By Edward Harrison
If you’re wondering where these ridiculous, hare-brained comments are coming from, then watch this video and listen to Rick Santelli speak about predatory lending. The only one who acquits herself in this segment is Janet Tavakoli. Bill Isaac, a former FDIC head – the guy talking about regulation as if commercial banks are already subject to strong regulatory enforcement – must be smoking something (and it’s not Lucky Strikes). This guy was a regulator?
The Taibbi piece “Santelli on Predatory Lending: ‘You can’t cheat an honest man’” gets to the innuendo behind these nonsensical statements by Santelli spoofed in the comic up top. It’s statements like these – and their obvious racial and class overtones – that are ultimately going to be fatal to the Tea Party movement.
I will say this: there is certainly a kernel of truth in what Santelli says. In most cases of mortgage fraud, the borrowers and the lenders acted together. I’m talking about fraud here now – not predatory lending and consumer protection, which is what CNBC was ostensibly discussing. That is because, when it was apparent the financing could not work using full documentation, they cheated and used no docs or a teaser rate. Pain for a borrower came in not reading or understanding that the teaser rate would re-adjust to a level only affordable for someone who qualified for the full documentation loan. Remember, these loans were designed for the self-employed who had the income but not the documentation.
As far as the lender goes, there was certainly enormous pressure internally to do these deals – however fraudulent or uneconomic. My comments from December go to the mentality:
All of the business is going to Bradford and Bingley and you are getting stuffed. I guarantee you shareholders won’t like that. As an executive, you better find the holy grail of prudent but profitable lending or follow Bradford and Bingley on the road to easy money. Otherwise, you will be out of a job.
Eventually, even the prudent relax their standards too – that’s how risky behaviour drives out good when risk is rewarded.
We see this now in insider accounts from Washington Mutual. See Reckless strategies doomed WaMu from the Seattle Times and A Giant Downfall from Portfolio.com.
So, this is not about personal responsibility at all. It’s about lying aka fraud. And, unlike Bill Isaac, who believes enforcement was never a problem at commercial banks, I am still waiting for the prosecutions of mortgage fraud at banks and non-banks – which is still ongoing.
Update: I now see Felix Salmon has posted on AIG’s mortgage lending arm and how they charged blacks more for broker’s fees. Of course this was settled with a slap on the wrists. And you still think there wasn’t predatory lending?
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Put a little mustache on the san man and what do you get?
The 2010 politcal equivalent of Hitler.
He likes to yell to. It’s like watching Dr. Strangelove, you just know he wants to throw that arm up for the corporatcacy.
That, and he is now advocating special schools for the ‘financially illiterate’. I don’t even want to ask for his proposal on identifying ‘those people’.
“Consultive Selling” is the buzzword for some fellow in a suit looking over a desk and saying, “I’m an expert. Trust me.” Too many people buy into the importance badges. Too many people take suits at their word. Too many people believe there has to be some truth to all the advertisements they wade through of a day.
My personal experience has been with a realtor, after showing me a few houses, becoming very sincere while she said, “I can get you into a house. No matter what.” She’d met me about an hour before this and knew nothing more than my name. I suspect she was telling the truth about credit standards.
There’s been decades of PR about financial expertise. Most of turns out to be bafflegab and hidden assumptions, and the recommendations turn out to be a sales pitch. Maybe we automotons are getting smarter, or just getting angry.
Ed says; “I will say this: there is certainly a kernel of truth in what Santelli says. In most cases of mortgage fraud, the borrowers and the lenders acted together. That is because, when it was apparent the financing could not work using full documentation, they cheated and used no docs or a teaser rate. The pain for the borrower came in not reading or understanding that the teaser rate would re-adjust to a level only affordable for someone who qualified for the full documentation loan. Remember, these loans were designed for the self-employed who had the income but not the documentation.”
Bullshit its entrapment! No kernel of truth at all.
The lender had the final determining responsibility, knew the law, and implied it was OK by doing the deal! The borrower had a good-faith reliance on a misleading representation of another party, a CONTROLLING party. This is like blaming the rape victim for wearing provocative clothes!
And the whole phucking scam goes right back to the neo-con intentional bubble blowers debt trapping, counterfeit overleveraged derivative product laced, financial coup that is wreaking havoc all over the planet.
Deception is the strongest political force on the planet.
there is a difference between fraud and predatory lending, by the way; and that’s where there is a kernel of truth in what Santelli says. I am not talking about predatory lending, but mortgage fraud.
Don’t deny that mortgage applicants committed fraud or you play the same game that people who deny there was fraud on the part of the lenders play.
The Taibbi piece was about; “Santelli on Predatory Lending: ‘You can’t cheat an honest man’”. You switched it over to ‘mortgage fraud’ when you said, “In most cases of mortgage fraud, the borrowers and the lenders acted together.”
AGAIN; The lender had the final determining responsibility, knew the law, and implied it was OK by doing the deal! The borrower had a good-faith reliance on a misleading representation of another party, a CONTROLLING party. This is like blaming the rape victim for wearing provocative clothes!
You are now saying that the rape victim not only wore provocative clothes but that the victim wanted to be raped.
AGAIN; Predatory lending IS mortgage fraud. The scum bag, parasitic, lower than crack whore, banker is the CONTROLLING party.
Its entrapment!
Don’t say that the rape victim wanted to be raped or you play the same game that people who deny there was rape on the part of the rapists play.
Deception is the strongest political force on the planet.
The kernel of truth is that there were a lot of people TRYING to get more money than they KNEW they qualified for. They probably sought out the lenders they had heard would pull this kind of deal. I seriously doubt anyone was trying to get a mortgage they knew they couldnt make a single payment on but Im sure many were willing to spend 60-70% of their monthly income so they could turn the house over quick and make a hundred grand maybe.
Your point is absolutely spot on though that the place to regulate this is at the lender because there is NO WAY to regulate the individuals. The lender controls the money,they are the ones who can and should say NO!!
Yes I’d love to see individuals not be willing to misrepresent them selves for financial gain but the truth is in the world Santelli wishes to inhabit that would be the norm. That is capitalism at its finest and ugliest. How many corporations that Santelli plugs daily misrepresent them selves in order to achieve higher stock prices or pull customers away from a competitor.
“The kernel of truth is that there were a lot of people TRYING to get more money than they KNEW they qualified for. They probably sought out the lenders they had heard would pull this kind of deal. I seriously doubt anyone was trying to get a mortgage they knew they couldnt make a single payment on but Im sure many were willing to spend 60-70% of their monthly income so they could turn the house over quick and make a hundred grand maybe.”
That goes back to who knowingly, willingly, and corruptly, created the bubble in the first place to encourage outrageously pumped up markets and debt trap conditions (and fraudulent over leveraged derivative products through deregulation) — the central banking cabal — and again, that’s entrapment. If you think Bernanke and Greenspan were just channeling Ayn Rand I’ve got a bridge in Brooklyn for you. They are well studied masters of bubble blowing and financial fraud.
“Yes I’d love to see individuals not be willing to misrepresent them selves for financial gain but the truth is in the world Santelli wishes to inhabit that would be the norm. That is capitalism at its finest and ugliest. How many corporations that Santelli plugs daily misrepresent them selves in order to achieve higher stock prices or pull customers away from a competitor.”
Capitalism, a deflective decoy, does not exist anywhere on the planet. What exists is a system of gangsterism, where the wealthy ruling elite gangsters purchase the politicians that make the scam laws that tilt the playing field in their favor(Santelli is just another purchased scum bag). That is what underpins the FIRE sector — corrupt government. Its not like people all went screaming to their appointed representatives and said, “Let’s give control of credit to the banks so that we can give them our tax dollars at ZERO interest and they can then turn around and loan it to us at outrageously usurious interest rates.”
In a more fair, non corrupt world, credit should be treated as a utility and made available fairly to all at zero interest. That’s where the kernel of truth is.
Deception is the strongest political force on the planet.
My experience with predetory lending came after my divorce.
I kept custody of my kids, but also the house. I requested no child support as she couldn’t pay it anyway.
Texas is a comunity property state so I still had to either sale the house or come to an arrangement with the ex as to equity.
Fair enough.
In 06, I looked into refinancing the house to get her equity out and get the house in my name. A single dad, with low income, and 600 credit score didn’t rate much in the way of deals. I also didn’t know that hitting every online refi site lowered my low score considerably.(3 points with each hit)
Finally the best deal I could get was a subrime 8% that would start morphing to 12%, starting after two years. I knew that. I figured I’d pay off my debts, keep my credit clean, and refi to a better rate before the 2 years.
What I didn’t know nor was told that the refi changed my house from a FHA backed loan. That made a big difference when the two years were up and I went to refi again. Even with no debts and better score, I could not get a decent conventional mortgage. I could get another subrime at 10% for another two years at which point…well you get the picture.
I sold my home.
I’ll build my next one.
to hell with bankers.
I stopped watching CNBC 18 years ago.
Why are you, Mr. Harrison, wasting my time with this crap?
Amen. I don’t even have cable/satellite so I’m not tempted.
i couldn’t even get three minutes into it…
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Santelli thinks the average guy with an IQ of 100 is an equal match for the army of lawyers, actuaries, and risk analysts employed by the banks to design these loans.
Maybe we should ask the banks how many folks they have in those departments who possess an IQ of 100.
But my guess is that you have to be at the C level to find employees with IQ’s in that range.
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Since Santelli thinks the average guy is the intellectual equal of trained professionals I’d like to set up a debate on string theory between Santelli and Ed Whitten.
Loser turns over the keys to his house.
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“I will say this: there is certainly a kernel of truth in what Santelli says. In most cases of mortgage fraud, the borrowers and the lenders acted together. That is because, when it was apparent the financing could not work using full documentation, they cheated and used no docs or a teaser rate. The pain for the borrower came in not reading or understanding that the teaser rate would re-adjust to a level only affordable for someone who qualified for the full documentation loan.”
I’m from Cali and these ARMs were prevalent even before I bought in the 1980s. (Option ARMs were also popular but not as prevalent as they were in the 2000s.) Note that the “bad” practices that got Wa-Mu in trouble were the ones they acquired from the Cali banks. I agree with much of what you say but don’t agree that the borrowers did not understand that the teaser rates would re-adjust. I’m sure a few people didn’t know that but I doubt it was more than a few percent of the borrowers, even in low income areas.
Pretty much everyone knew that the whole RE game was built on less-than-honest documentation (from the appraisal to the loan docs) and ever-increasing home prices. When I say everyone, I mean the RE brokers (who pushed HARD to get buyers to use ARMs because it allowed them to sell you a bigger house), the mortgage brokers (who also pushed HARD for ARMs), the appraisers, and the buyers. I discussed this with my co-workers, my old neighbors, my new neighbors, the guy who delivered papers, my landlord, my landlord’s gardener (whose English wasn’t great but who seemed to have a very good handle on RE and financing options), the lady who sold papers in front of my office building, the people at the coffee shop (including the baristas), the staff at the book store, etc. Pretty much everyone over the age of 22 (regardless of their job or education) understood that the game was to get into a house – any house – by fudging the numbers if necessary (the appraisal, income, liabilities, etc.) and hope like hell that it appreciated. If it did, all was well. You could refi in a couple of years even if your income had not gone up (and rates had, unless they had gone up a whole lot) because you would have a lot more equity in the home. If the market turned south or if rates went up a lot, game over, you lost. You would not be able to refi and you would lose the house. In Cali (which is a non-recourse state), that meant that the lender ate any loss over the amount of your down payment. Your credit took a hit and you became a renter again.
So it was a crap shoot. If the market went up before you had to refi, you won. If not, you lost. Borrowers understood that, as did the lenders.
Why play? Because if the market went up and you hadn’t bought, you’d be priced out of the market. And the market, although volatile, tended to go up.
BTW, I also experienced RE agents saying that they could get you into a house no matter what. Like I said, pretty much everyone knew what was going on. I am sympathetic to the borrowers whose rates readjusted and who are underwater. That’s a tough break and it could have been me, or most buyers. However, I highly doubt that they didn’t realize that they would have to refinance the loan. They took a gamble and they lost, just like the banks.
The neighbors you surveyed did not live in the poorest neighborhoods.
It wasn’t a ‘crap shoot’ for the buyers when they believed and were encouraged to believe that prices would always go up as they seemingly always had and some hot air fast talking salesman assured them would continue to occur.
It was the responsibility of people licensed by the state to sell investments to warn that there were no fortune tellers in investing, that a home is not an investment unless it is the second home that they didn’t need to live in. But that’s not what was done.
How the hell can anyone spend time and words and other people’s time trying to justify what has happened and furthermore try to justify victimizing the poorest and most vulnerable among us.
All you have to do is deprive people of education or better yet lead them to believe that they are educated when they are in fact financially and fiscally illiterate and worse have no access to information in the newspapers even if they read them and many do read the local papers and encourage them live on credit as a way of life with the idea that nothing will ever go down, that’s its alright not to have money for the investment -no prob LEM – and inflation will bail them out eventually even though you know they don’t know the meaning of the word but they do know what prices going up forever means. They experience that and they see other people getting rich on it all the time; why not them.
I’ve known some very smart people who have had to be corrected, disavowed of the idea that they are getting worthwhile actionable news in a timely manner from daily newspapers like the New York Times.
The people who took the bait on this will never have any credit, didn’t have credit to begin with and are worse off than ever because now they have no jobs.
If you’re among those who earn $100,000+ you’re not part of this -you’re part of the problem.
This government owes these defrauded people a way out, not the banks. This government failed to regulate and enforce rule of law in the sale of these INVESTMENTS for which there had been LAWS. Inexperienced people had every reason to believe there were some protections to give these sales people credibility. These people are owed an adjusted price to levels prior to the big scam that fraudulently drove prices up as far back as 2001 when it was known by sophisticated investors that Freddie was in trouble or soon would be.
Only corrupt government and manipulated markets kept the scams going for so long that such a large number of people at the tail end of the boom got so screwed along with the millions who have lost jobs and businesses who have still more to fear regarding health care, 401Ks and every protection this corporate fascist government threatens to disrupt or destroy.
LeeAnne, When I first started looking, I lived in a fairly bad part of Oakland; it was not the worst part of Oakland but junkies and prostitutes hung out openly on the corners and people were attacked (mugged, raped, etc.) pretty regularly. Some of the neighbors I’m talking about lived in that area. Those neighbors understood the game, the virtual certainty of losing a home if the market went down, and that the market could easily go down. They were generally the least worried about those risks. So what? If the market went down, you lost your down payment. In my neighborhood, you could be shot just going to the grocery store on the corner. How worried are you going to be about the risk of losing some money in order to legally make a lot if the market goes up? People aren’t stupid or unsophisticated just because they’re poor.
While my neighbors did not live in the poorest neighborhoods, some of the people I talked to did. The gardener who could barely speak English? The disabled woman who sold newspapers on the street? And they understood the game, including that if the market didn’t go up, you’d lose the house.
Prices did NOT always go up. That was a problem for all buyers, especially if they were first-time buyers. As I said, the market in my area was volatile. It was not unusual for it to go up OR DOWN by over 10% in a year. The area where I bought went down the year before I bought and the year after. I almost lost my home because of market fluctuations. That didn’t stop people from buying homes; many people who couldn’t have bought before got into the market after the price drops.
You did not have to be educated or sophisticated to understand that housing prices went down and up; it happened all the time. It affected renters as well as buyers. The gardener and my landlord understood that, probably better than most of the college-educated people I talked to. (They were a bit older.) The newspaper lady and people at the local cafes and coffee houses (including the waitresses, etc.) understood it too.
People knew that buying a home was a big risk, even if you got a fixed rate loan but especially if you got an ARM or an option ARM. And by people, I mean the educated AND the uneducated. They knew that you bought and hoped that the market went up because if it didn’t, you would lose your down payment and be renting again.
I’m not saying that absolutely everyone understood that if the housing market went down, they would lose their home. But it was widely understood, even among those who were poor and uneducated. (BTW, I’m also not trying to suggest that it’s at all desirable to have buying a home be a crap shoot for anyone.)
Anon wins. Leann has bleeding hearts in her eyes. Arguments like the one she’s making are what cost liberals their credibility. Catchphrases: “…deprived of an education…”,-No ones deprived of an education. You were in public school for 12 years. You could have picked up one of the books you scorned. If you want to go on I believe there should still be grants and scholarships available for those of low income, particularly if they can claim minority (non-white) status. (I’m not sure about this as I haven’t looked into it for a long, long time, but I would be surprised were it not true.) Also, I tend to believe that most of those poor, salt-of-the-earth victims could read. Did they? Both sides were deceitful, the lenders most egregiously, I’ll grant you, but don’t lie yourself and say that both didn’t lie willingly.
My point is that anyone who romanticizes one point of view to the exclusion of the opposing, well, they’ll likely find their entire argument dismissed.
So what? If the market went down, you lost your down payment.
This is something I don’t understand in all this chatter about poor, poor broke homeowners (not just the ones in the topic of the post).
A large fraction of them, at least the ones who bought in the last decade, put nothing or next to nothing down.
So, if they “lose” the house, what have they lost, financially?
Of course, the bankers are far more despicable, but this sentimentality for homeowners is misplaced, particularly when there are plenty of people who are suffering in various ways who rent.
Sure, if you can put no money down, pay a mortgage in lieu of paying rent in order to accumulate equity, where the only thing you have to lose is your credit score, why not?
Rent is not cheap. I see how people could rationally choose to risk their credit scores in order to ostensibly “save money” by owning something.
I’m also sure the will to take that chance goes along with a lack of information that enabled “the professionals” to prey on their situation.
Right. It’s not like renters could avoid risks or harm by renting. That was one factor that pushed people to buy. If you didn’t buy and the market went up, your rent would increase, probably faster than your income. (Though it might take several years for rent to be more than a house payment.) So the choice was to take a risk by buying (and get hit if the market tanked or even stayed flat) or by renting (and get hit if the market went up or if too many home buyers lost their homes and flooded the rental market).
Since banks, local governments (esp in Cali, where Prop 13 kept property taxes low so they needed quick appreciation and high property turnover), RE developers (who tended to donate to local, state, and federal politicians), and other big players all wanted/needed the RE market to go up, it seemed less risky to me to buy than to rent. Choosing to align one’s bet with the “deep pockets” and influential players (i.e., betting that the market would go up) rather than betting against them (i.e., that the market would not go up) was a factor for many people I talked to. The market seemed completely beyond our control but not completely beyond the control of the banks, the RE industry, the politicians, etc.
Renters were harmed by the market too. But no one seemed to care much about them or how they were getting slammed. That part doesn’t seem to have changed much.
Amen to that, LeeAnne! The neo-cons who responded to you are so off the mark and so entrenched in 19th century ideology, they couldn’t see a bubble if it popped in their face.
It is indeed this corrupt fascist government what allowed not only the current empoverishmemt of the American nation, but also the creation of the most perverse police state in revent history. It’s perverse because it’s covert, hiding behind doublespeak of freedom and free markets. Behind the thin veneer of freedom lies nothing but institutionalized fear and social insecurity.
And all this for the benefit of the oligarchy and at the expense of the average (and above average) American. Make no mistake, you upper middle classers, of which I am one, THEY are coming after you too.
Case in point. I am a doctor, taught at a medical school, and thought I was fine. Recently I came down with a serious illness, but treatable with expensive and long term treatment. The health insurance company refused to pay for the more effective and modern treatment options (which is standard across the world), insisting that a 50-year old cheap option is just as good. The school refused to get involved, proving to me yet again just how corrupt and greed-driven the entire US medical field has become. So, I had to return to my country of birth (this after 30 years of living and paying taxes in the US) in order to seek treatment. This not-very-rich European nation immediately plugged me into their socialized healtcare system and started offering me the care that was denied in “the richest nation in the world”. The moral is that if they would do this to me, they would do it to Joe $30,000 a year too. And they will do this to the ignorant brainwashed tea party neocons as well.
But I am done with the US. I just returned from a short trip there, where I transferred my last dime out of my American bank and took my last gold coins out of my American safe deposit box. American banks won’t get to use my money for their scams anymore. While there I was also reminded at every turn about the reasons I could never live there again.
Keep calling it as it is, LeeAnne.
Vinny
I am not a neocon. I most often side with the lib POV, but sometimes call “BS”. What I’ve found in life is most people are full of beans. That is, they aren’t confident with the truth in their argument. They have to leaven it with a bunch of lies. Usually they’re sincere inasmuch as they don’t realize consciously what they’re doing. In this case I felt “anon” had the legitimate argument. He wasn’t saying the mortgage brokers weren’t wrong, but that their customer’s weren’t right. I think that’s unassailable. She was using a bunch of stereotypically liberal, kneejerk emotional stuff that mucks up their otherwise very legitimate POV. They need to clean up their argument, IMO.
Vinny, If you’re talking about me, I was talking about a bubble. I said that in my first post – the game required RE to continue to appreciate. That’s the game that everyone – rich or poor – could see. And almost everyone knew that RE (or any investment) cannot always go up so someone was going to be left holding the bag. That was obvious to pretty much everyone. That’s what made buying a home a crap shoot for everyone, rich, poor, or middle class.
As I said, people aren’t stupid or unsophisticated just because they are poor and I think comments like yours and LeeAnne’s are incredibly offensive because they assume that most poor people are dumb, ignorant, naive, and gullible and can’t possibly understand these complicated matters. You think that’s LESS offensive than assuming that they understood what they were doing? You also seem to think that middle class is too stupid and naive to see the bubble. LeeAnne also incorrectly assumed that I had not talked to anyone she would deem poor even though I had stated that I talked to the gardener who couldn’t speak English well and the woman who sold newspapers in front of my office building. Does she think they are wealthy or even lower middle class? In what world? So either she didn’t bother to read what I wrote before replying or she chose to ignore it completely. But, apparently, facts are not important when making an ideological point. (I find that as annoying with “liberals” as with “conservatives” and do not understand how “liberals” can continue to harp about how “conservatives” ignore facts when AFAICS “liberals” are equally guilty of that. Not more guilty of it but not less either.)
Good luck with your medical issues. I’m totally disabled because my insurance would not pay for a MRI for almost three years. I was in horrendous pain the entire time but, probably because I’m a woman and because I injured myself at work, it was either all in my head or I was faking. I couldn’t even get a doctor to order an MRI if I paid for it myself because my insurer wouldn’t allow it. (And that’s with some of the best medical insurance on the market in Cali at the time as well as the federal medical insurance that my husband had and so was my secondary insurance.) As a result, I have permanent spinal cord damage from a large tumor that was on my spinal cord. The doctors could care less about whether I was permanently disabled as a result of their “care” so long as they didn’t have to take less money from or argue with the insurance company. I see the same thing in the way they now deal with my disabled daughter.
Pretty much everyone I know, regardless of income or education, knows someone who has permanent medical problems from a lack of good medical care in the USA. This includes two “tea-baggers”, one of whom cannot use her dominant hand because of truly botched medical care in the USA. I find your assumption that people are too stupid or naive to realize that condescending, offensive, and insulting. But I still wish you the best of luck in dealing with your medical issues.
This is too ugly to watch –as always. Where do they find these nasty little herridans for TV?
The question is, who loses. My wife informed me, one day, that she met a man who bought 2 homes in Vallejo California, despite the fact that he had no job.
Ok, so the man may be bit of a fool for buying the homes. But the consequence for him would only be a hit against his credit. The same for anyone who did not re-finance and turn a non-recourse loan into a recourse loan. (In Cali all first mortgages are Non Recourse). The actual person on the hook is the Mortgage lender, but since the loan would be bought by Freddie or Fannie, the only person on the hook were those institutions, and implicitly the taxpayer.
The fact is regulation is a cost. There is no reason for responsible individuals to pay a cost for the irresponsibility of others.
The analogy would be, that we should deny the right to free speech to all, because some people lie, or distort the truth. (Or a further analogy, we should deny the right to free speech, because politicians have voices.)
A further point is, to Santelli’s credit, is if it is fraud, i.e., if the appraisal was too high, then there are laws on the books to deal with this. More regulation, in light of lack of law enforcement, is merely rent seeking by the political class. But they would never be that crafty, would they.
“There is no reason for responsible individuals to pay a cost for the irresponsibility of others.”
Ah, the lovely world of “should.” Were it only so that we lived in the world of “should.”
Alas, we live in a world in which we bear the consequences of others’ actions, whether we like it or not, whether we try to stop it or not. That damned world of “reality.” Gets us every time!
It’s statements like these – and their obvious racial and class overtones – that are ultimately going to be fatal to the Tea Party movement.
Could you elaborate a bit? Specifically, could you identify the “obvious racial and class overtones” in “You can’t cheat an honest man?”
Is it the “honest” part that you feel is correlated with race? Or the “man” part? Just wondering.
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Personally, I was taught “never sign a document you don’t understand”. So here in my world — which has obviously diverged a bit from yours — when your signature is on a document, that means you have taken responsibility for the contents. I know, it’s crazy, and a rule like that really only ought to apply to people with 160 IQs… But there you are.
So, sorry, but I have zero sympathy for the “victims” of “predatory lending”. If you were defrauded, then take it to court. Fraud is and always has been illegal, and you are entitled to compensation. Short of that, shut up and take responsibility for your actions. (I promise to take responsibility for mine.) Thanks!
Nemo,
I’m sure you look through and read all of those terms of use and privacy before signing the check box for Facebook or Twitter too. But in the real world it doesn’t work that way. In the real world, people trust the expert.
As for the class or racial overtones, read the Taibbi piece. It’s the Fannie/Freddie, unqualified low-income subprime borrower caused the problem, not the big bad banks meme. While Santelli himself may not be spinning this narrative, it is certainly the one his argument is most commonly used for.
Thank you for your reply, Mr. Harrison.
I think it is too easy to dismiss Santelli’s quote as “racist”. It is an old quote, and there is a lot of truth to it. It is unrelated to race and to class. (Although you may be right about the Tea Party movement in general; I would not know.)
The Facebook/Twitter license analogy is very weak. Everybody knows that when you buy a house, you are talking about hundreds of thousands of dollars. Do you really think people treat their closing documents like a shrink-wrap software license? Sorry, but that is absurd on its face.
I also think the Toyota analogy is more than a stretch. Let’s see, on the one hand, Toyota sold a defective product. On the other, you signed a document clearly enumerating your financial responsibilities. Oh, and by the way, it contains lies about your income. Are these really supposed to be equivalent?
Please. Everybody wants to be a “victim”, and it’s disgusting. All of it. The brokers never should have made these loans, the banks never should have securitized them, the investors never should have bought them… And the borrowers never should have accepted them. They were all victims, all right; victims of their own greed. They can all rot.
Am I supposed to have sympathy for greedy housing speculators? (Buying a house you cannot afford because you hope it will rise in price makes you a “greedy housing speculator”, by definition.)
In a word, never.
Nemo – beautifully said. Cheers.
Edward, the more apt point is that your average citizen defers to *federally mandated* experts. These men are generally listened to, not for their competency, but because the faith and credit of the USofA is perceived to stand behind their words. When Greenspan says there is no bubble, you buy a house on leverage. When the regulators pass off an automobile, you buy it without inspection. Not because you trust the feds to be right, but because you trust them, in the event that they’re wrong, to make you whole.
It’s the same whether you’re a bank or a homebuyer. The only issue of fairness that I see is that the banks have been bailed out, and the homeowners have not (at least, to the same degree). Further regulation will be merely further opportunity to defraud the taxpayer. Whereas caution will be encouraged only by the removal of assurances that, in the first place, our leaders are clearly unqualified to make.
“The only issue of fairness that I see is that the banks have been bailed out, and the homeowners have not (at least, to the same degree).”
Couldn’t agree more. And, it’s even more unfair to all those who voted for “Change” and ended up getting more of the same. Well, you could have seen that one coming…
It’s the same whether you’re a bank or a homebuyer.
Nonsense. Ever hear of “regulatory capture” or of banks giving campaign money to Congressmen?
Well, nice to see that this thread comes pre-Godwin’d. I guess everyone on a trading floor is like Hitler because they have to yell to be heard over the din.
On her blog Tavakoli accuses Santelli of being “silent” on the losses and bailouts for Wall Street banks. I haven’t watched CNBC much lately, but in 2008 / early 2009 Santelli was a consistent opponent of public bailouts across the board, for both large banks and failed speculators as well as imprudent (or, in many cases, misled) borrowers. He has probably devoted 29 broadcast minutes to railing against the likes of the Fed, Citigroup, AIG, and Goldman Sachs for every 1 minute that he spends lamenting imprudent borrowers. The idea — which Tavakoli and Taibbi insinuate — that Santelli is a shill for the banking sector is absurd on its face to anyone who has even a passing knowledge of his broadcasts over the past couple of years.
It probably has something to do with my own socioeconomic status, but all of the people I know in underwater mortgages are (formerly) wealthy whites who used to think they were geniuses for buying property on leverage. I didn’t see any “obvious” racial or class innuendoes to Santelli’s points here until you repeated Taibbi’s baseless conjuring of them. The fact that there are a lot of conservatives who do have these undertones to their attacks on borrowers (CRA and such) is a reason to attack those conservatives, not Santelli.
It should be possible to make the case for aggressive fraud prosecution and regulation to ensure fair & reasonable financial contracts, without insisting on a narrative that says every borrower in trouble was a helpless damsel tied to the tracks of debt by Snidely Whiplash.
If you read my most recent comment, Andrew, you’ll see I agree that Santelli may not be making the comments, but the ‘overtones’ are there because it is this blame-the-subprime-borrower narrative that is used both to defend the banks and to re-cast the crisis as a subprime crisis that spiralled out of control into a liquidity crisis. Who could have known?
Thanks for the reply, Mr. Harrison, but I think this is pretty thin gruel. At best, you and Taibbi are taking the patterns and forms of debates held elsewhere and using them to tar Santelli. The substantive points I saw him make here were:
1. “Failure works,” a theme he has been pushing for all overextended borrowers, especially the TBTF banks.
2. Borrowers share responsibility for the bad loans which were made.
3. The record w.r.t. to Fannie Mae & Freddie Mac, where the federal government had a great deal of regulatory oversight which it abdicated, suggests we should be skeptical that the CFPA will protect consumers once the next boom gets rolling (which I figure is probably 60 or 70 years away now, but we’ll see).
4. Rather than tell borrowers to rely on government regulatory agencies which seem to always fall down on the job precisely when a cop on the beat is most needed, perhaps a better approach would be to ensure that borrowers can look out for their own interests, by promoting financial literacy.
He didn’t say anything about the CRA or the other shibboleths which usually betray a conservative resorting to racist lines of argument. Even though I do think some form of CFPA is needed (sanctity of contracts presumes the contracts are created in good faith in the first place), I think point 3.) is especially salient and something that people should keep in mind when they have stars in their eyes about just how much can be accomplished through the avenue of government regulation.
Again, if you look at the full record of Santelli’s broadcasts over the past several years, he said NOTHING like “it was all a crisis triggered by subprime, poor, minority borrowers.”
Andrew Bissel,
What Santelli actually said was that “failure is the only thing that works.”
There might be some internal logic to his argument if, when a bank fails, its officers and owners were the only ones to get hurt. But this is far from being the case. The rub comes from the fact that, when a bank fails, a lot of innocent people get hurt.
Santelli’s argument is tantamount to saying there should be no laws or regulations against a drunk who gets in his car and drives 90 MPH on city streets. When the drunk plows into a crowd of innocent pedestrians, we can punish him then, but not before then.
The curious thing about our derelict bankers is that, even after they’ve plowed into that crowd of innocent bystanders, they’re still not punished.
There might be some internal logic to his argument if, when a bank fails, its officers and owners were the only ones to get hurt. But this is far from being the case. The rub comes from the fact that, when a bank fails, a lot of innocent people get hurt.
Who, exactly, are the innocent parties harmed by a bank failure? The depositors and counterparties who entrusted their funds to a shaky institution?
The only innocent parties I see being harmed by bank failures are the taxpayers who are forced to bail out the entire sorry mess through such interventions as TARP, Fed asset purchasing programs (diluting savers’ wealth), and the FDIC. And these things are all a function of political interventions intended to short-circuit and prevent failure.
After a decade of rabid laissez faire excesses, the situation in 1929 was pretty much a Libertarian-Austrian-Neoliberal wet dream. TARP, the Fed asset purchasing programs and the FDIC, none of these existed in 1929.
The result was widespread bank failure.
Are you seriously trying to make the argument that “the depositors and counterparties who entrusted their funds to a shaky institution” were the only ones who were harmed by the bank failures of the 1930s?
How many times do we have to reinvent the wheel?
After a decade of rabid laissez faire excesses, the situation in 1929 was pretty much a Libertarian-Austrian-Neoliberal wet dream. TARP, the Fed asset purchasing programs and the FDIC, none of these existed in 1929.
The result was widespread bank failure.
That’s an interesting bit of post hoc ergo propter hoc. And the idea that the 20s boom was an “Austrian wet dream” when the whole thing was being pumped up by a publicly cartelized central bank (gotta have an “elastic currency,” so the Progressives said) is pretty silly.
In the 30’s the vast majority of depository institutions were much better capitalized than today’s and most depositors had no trouble accessing their money. Compare and contrast with the present system, where essentially the entire banking system failed in the fall of 2008 because — thanks in part to the moral hazard created by the FDIC — it was running with almost zero reserves backing deposits.
Bailing out failed banks doesn’t eliminate losses to innocent bystanders, it transfers the losses to them.
After this masterful performance by Santelli, it is hard to believe that the Tea Party is still a grass-root controlled movement. Maybe parts of it were truly grass-root at the beginning, but now, it looks like they have been infiltrated by the Reps and Santelli sounds just like another corporate stooge.
My hopes for a two-pronged attack on the banks have been dashed.
Yea bro, I agree. But still, the main belligerent is both the regulatory structure and the mandate for the GSEs to juice financing in order to increase homeownership. Without the GSEs creating a secondary market for the paper AND the federal govt more or less insuring the paper these loans would not have been made. Period. End of story.
RPB, you are misinformed. You merely need to understand the counterfactuals to understand why.
1. Was there a housing bubble pre-1995 and did the GSE’s exist at that time? Was there a Community Reinvestment Act? The answers are no, yes and yes.
2. Were there housing bubbles in other countries like the U.K. without a GSE equivalent? Yes
Were you to say something like “the GSEs mere existence allowed the bubble to become that much greater” it would be an argument which could be substantiated by the facts. But the concept that – and I quote –
“Without the GSEs creating a secondary market for the paper AND the federal govt more or less insuring the paper these loans would not have been made. Period. End of story.”
This is ludicrous. The GSEs, CRA, government subsidies have all been around for decades without a bubble. The GSEs weren’t even a major player in subprime until the end of the bubble. At best and more proportionately stated, the GSEs added fuel to the fire.
See it’s nonsense like this quote from you that gets me angry. Misinformed drivel from people who don’t know what they’re talking about making categorical statements (“End of story”) about what is and isn’t. It’s absolute rubbish.
1. Was there a housing bubble pre-1995 and did the GSE’s exist at that time? Was there a Community Reinvestment Act? The answers are no, yes and yes.
2. Were there housing bubbles in other countries like the U.K. without a GSE equivalent? Yes
#1 – These entities did exist before 1995, and no there was no housing bubble before that. however, both the growth of subprime and the ‘real’ deviation from inflation adjusted housing prices occurs when the funding for the GSEs was ramped up in the late 90s/early 2000s.
2. Yes, there was. However, one must view this within two contexts:
– These bubbles occurred in a global asset bubble that was predicated by low interest rates and the lack of real return on investment.
– The prices of international housing did not deviate as grossly from the ‘trend’ line as they did in the US.
Perhaps you are forgetting that the first mortgage backed securities, at least in Chicago, stemmed from Ginnie Mae deals on the impoverished south side in the 80s. The first Collateralized packages stemmed from the necessity to find a conduit to place these loans that were difficult to find banks to back. No bank would make the loans to fund the housing projects and the many private mortgages in the old “red lined areas.” Collateralized risk pooling was the method by which they were able to find someone willing to take these loans – a non-area bank or investment pool. They paid a high rate of interest because their risk of default was higher. Without the existence of Ginnie Mae, these loans would not have been made and there would have been no need to create these products.
Perhaps, I am confusing my knowledge of early CMOs with what occurred more recently. Without a doubt subprime existed before the agencies really got involved. But the demand for such products was nil until the combination of a low rate environment and the explosion of GSE capital limits.
You are correct to say that the GSEs did not cause the bubble entirely. And you are correct to say a lot of fraud (mostly on the part of dishonest companies) occurred. But the existence of GSEs coupled with the political/capital mandate and the low rate environment insured that a bubble.
My language was poorly worded. The secondary market existed before, but it did not become ‘sexy’ on the street until the GSE capital restrictions were lifted and we saw the creation of a AAA product producing returns well in excess of comparable risk frees. The rating was a result of the GSEs. The sausage distribution originated with the GSEs.
So, the statement “Without the GSEs…” is incorrect. I should have worded it as you did for me.
Thanks for the response
Again, Nemo, this is what I’m talking about. RPB is using the same silly argument I was pointing out that Santelli’s comments naturally devolve into. Freddie and Fannie and their lending to low-income people who couldn’t afford the houses caused the entire credit bubble.
Let’s forget about the bubble in private equity or art or commercial real estate or in property outside of the U.S.
“Without the GSEs creating a secondary market for the paper AND the federal govt more or less insuring the paper these loans would not have been made.”
See – no bubble without Fannie and Freddie. Again, this is the meme. This is the class undertones to which I refer.
Anyway, back on earth and away from the propaganda, the point is that the GSEs added to the bubble, increased the bubble. I think they should never have existed and should be liquidated.
http://www.creditwritedowns.com/2010/01/manipulating-mortgages.html
But, you might want to read Ritholtz here:
http://www.ritholtz.com/blog/2009/06/100000-cra-challenge/
http://www.ritholtz.com/blog/2008/12/more-cra-idiocy/
That will give you a better understanding that the banking lobby is trying to scapegoat Fannie and Freddie and using arguments like the one we just saw by Mr. Rick Santelli and RPB to do so.
“It’s statements like these – and their obvious racial and class overtones – that are ultimately going to be fatal to the Tea Party movement.”
This is offensive on several levels. First, even if Santelly claims to be a tea partier (I am not even sure of that) I don’t think it is fair to paint a movement on these statements. Second, even though I disagree with Santelli, I find them neither classist or racist. I find them corporatist, which is closer to fascism than libertarianism. Lastly, since you are clearly statist, I think you are having wishful thinking that the fear of regulation will cause the demise of libertarianism.
I know plenty of people who are against both wall street and big government, and do not even bother to differentiate any more. There is not point of regulation as long as Fuld is still a free man. The government is already complicit in fraud.
clearly statist? How do you figure? I’m sure other readers would make the opposite claim. If you’re going to make statements of that ilk you’re going to have to qualify them. I have done so regarding the overtones, if you took the time to read the comments before posting.
I did read your comments, and if you are not statist, then I will stand corrected. Generally when someone makes broad claims about the demise of a movement, it is because they wish it were so.
The claims about obvious racism (and I tracked them back to taibi) stem from the following connection he makes:
1. Santelli did the tea party rant, so the tea partys represent whatever he says.
2. Santelli blames the illiterate borrowers. (even though what santelli said was that we should fix illiteracy, rather than stop things that could hurt the illiterate). 3. Taibi associates illiteracy with class and race. And associates the tea party with racism. Crime correlates with class and race. Is enforcing laws classist and racist? The only other evidence he brings to the table is that tea partiers are racist because they are largely suburban.
Santelli is captured by wall street. Much of the tea party is not so enamored. I don’t think you would get blind agreement between CNBC and the tea party. The thing that most unites tea partiers is libertarianism. Libertarianism is not extreme conservativism, it is not racist, it is not republican. It is simply anti-statism.
And again, anyone who latches onto the racism claims must be against anti-statism.
Bob Goodwin,
You ask “Is enforcing laws classist and racist?”
Anyone so naive to answer that question in the negative would have to of led an incredibly sheltered existence, either that or be completely ideologically blinded.
Not only does there exist a double standard of enforcement, but those on the top craft the laws so that their privileges become law. Current drug laws and their enforcement are one of the most blatant examples.
Another blatant example is the housing ponzi scheme. As anon at 11:39 p.m. says, the guys on the bottom lost their down payment and are back renting again. The fat cats on the top, on the other hand, made off with billions of dollars in bonuses, which they got to keep, and still have their apartment overlooking central park, the weekend house in the Hamptons, the private jet and their jobs knocking down multi-million dollar per year bonuses.
Hold your pants on a minute, dude!
I didn’t ask if there was racism in law enforcement. I simply asked if enforcing laws is racist. If you think in the afirmative, then we should stop enforcing laws? Of course property laws are disadvantageous to the unpropertied. does that make property ownership the same as theft?
Bob Goodwin,
You say “I simply asked if enforcing laws is racist.”
Well you tell me.
Was arresting Rosa Parks racist? She was, after all, breaking the law. Go here to see her booking photo and fingerprint card:
http://en.wikipedia.org/wiki/Rosa_Parks
And when the Nazis enforced their laws, was that racist? As Martin Luther King, Jr. has pointed out:
We must never forget that everything that Hitler did in Germany was “legal.” It was illegal to aid and comfort a Jew, in the days of Hitler’s Germany.
–Martin Luther King, “Love, Law, and Civil Disobedience,” address before the annual meeting of the Fellowship of the Concerned on 16 November 1961
And “law and order” became all but synonymous with racism in the Republican Party’s Southern Strategy:
http://en.wikipedia.org/wiki/Southern_strategy
It’s funny how racists and other defenders of a corrupt status quo always drape themselves in “the law,” while at the same time dismissing concepts like justice and fairness. This selfish conceit is almost always accompanied by the grotesque notion that if we fail to enforce or change the unjust laws, this will result in total lawlessness.
You’ve certainly got the drill down pat.
And to reiterate, one of the most egregious examples of law masquerading as racism is to be found in drug laws and enforcement:
…Congress had locked the courts into a policy under which minority drug addicts arrested with small amounts of crack were being sent to prison for far longer terms than white drug users caught with a satchel full of powder.
http://www.nytimes.com
Is it racism to enforce these laws?
That would be all well and good Bob if the Tea Partiers actually had a coherent critique of statism. When you have senior citizens on MEDICARE ranting against govt run health systems I tend to ignore your other points. You’ve been exposed as an idiot or a liar, neither of which a movement should be courting. I wonder how many people in the Tea Party movement actually had/have govt jobs and pensions?? Give those up and stand outside the “state” and I’ll at least give you credit for having principals. Until then you are simply part of a movement predicated on corporatism, racism (if they arent trying to partly play to racial fears why do they include pictures of Obama in their flyers about health care?). Which, certainly are principles, just not ones that most people subscribe to admittedly.
“You’ve been exposed as an idiot or a liar”
Ad hominim attacks do not strengthen your position.
Bob
On rereading my post II realized I punctuated it in such a way as to say YOU are an idiot or a liar and that was not my intent (unless of course you are on medicare and are ranting against govt run healthcare) I meant to say that the senior citizen teabaggers on medicare decrying statism are the idiots or liars.
Hope that helps
I recorded the Santelli rant, put it on a vinyl record, played it backwards….and sure enough, just like Stairway to Heaven, there are embedded Satanic messages!
And you know what—they are racial too! Oooh, scary.
Here’s a sampling:
“Keeep blckmn dwn. Frclz on blacks. Zzhveert.”
Racial overtones, undertones, backward-tones…give me a freaking break. What a ridiculous assertion.
1. Santelli thinks personal responsibility (or lack thereof) should be factored in.
2. Santelli is a teabagger.
3. Therefore, Santelli’s rant is racist.
And I’m not even saying I disagree with much of your overall point–The Banks committed fraud and are not to be trusted.
I would only add, that as a culture we failed and the lack of personal responsibility was a part of that failure. Bank fraud and failure of personal responsibility are not mutually exclusive.
If you want to bring race into the equation, then acknowledge that financial literacy is very important. Imagine the good that could have been done by Jesse, Al and the race-mongers had they simply stressed the importance of getting 3 Good Faith Estimates. As simple as it sounds, a campaign to price-compare would have eliminated just about all of the fee disparities.
Anyways, Ed, your appeal to race and class was juvenile. Just as juvenile as Taibbi. But Taibbi’s infantile leap at least makes sense: He is, after all, writing to 19 year-old who read him on their way to these actual titles in the latest Rolling Stone:
“Post-Paula Depression: Can American Idol Survive?”
“Billy Corigan Unleashed”
[Wow!]
“I recorded the Santelli rant, put it on a vinyl record, played it backwards….and sure enough, just like Stairway to Heaven, there are embedded Satanic messages!”
So, you’re saying I’m making a juvenile appeal? After you start your comment with this? I’m sure you see the irony.
I’m sure what I say will have no effect on your opinion because you are already fitting the facts into your pre-conceived world view.
But, for others, I will say this:
As I see it, Santelli didn’t made a racist remark. However, the class/racial overtones are there. Why?
1. The tea party was formed after Santelli’s original Feb 2009 rant when he said “we’re thinking of having a Chicago Tea Party in July,” calling foreclosed homeowners “losers.”
See here” http://www.youtube.com/watch?v=bEZB4taSEoA
2. So, while Santelli may oppose the bailouts (credit to him), he definitely sees the ‘two to tango’ problem as central to the mortgage debacle (as he has said on numerous ocassions). Listen to the video above and listen to him say “The last place I’m ever going to live or work is DC.” The context of the statement is the discussion of DC propping up what he later calls ‘loser’ homeowners and bailing them out in the same way the banks have been bailed out.
3. So, this is the context – and the rightful beginning of th Tea Party movement. It is a general repudiation of big government and bailouts.
4. Unfortunately that is not where the story ends. There has definitely been a push to Republicanize the Tea Party with Sarah Palin front and center. That has the Tea Party devolving into something very much minority-unfriendly where consumer protection (what this post was originally about) is seen as something for urban, lower-class subprime ‘losers.’ That is the seedy underbelly of the emotions behind the Tea Party. And that’s the connection to what Santeli has to say.
It’s clear to me that Santelli’s original remarks in Feb 2009 are specifically talking about subprime borrowers – and as such are class-specific. The racial overtones comes from the nexus of the Tea Party and ideas of Fannie/Freddie, CRA and blacks/Hispanics as the genesis of the crisis.
At any rate, these points are irrelevant. Just watch how these arguments develop within the Tea Party over time and I think you will see more clearly what I’m talking about.
Personally, I view the push to Republicanize the Tea Party movement is at least as much from the Democrats and the Left as it is from the Republicans. The two major parties are desperately trying to keep everyone in their defined box, where they demonize each other on social issues to distract us from their agreement on economic issues and their capture by finance and corporations. The people who go to Tea Party rallies and support the movement are just as unhappy with most Republicans as they are with the Democrats, as has been seen by the increasing number of primary challenges. If the economically disaffected left had been willing to do so, they could have combined forces and tried to create an economic movement that agreed to set aside social issues for the time being.
“Of course what resonates most with the suburban whites who mostly make up the Tea Party are stories about minorities and immigrants using section 8 housing, food stamps, Medicaid, TANF and other programs, with the Obama stimulus being for them a symbol of this ongoing government largess.” I have liked a lot of Taibbi’s writing, but that is the most ridiculous thing I have read yet about Tea Parties. Section 8 housing? Food stamps? I have never heard or read anyone sympathetic to the Tea Party movement referencing these things or anything like them. TARP and the auto bailout, both started by the Bush administration; those things get a lot of negative comments; but TANF? That is ridiculous, and discredits everything he writes here or anywhere else.
Blaming these problems on the financial illiteracy of most of the population is not racist or classist; it is fact. It was not only the poor or minorities who were buying houses with ARMS when mortgage rates were at twenty year lows, when Greenspan pushed ARMs as a smart thing. It was not only the poor or minorities graduating with a teaching degree (or worse, not graduating) with $60k in undischargable student loan debt. Since when did people start trusting salesmen? Mortgage brokers, real estate agents, and home sellers are not there to protect you, they are there to sell you something. I don’t doubt that there was some predatory lending and fraud going on; but as Nemo said, if you can prove it, sue. The inconvenient fact for most borrowers is that the conversations that took place were not recorded, but the signed documents exist; and in many cases, they clearly state the terms of the loan, and the false claims of the borrowers. Those who lied about their income to get a no down payment mortgage were not victims; they were willing accomplices.
The point of his post *was* irony. I hope you see the irony in the fact that you missed this.
How do you “put social issues aside and concentrate on economic ones”?
Thats impossible, every social issue has economic under/overtones. I hear lots of people say this kind of stuff and its absurd. Gay people want the right to get married because of some economic advantages allowed to marries couples. Blacks want to end discriminatory practices because of their ECONOMIC consequences, not just cuz it hurts their feelings.
Pretty much EVERY issue is economic.
Bob-
It must have been so ironic I still don’t see it; care to elaborate?
I tend to agree with Dan on this one. This whole term “racial overtones” is just a shaming tactic to discourage discussion. And white knighting about class overtones? People have every right to attack people of another class; I do it all the time. The deciding factor is whether the attacks are true or not.
Santelli was one of the only people that I know of in the mainstream media who took the correct attitude towards TARP. I checked today and he was pretty brave in going against the interests of his employers. He earned the right to call people who overextended and lost their homes losers.
There were people who got sucked into the bubble in every social class just as there were people who resisted the temptation as well in each class. The real question is whether Santelli perhaps has it backwards and the people who played by the rules are ultimately the true losers in all this, since it is they who are bailing out the supposed “losers”.
Agree with Dan and Kevin. Also agree with Greg just above – almost every issue we discuss here is primarily economic. Lots of agreement!!! It’s making me uncomfortable!!!
As I recall, Santelli stands alone as the only voice on CNBC against bank bailouts. But, in that case, I guess Taibbi would then just accuse him of anti-Semitism
I wonder if there is such a thing as predatory borrowing?
A viable con requires a mark who is BOTH stupid AND greedily-induced dishonest. One precondition is not
enough for the con to work.
Most *stupid* people cannot make heads nor tails of the documenation the lenders provide.
The honest person knows, despite not understanding the documenation, that there is no free lunch, so they will tend not to eat it until they understand how the bill will get paid.
The dishonest (greedy) but stupid folks think they are getting a free lunch, and think someone else will get the bill, so they chow down.
The ironic part? The dishonest greedy crowd was right…the tax payer got the bill…
The ironic part? The dishonest greedy crowd was right…the tax payer got the bill…
On tonight’s Daily Show Jon Stewart interviewed the author of The Quants. At one point he said (paraphrasing): “These quants believed they could create models and systems to manage outsized bets, and if the bets went bad the public would ultimately bail them out. Well, they were wrong.” My coworker and I turned to each other and said, “how in the world were they wrong?”
Rick Santelli said something else in this broadcast, which he has been saying for a long time, and was lost in this discussion and in basically all financial policymaking stretching back to the Penn Central bailout of 1970: “failure is the only thing that works.”
You would hardly expect an intelligent discussion of anything on Kudlow’s program, would you?
Thanks for sharing such an insightful article with all of us. I’ve bookmarked your blog will come back for a re-read again. Keep up the very good work.
Another lefty wishing for the tea party movement to go away. You see racists behind every tree.
Liberals are beyond useless. Their vocalization of dimwitted ideas takes away from being able to have a national discussion of any value.
Just look at how they divert effort that could be put to use somewhere with their big global warming scam.
……I won’t be back to this blog. Came in because of one of high value…MISH….looking for something to read. All I got was my time wasted by an idiot.
You latched onto one small point of the larger missive.
Congratulations, you are wedded to one ideology and are part of the larger problem.
For a good laugh, you need to check out the Predatory Lending Association’s web site. It’s hillarious, but very well done, complete with Google-driven maps and web tools for finding the “working poor”. and tedtimonials. Trust me, it will liven up your day.
http://www.predatorylendingassociation.com/
Vinny
when there is no responsibility for ones action there will be fraud. Eliminate insured loans and those stupid rating agencies and there’d be a lot less risk taking.
The rule of law for the financial industry is corrupt and The justice system has failed miserably. All other banter about lending practices is an inveterate diversion.
First, I find it interesting that not one person, other than Ed, has commented on what Bill Isaac had to say. Talk about regulatory capture.
Second, with regard to borrowers, it sounds to me as though Ed and others that have commented here are, in fact, looking back at history through borrower colored glasses. During the boom years I handled occasional residential closings as an attorney. I also had a real estate license. Though I focused mostly in commercial real estate, I would also handle residential listings and assist buyers from time to time. I represented folks from all walks of life, diverse ethnicities and races, and economic class. The vast majority of the people I dealt with had provided no income documentation with their loan application, were obtaining interest only or pick-a-pay loans, and were making offers on properties that, at the time were easily over $400K (the median price at the time) with no money down. I would repeat numerous times (in Spanish and English) to borrowers involved in closings, after reviewing their loan documents with them, what these terms meant with regard to interest rate increases, payment increases, the amount of debt they would be taking on, the risks involved if one were to lose their job or a health issue came about, or if prices went down rather than up. I had worked as a law clerk at a legal aid non-profit previously and had a short stint as a legal aid attorney. I had represented people in foreclosures and evictions before the boom. Thus, I knew the speed and swiftness with which fortunes could change and leave people in dire straits. I felt obligated to at least put people on notice as to the risks involved. There was also a selfish motive behind my efforts to inform these buyers. I, too, desired to one day purchase a home. I thought maybe I was missing the boat here and that I should join the crowd, otherwise I would never be able to afford a house. I thought better of that idea, but was intent on letting prospective buyers know what could be waiting around the corner in order to, in my small part, dissuade them from making these huge financial leaps, and thereby inflating the values of properties further into orbit. The universal response from every single person in those days was, “the price will increase in the next 2, 5, 7 years and I’ll (we’ll) refinance or sell”.
I can still clearly see the faces of the Central American couple and their two adolescent children that were going to be purchasing their first house. The sales price was $440K. The husband worked at an auto-shop. The wife was not employed at the time. They did not provide any supporting financial documentation on their loan application. They weren’t putting a penny down. It was an adjustable mortgage. I took them both aside early on after reviewing all the documents and spoke to them in Spanish about what they had before them with regard to the loan, etc. The husband began to get quite upset. I tried to explain the risks involved. I was told that they were well aware of all the risks, but that they were confident prices would continue to rise, or at least never go down again and wanted to buy now.
I can also still remember the face of the young, Anglo buyer that had asked me to help him make offers on several condos, sight unseen. He wanted to purchase multiple properties at the same time and was going to apply for multiple loans simultaneously for each condo stating that each one was to be his personal residence. I told him that I couldn’t help him in his fraudulent endeavors.
I can also still recall the weekly phone calls that I would receive from other agents regarding residential listings that I had. They would make verbal offers over the phone of $50K to $150K over the list price without even having toured the property. I was assured that it was all above board and that the extra amounts over the list price were for “repairs”. I also declined these attempts to de-fraud the lenders.
Basically, my point is that I do not agree that the borrowers are the “victims” or “rape victims” in this drama that they are being made out to be in some of the comments. It is my firm opinion that all sides were complicit in the real estate bubble: Regulators, Investors, Investment banks, hedge funds, the GSEs, commercial banks (large and small), municipalities, mortgage brokers, appraisers, real estate agents, attorneys, and borrowers. All parties wanted a piece of the pie.
And, if you think this is all in the past, trying being involved in a short sale transaction. If you thought fraud was prevalent in the boom, have I got news for you!
At the end of the day, I still agree with Costard’s comment above: “The only issue of fairness that I see is that the banks have been bailed out, and the homeowners have not (at least, to the same degree).”
Both political parties have proven themselves beholden to Wall Street. Change you can believe in? Not really. We’ve got two sides of the same coin. Matt Js comment above I think is pretty spot on. The Tea Party had some well meaning intentions, but seems to be getting co-opted by the neo-cons and/or boxed into a corner by the liberals.
I think in general there is just plain and simple anger. Anger at Wall Street and DC. And a feeling of futility.
Now, that’s a great post, b. Your comments go to the point I made regarding fraud, so I am not looking at this through borrower colored glasses. I have been very upfront about the fraud issue, which is separate from but related to the predatory lending and consumer protection issues. I think a major reason more fraud is not found is because borrowers are silent (as they were complicit in the fraud).
I take up the issue of consumer protection, which is what Santelli, Isaac and Tavakoli were debating with Kudlow in a recent post:
http://www.nakedcapitalism.com/2010/03/complexity-is-the-handmaiden-of-deception.html
Here my basic point is that complexity has been used to create information asymmetry. Combined with lax regulatory controls, you had a perfect mix for predatory lending and/or fraud. A consumer financial protection agency, or at a minimum, a legitimate enforcement of safe and sound lending practices would have stopped all of this.
Ed,
I think that “legitimate enofcement of safe and sound lending practices” could have slowed some of this down. I also think the Fed not keeping interests rates as low as they did could have kept much of this from happening to begin with. I’m not sold on the consumer financial protection agency. But, if you tell me that I can get a loan through them for a low monthly rate that will re-adjust after 5 years and will let me stretch my means to purchase a property obviously out of the realm of possibility of what I could/should afford with my current salary and income, I’m all ears.
I did think that Tavoli hit the nail on the head in the video clip when she said “credit should be less available for people who can’t afford the credit”. That’s as simple as it gets. Can we have a consumer financial protection agency that has only that as a mandate? No overeaching by borrowers. No overextending by lenders. My assumption is that Wall St and the Government wouldn’t be too keen on that idea, what with it once again demonstrating that all the financial innovation in the last 30 years was a farce.