Taibbi on Bloomberg & housing crisis blame

Last week, New York City’s billionaire mayor Mike Bloomberg made the remarkable assertion that Wall Street banks bore no blame for inflating the housing bubble, leveraging themselves out their ears, and causing the financial collapse when their house of cards fell apart.

Mayor Michael Bloomberg said this morning that if there is anyone to blame for the mortgage crisis that led the collapse of the financial industry, it’s not the “big banks,” but congress.

Speaking at a business breakfast in midtown featuring Bloomberg and two former New York City mayors, Bloomberg was asked what he thought of the Occupy Wall Street protesters.

“I hear your complaints,” Bloomberg said. “Some of them are totally unfounded. It was not the banks that created the mortgage crisis. It was, plain and simple, congress who forced everybody to go and give mortgages to people who were on the cusp. Now, I’m not saying I’m sure that was terrible policy, because a lot of those people who got homes still have them and they wouldn’t have gotten them without that.”

Matt Taibbi had one good response, but when readers kept trying to spin him with bogus pro-bank talking points, he put up an even more thorough debunking of Bloomberg. Taibbi explains not only how Bloomberg is wrong, but how he is monumentally and deliberately dishonest. I’m pulling a longer-than-usual quote from it because Taibbi’s response is really important.

Nomi Prins pointed out in her book It Takes a Pillage that we could have paid off every subprime loan in America at the start of the crisis for about $1.4 trillion dollars. But the bailouts ended up being four, five, perhaps as much as ten or twelve times that size.

Why? Because we weren’t paying off the underlying loans of those subprime, personal-responsibility-deficient homeowners. We were paying off the banks’ bets on those loans. We were adopting all those clones they made.

Anyway, there’s is a massive gap between making a bad decision with one’s personal finances and committing criminal fraud in billion-dollar amounts. Morally, the two acts are not even in the same universe.

Homeowners who took on those bad loans did so for a variety of reasons. Some were coaxed into adjustable-rate loans when they qualified for fixed-rate loans, for the simple reason that the ARM loan garnered a bigger commission for the seller. Others were told by their brokers that if interest rates went up, or they couldn’t make their payments, they could just sell their homes, or come back to the same broker for a refinance.

Some were flat-out defrauded, like the prison guard in Massachusetts I interviewed who was told he was buying a fixed-rate loan, and only found out (from Goldman subsidiary Litton) that he’d been sold an ARM when rates went up — right around the time his wife developed cancer, incidentally.

And, yes, there were others who were just dumb and irresponsible, and still others who never even intended to live in their homes and simply bought properties with no cash down as a speculative gamble.

But from what I’ve seen, most foreclosures involve ordinary people with jobs who bought houses when the economy was good, but are caught now in the triple death-trap of an underwater home, rising costs of living, and declining wages and opportunity. And as far as personal responsibility goes, those people who bought that home-ownership ticket, if they missed payments, they’re all taking the foreclosure ride right now.

What we have on the other hand, however, is a bunch of financial companies who consciously created huge volumes of bad loans, dumped them on retirees and foreigners and union stiffs, then doubled down on the problem by creating mountains of new liabilities based on those bad loans via synthetic derivatives. Then, when it all blew up, they came to us and asked us to buy the whole pile at full retail prices, clones and all.

Which we did, flooding them with bailout cash. This allowed them to instantly jack their annual bonus pools back up into the $150 billion range while the rest of the country waited out mass unemployment and a foreclosure epidemic.

So these people created giant masses of these defective loans, pumped the global system full of toxic debt, asked for the biggest government handout in history when it all went wrong, then walked away in the end even richer than before, forcing the rest of us to deal with their messes.

It baffles me that people can look at that behavior and still think it’s individuals in foreclosure who need to be lectured about “personal responsibility.”

A lot of people had to make bad decisions for the crisis to happen. People had to buy houses they couldn’t afford. Ratings agencies had to give AAA ratings to junk securities. Regulators had to be asleep at the wheel. The GSEs had to lower their standards and provide billions of dollars of government-backed financing for dicey home loans. Nobody is denying that all of those things played roles in the crisis.

But the main driving factor was the simple fact that banks were able to make trillions of dollars selling defective products. You take away that simple market-driven reality, there’s no bubble and no crash, no matter what people like Michael Bloomberg say. No one is insisting that they take the whole rap — but don’t insult us by trying to say they shouldn’t take any at all.

Yes, exactly.
There are a lot of different elements involved in the blaming of individuals for the financial crisis. Much of it is transparently racist – the “undeserving” people who benefited from the CRA are typically minorities who for some unknown reason don’t deserve to own a home. There’s also a note of inherent fear that the Masters of the Universe aren’t being honest with the public and what that means. The defenders of the banks, at least those libertarian types who aren’t themselves billionaires, are just incapable of ascribing malice to the banksters in the face of all the evidence.
Taibbi seems to get this and is one of the best at calling out the perpetrators of the financial crisis, even in the ways that there is culpability with individual homeowners and Democratic policy makers. He’s right about the causes and he’s right to spend so much time elucidating what actually happened in the face of the lies of people like Mike Bloomberg.

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