfect, inherently self-preserving, inherently self-regulating. Government interference can only make a bad situation worse.

    The ponzi scheme was premised on a universally accepted fact that overall history proves U.S. real estate prices always go up and can never go down everywhere at the same time. (Don’t know how Wall Street factored the Great Depression into or out of that equation. Impossible to repeat aberration? FDR fabricated hoax? )

  33. McMike says:

    All this seems perfectly clear with 20/20 hindsight; what about the current student loan/financial aid bubble? No income, no problem, no assets or downpayment, no problem. The assumption is, like property values, the value of education always and only goes up, but relatively (with respect to the uneducated) perhaps yes goes up, but nominally (with respect to the real cost of the education) perhaps no. There may not be a positive real return. There is plenty of “Gummint” money (backing, encouragement?) to go around. So who do we blame for this? Is this moral hazard? And what’s the difference with “Gummint” backing for the housing lenders? Is it in “Gummint’s” interest to add value to it’s properties to collect high rents (property taxes) and add value to it’s citizens through education inorder to collect higher union dues (income taxes)? Does our increasing national debt indicate negative returns for these efforts?

  34. [...] “More Ideological Excuse Making for Bad Banks”http://ritholtz.com/blog/ … by ritholtz [...]

  35. [...] the other side lay the bank apologists, corrupted politicians, and crony capitalists. They advocate the Big Lie of the financial crisis. [...]