Advertise here: Contact FM.

The high cost of Lisa's tiger-repellant rock
January 29, 2009 4:09 AM Subscribe

Leaving office, President Bush claimed "that he took 'a deliberate and comprehensive approach' to preventing terrorism that combined military action overseas with strong defensive measures at home."

[As early as 2002] "We knew that the mortgage-brokerage industry was corrupt... Where we would have gotten a sense of what was really going on was the point where the mortgage was sold knowing that it was a piece of dung and it would be turned into a security. But the agents with the expertise had been diverted to counterterrorism."
[. . . . FBI Director Robert] "Mueller actually circumvented the Justice Department and the OMB to get resources. But he was shut down" by the [Bush A]dministration. [. . . . Testifying in October 2004, ] Chris Swecker, then assistant director of the criminal investigation division said ... "The potential impact of mortgage fraud on financial institutions in the stock market is clear. If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market."

posted by orthogonality (71 comments total) 11 users marked this as a favorite

I've heard this theory bandied about to explain the mortgage issue but I don't think the 'diverted to terrorism' is enough of an excuse. I think the "ignorance" in this case was somewhat deliberate. bush actually promoted the "ownership society" and was pro-active in easing mortgage standards and inflating the bubble. In any bubble, people get sloppy, usually some people cross the line into criminality. And a lot of what was going on wasn't even widely understood to be illegal (as far as I can tell).

All the FBI agents in the world can't prevent something that's not a crime.
posted by delmoi at 4:40 AM on January 29 [1 favorite has favorites]

"The regulators are the ones embedded in the banks," the first retired FBI official said. "They would be able to see it if they were looking. They were the first line of defense in detecting it."

SEC officials declined to comment.

Hopefully, those officials will be compelled to testify in congressional hearings.
posted by netbros at 4:41 AM on January 29

I was under the impression that prosecutable fraud was a negligible part of the problem here. Although I am still interested in purchasing your rock.
posted by butterstick at 4:51 AM on January 29 [1 favorite has favorites]

Surely this...
posted by Cookiebastard at 4:55 AM on January 29

But... but.... it was caused by poor people getting loans!
posted by 0xdeadc0de at 5:09 AM on January 29 [1 favorite has favorites]

Not just any poor people - poor brown people!
posted by Kirth Gerson at 5:43 AM on January 29 [1 favorite has favorites]

Human minds don't calculate probability well. If you offer airline passengers insurance against either everything or terrorism they will pay more for terrorism. It's a narrative computation the specific risk is easier to assess than the general. The visceral, exciting risk is over valued and people worry far more about having a locked gun in the house than a pool in the backyard.

I don't really think we would have caught this if it wasn't for all the focus on terrorism, the story is a little to O'Henry for me. But there is no doubt that the FBI's recent monomania with terrorism has caused them to allocate resources away from any number of other serious crimes that leave people just as dead as terrorism does. A wise man knows that he's an animal with animal senses and an animal brain and he learns to work around his window and he thrusts his spear not at the image of the fish but at the fish.
posted by I Foody at 5:51 AM on January 29 [5 favorites has favorites]

I think the operative fraud being discussed here here was not the fraud on the homeowner/consumer, but rather fraud on the people and institutions who bought the mortgage-backed securities backed by the worthless mortgages. But as the Seattle PI article points out, the securities purchasers just didn't care as long as they were still in the money:

"You had victim banks that would not acknowledge that they were victims," said the first retired FBI official. " 'We're not out any money,' they would say. Nothing has been foreclosed. The banks weren't reporting, the regulators weren't regulating and the FBI was concentrating on external mortgage fraud as opposed to the underlying internal problem."preempt state-based consumer protection laws that would have better regulated predatory lending in the mortgage industry.
posted by footnote at 6:05 AM on January 29

...oops, somehow deleted a paragraph there when I posted...

With respect to the homeowners, there were definitely some cases of actual fraud. But the real problem for homeowners was the lack of consumer rights protections at the time, laws which should have been in place to keep them from getting into mortgages (and other predatory loans) they couldn't pay. Normally state law protects consumers, but in the the banking and mortgage industries worked hard to do things like preempt state-based consumer protection laws that would have better regulated predatory lending in the mortgage industry.
posted by footnote at 6:09 AM on January 29

Here's what I don't get. If this is all so terrible because the banks sold derivatives to act as insurance on the mortgages going bad and those derivatives are now worth more money than actually exists on earth, rather than buy all the bad securitized mortgages, why don't we just wipe out the derivative contracts. Constituional "freedom to contract" issues aside, wouldn't be a lot cheaper to pay the holders of those derivatives what they paid for the things plus interest rather than have the banks pay the amounts they actually owe?
posted by Ironmouth at 6:15 AM on January 29

I wonder whatever happened to Casy Serin.
posted by delmoi at 6:24 AM on January 29

I hope that, in their post-administration years, the Bushies have a collective 'oh shit' moment when they 'suddenly' realize there IS actually a connection between implementing strong national security and a strong economy.

I also hope that, when this 'oh shit' moment happens, a good majority of the Bushies are either on the streets, or living with someone else, learning what it is like for a lot of Americans these days.

Christ have mercy on these folks, and forgive my lack of it... damn.
posted by JoeXIII007 at 6:53 AM on January 29

Hahaha. The law of unintended consequences strikes again: the terrorists have indeed won. Now *that's* what I call irony.
posted by RockCorpse at 7:14 AM on January 29 [4 favorites has favorites]

So people who had mortgage expertise were moved to a new division? How many mortgage brokers are also skilled with anti-terrorism tactics? This isn't robbing Peter to pay Paul, it's taking the skilled carpenters and making them into investigative police. You squander the skills that group already has, and you have to teach them new skills.
posted by filthy light thief at 7:25 AM on January 29 [1 favorite has favorites]

Constituional "freedom to contract" issues aside
I know what you're getting at, but I don't think it's wise to even suggest wiping that guarantee off the books so glibly.
posted by boo_radley at 7:33 AM on January 29

There are more congressional committees and subcommittees charged with overseeing the banking and mortgage industries than I can count on my finger. The FBI does not regulate the banking industry.

Predatory lending was NOT the problem here. The problem was the consumer culture. YOUR culture. The problem was not the government. The problem was the people. Until we own this and take responsibility for it, we will never address the real problem, and we will repeat it again and again.

The problem was people waiting in line overnight to spend money on toys. Why is it that every time I admonish people for not trying to look around for a deal to save then a few hundred $, they tell me their time is worth more than they would save, but somehow that calculus doesn't apply to camping overnight outside the Apple Store or Best Buy. But the truth of course is that they're lazy and self-indulgent, and there is no limit to their ability to rationalize their stupidity. Congratulations, you inconvenienced yourself for the privilege of giving a company your money.

The problem are the people who believe you can have it all. Not only can you not have it all, there a pretty good chance that in the process of trying, you'll end up having nothing at all.

You can't have a populace that needs an card in their wallet to tell them how much to tip at a restaurant but doesn't hesitate to take interest-only mortgages, brags about it how little they are paying, then blames the government when they go upside down.

You can't an average citizen that makes roughly $40k and then spends $1500 of it on an HDTV, and then connects it to their cable service which carries no HDTV channels, instead of connecting it to an antenna and getting free HDTV programming. That stupidity is not acceptable in the industrialized world. And it isn't the stores fault for selling it of the cable company for overcharging and underdelivering.

You bought SUVs when gas was at $1.08 a gallon because you thought the price would stay there forever. Then you bought overpriced hybrids when gas was $4.08 because you thought the price would stay there forever. Now gas is $1.98, your car's been repossessed and you still don't realize that the same guy sold you both cars.

Awaken for your slumber.

You're standing in the midway, a belly full of candy, oversized stuffed animals crammed under your arm, listening to the laughter and cheers as the fairground frenzy swirls around like a warm ocean current. You stare at the manic spectacle, your mouth agape, mesmerized by the flashing lights and piping organs, hoping that the carnival never ends.

But you don't see.

The barkers, the signals, the hawk-eyed agents. The rigged games. Footswitches and marked cards. The money counted in the backlots. You don't see the crowd flow from the gate to the back end and the evacuation of pockets along the way.

You don't see because you don't want to see.

You're having fun, it's all good, chillin' out and takin' it easy. There's no time like a good time, amirite?

So step right up, four throws for a buck, guess your weight, take a break, come inside, win a prize, it's not hard, pick a card, have a treat, take a seat, the sun is down, the ferris wheel goes round and round.

There's nothing like a carnival. And it ain't a carnival without the rubes.
posted by Pastabagel at 7:38 AM on January 29 [17 favorites has favorites]

I know what you're getting at, but I don't think it's wise to even suggest wiping that guarantee off the books so glibly.

Why?

Also, what I'm referring to is the constitutional doctrine of "freedom of contract" that was used to halt all sorts of federal regulation by the Supreme Court up to 1937. Just so we're on the same page, is that what you are referring to?

Essentially both plans are the same--one has the government spend billions on the mortages and ensure that the triggering events for the derivatives never happen, the wipes out the derivatives but the derivative holders get some return. Because I am not kidding when I say that some estimates have the derivative holders owed more than all of the money existing on the face of planet earth.
posted by Ironmouth at 7:46 AM on January 29

There are more congressional committees and subcommittees charged with overseeing the banking and mortgage industries than I can count on my finger.

So what's it called?
posted by Kirth Gerson at 7:57 AM on January 29

So Bush is directly responsible for the mortgage crisis and economic collapse? Give me a break.
posted by KokuRyu at 7:58 AM on January 29

"I know what you're getting at, but I don't think it's wise to even suggest wiping that guarantee off the books so glibly."

Bankruptcy judges have the power to renegotiate contracts (except mortgages, at least at the moment).
posted by krinklyfig at 8:01 AM on January 29

"Predatory lending was NOT the problem here. The problem was the consumer culture. YOUR culture. The problem was not the government. The problem was the people. Until we own this and take responsibility for it, we will never address the real problem, and we will repeat it again and again."

This is silly. People will take the money if you hand it to them. It's incumbent upon the loan originator and regulatory structure to ensure loans are not made to high risk borrowers to the point where it puts the originator at risk, because people will always take the money if you let them. It doesn't matter what the culture is like. A loan on the part of the originator is an investment, and a lot of high risk lending is a risky investment (and should never be packaged as AAA rated investments, as it was). The borrower is not forcing the hand of the originator.
posted by krinklyfig at 8:04 AM on January 29 [3 favorites has favorites]

Predatory lending was NOT the problem here. The problem was the consumer culture. YOUR culture. The problem was not the government. The problem was the people.

I don't buy it. Especially the part where you say the lenders weren't the problem, the government weren't the problem -- I can buy that consumer culture played a significant role, but it's wrong to say it's more than a segment in a circuit, and if what I've read and heard is correct, it's not even the highest voltage part (which would be the sellers and buyers of mortgage backed securities).

There's no denying consumers had eyes for houses and vehicles bigger than they needed and the visions of the home as a personal ATM. But I don't think they got this vision on their own. It took professionals waving these new "products" in front of their faces, assuring them that yes, this is how it's done now, yes, you too can participate, yes, it'll all work out fine, home values don't go down, they go up, especially now. And I think it's fine if you want to assign some degree of blame to consumer ignorance along, but since a good portion of the customer-facing professionals in the lending industry don't have a feel for amortization mathematics beyond what their computer systems tell them (walk into any local bank today, see if you can find a single employee who even knows basic interest compounding formulas), I'm not sure what our expectations are of the general population. A little common sense would go a long way, but in a bubble, what does common mean? Especially when the pros who live everyday in the lending world are telling you something else.

So, yeah, it may be true that if everybody had been reading Schiller, had retained their second year algebra, and were conscientious about living under their means, then lots of this stuff wouldn't have happened. But I think it's far more true that this wouldn't have happened if the people who make this their business -- the people who supposedly make their money off of understanding risks and markets -- had been similarly more conscientious.
posted by weston at 8:16 AM on January 29 [8 favorites has favorites]

But I think it's far more true that this wouldn't have happened if the people who make this their business -- the people who supposedly make their money off of understanding risks and markets -- had been similarly more conscientious.
posted by weston at 11:16 AM on January 29

They were conscientious. They made their money, and their bonuses. They are currently making money in a bubble in treasuries. They made money in the dotcom bubble, they made it in the real estate bubble, they are making it now and will continue to do so in the future. They are still there, making money. The names of the banks change, but by and large the people participating and driving the markets are still there.

It would have happened no matter what the banks did. It happened with dot com stocks not ten years ago. It happened in commodities and in oil. If the real estate market was locked down as tightly as you wish, all that demand for bigger and more would have found some other outlet. People might have tapped their HELOCs to by oil or metals. They may have bought Chinese stocks.

The consumer behavior operative at the end of the 1990s was such that there simply had to be a massive bubble somewhere. The psychology that has people taking money when it's waved in front of them without considering the risks is exactly the same psychology as that which motivates camping outside an electronics store to pay full price for something. It is irrational.

The reason we don't have a consumer bubble following the real estate bust like we did when the real estate boom began as the dot coms collapsed is that, finally, the consumers have no money, and banks aren't will to lend them any more. We've reached the limit--there's no more rope by which we can hang ourselves.

Because I assure you, if banks were lending money, we would see the same irrational behavior repeated somewhere else.
posted by Pastabagel at 8:33 AM on January 29

They were conscientious.

The banks are facing gigantic losses that could bankrupt them. That's not conscientious. If the government hadn't stepped in, we'd be looking at almost every large bank being destroyed by this. They may still be destroyed.

This is not being conscientious. The reason this is such a big deal is because the big players might be losing big money to an even smaller group of big money. That is the definition of a panic. The little guy loses money everyday.
posted by Ironmouth at 8:51 AM on January 29

I think that some of these counterterrorism agents have been moved over to mortgage fraud. I'm refinancing my home and they've got me scheduled for a water-boarding session next week.
posted by orme at 9:01 AM on January 29

"It would have happened no matter what the banks did."

Nonsense. These bubbles come from unregulated asset classes - remember junk bonds and futures in 1987? The recent mortgage crisis has its origins in the unregulated CDO/CDS market, which is how investors were found to supposedly hedge the risk of these highly risky mortgages, and the credit ratings were purely fictional. Without this market, and without the deregulation which Gramm, et al, pushed through, this market would not have been nearly as bad as it ended up. Remember that a great deal of the bad loans were made in 2005-2006, well after the problem was understood.
posted by krinklyfig at 9:13 AM on January 29

"They were conscientious. They made their money, and their bonuses. They are currently making money in a bubble in treasuries. They made money in the dotcom bubble, they made it in the real estate bubble, they are making it now and will continue to do so in the future. They are still there, making money."

We just spend nearly a trillion dollars shoring up the banks which lost money.
posted by krinklyfig at 9:15 AM on January 29

NO AUTHOR FOUND NO BACKLINK FOUND "The consumer behavior"

BTW, whenever you say something like "consumer behavior" to place blame, it's better to call it "human behavior." Most people don't know how to manage risk in their investments, so individual people will willingly put themselves at high risk if you let them. That's why banks don't (or shouldn't) loan money out to just anyone, with NINJA terms, no less.
posted by krinklyfig at 9:18 AM on January 29

Predatory lending was NOT the problem here. The problem was the consumer culture. YOUR culture.

Putting aside the fact that this isn't a matter of "either/or," on a practical level, it's a lot easier to establish a regulatory framework than it is to change "consumer culture." It'd be great if everyone had a good understanding of probability and investment, coupled with a deep sense of charity and thrift. But I'm not holding my breath.

Meanwhile, if for no other reason, people should be protected from predatory lending because the resulting market damage eradicates the savings of those who did, responsibly, squirrel money away. The chaos forces companies to cut 401k programs, lay off employees, and halt even inflation-based raises, further disincentivizing savings, and reducing people to spending their paychecks as they come in.

Whether or not the people who were led into risky loans and investments deserve to be punished for their financial sins, a lax regulatory environment ends up penalizing those of us who spend little, try to save up for later, don't own cars, and get by fine with crappy third hand TVs. Which blows.
posted by evidenceofabsence at 9:19 AM on January 29

bush actually promoted the "ownership society" and was pro-active in easing mortgage standards and inflating the bubble.

Yep.

Predatory lending was NOT the problem here.

All 50 state attorneys general and all 50 state banking superintendents disagree.

"Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.”

--From here.
posted by Fuzzy Monster at 9:23 AM on January 29 [6 favorites has favorites]

Not just any poor people - poor brown people!

Terrorists.
posted by rokusan at 9:27 AM on January 29

The problem are the people who believe you can have it all. Not only can you not have it all, there a pretty good chance that in the process of trying, you'll end up having nothing at all.

OK, that's it folks. Progress has ended. There's no more point in trying to enjoy your time on earth. Everyone back to the caves.

Does anyone still remember how to make fire?
posted by Cool Papa Bell at 9:49 AM on January 29

They are still there, making money. (emphasis mine)

Who exactly is this they you speak of? Do you have a savings account? Does anyone you know have a retirement account? You like it when those accounts have returns, yes? And you'd like those returns to be, like, maximized, right?

It's not they. It's you. It's me. It's us.
posted by Cool Papa Bell at 9:51 AM on January 29

Where's my Bic?
posted by sfts2 at 9:54 AM on January 29

They are the individuals who got us into this mess. Individuals in the investment community who were so desperate to so profits that they disregarded good practice. This is the culture of entitlement that steered us into these rocks. Sure you can blame the galley slaves for rowing with such vigor but they were not in charge. They have left many of their companies in disgrace with only their billions to console them.
posted by pointilist at 10:00 AM on January 29

to so = for
posted by pointilist at 10:02 AM on January 29

This does suggest a Monsters Are Do On Maple Street approach to terrorism. Al Qaeda has never attacked America again because they have not needed to. Fly a few planes into a few buildings and stand back and watch as the US destroys itself in response.
posted by Astro Zombie at 10:07 AM on January 29 [1 favorite has favorites]

Due.

I don't know what Monster Do would be like, but I wouldn't want to step in it.
posted by Astro Zombie at 10:08 AM on January 29

Not just any poor people - poor brown people!

Terrorists.

That's redundant.
posted by Kirth Gerson at 10:09 AM on January 29

So Bush is directly responsible for the mortgage crisis and economic collapse? Give me a break.

If he had four more years, a large percentage of Amurrikans would be unequivocably certain that Iran and bin Laden masterminded subprime lending and Wall Street's crash.

How funny. We went looking for weapons of mass destruction and they were right here all the time. In the form of rampant greed and stupidity.
posted by terranova at 10:20 AM on January 29 [1 favorite has favorites]

Individuals in the investment community who were so desperate to so profits that they disregarded good practice.

You know, stock and investments are owned by people. People that have needs and wants. There's a reason they're called fund managers. Because they're managing money owned by other people in return for fees.

Got a 401(k)? Congrats, you're in the stock market.

Managers want to maximize returns, because the people they work for want to maximize returns. Some of these managers are better than others. This is how an economy operates.

But please don't buy into the mythology that it's a nebulous group of evil wolf-demons that crawled out of cracks in the earth and/or Ivy League fraternities and perpetrated a conspiratorial crime for the ages.

Shit happened. Some people got rich off it. A lot of people didn't. Shit will happen tomorrow, too.

Recessions are like the flu. Everyone will catch it now and then. Most of the time, you feel bad for a while and then you get better. Occasionally, the flu kills you. Ideally, we all learn from this ("Hey, maybe we should make it easier for people to get flu shots. Or save money.") and shit is a little less likely to happen next time.
posted by Cool Papa Bell at 10:34 AM on January 29 [1 favorite has favorites]

If Bush and Al Qaeda had formally been working together, they couldn't have done a better job of wrecking our country than they have done. For an upfront cost of 19 people and a few tens of thousands of dollars they provoked the easy-to-provoke Bush into an unnecessary war that drained the nation's *future* coffers (our current ones were already empty). They also helped him get re-elected, buying him four more years to inflict damage on us. It's almost like Bush was the *real* weapon that Al Qaeda used against us.
posted by jamstigator at 10:35 AM on January 29

I'd like to see Pastabagel defend the Bush Administration purposely stopping investigations of the financial sector by the states, a move decried by the bipartisan of all 50 states attorneys genera bak in 2004.
posted by Hypnotic Chick at 10:49 AM on January 29

Oops, bad spelling and I repeated Fuzzy Math...double bad. This is very emotional for me.
posted by Hypnotic Chick at 10:51 AM on January 29

It would have happened no matter what the banks did. It happened with dot com stocks not ten years ago.

Fraud can count itself among a number of crimes that have happened throughout history, and which will continue to happen. That doesn't mean we should forgo punishing those who commit it, just as burglars shouldn't be let off the hook because of robbery's rich and longstanding tradition. After all, personal responsibility goes both ways: People should put locks on their doors. But even if they don't, foolish though it might be, a thief has still committed a crime if he's nicked things from their apartment.

And the banks did go out of their way to nick things, aggressively attempting to get borrowers into loans they couldn't handle, while lying to responsible investors about what they were sinking money into. The highights of this NYT article include WaMu verifying one man's income by virtue of a photograph of him in mariatchi getup. It also includes a loan officer who, alerted to the fact that she seemed complicit in falsifying $145,000 in a borrower's savings, yelled that her co-worker shouldn't have known, because "we don't call the bank to verify." On the other end, banks misrepresented their balance sheets, and credit rating agencies misrepresented risky investments as AAA securities.

Creating regulatory guidelines may force us to make new, and unknown, mistakes in the future. But it will (hopefully) also prevent us from making the same mistakes. Yes, there will be other bubbles. That doesn't mean that we can skip being proactive now.
posted by evidenceofabsence at 10:54 AM on January 29 [1 favorite has favorites]

large percentage of Amurrikans would be unequivocably certain that Iran and bin Laden masterminded subprime lending and Wall Street's crash.

There are already people speculating that George Soros and/or prominent members of the Democratic Party engineered the entire thing as (a) a way get rich at your expense (b) an attempt to make the Republicans look bad and thus take office (c) a hidden plot to topple the U.S. and enshrine a national or world capital-s Socialist government that will abolish property and take your guns.
posted by weston at 10:55 AM on January 29

Predatory lending was NOT the problem here. The problem was the consumer culture. YOUR culture. The problem was not the government. The problem was the people. Until we own this and take responsibility for it, we will never address the real problem, and we will repeat it again and again.

Me? I don't think so. I never even put any money in the stock market for the same reason I never go to casinos. It's rigged toward the house, and I know that. I don't even have a 401K. Well, I did have a 401 K once. But the company I worked for went out of business and the guys who used to own it are now in jail for, among other things, stealing everyone's 401 K money.

The problem was people waiting in line overnight to spend money on toys...

I never did that. As a matter of fact, I don't have kids, because I can't afford them.

I did, however, wait in line for a midnight show of all three of the Star Wars prequels, so I suppose that's how I helped destroy the economy. I'm sorry.

The problem are the people who believe you can have it all.

I don't want it all. I just want to be left alone to pursue happiness. The problem is that the powers-that-be insist I need MONEY to do things like live in a house and eat, and yet somehow are unable to create jobs that can pay enough money so that me and the vast majority of people in this country can live and have a retirement. I hate money. It has never done anything for me except keep me from doing the things I want to do and steer me on paths I don't want to be on. Money, from my point of view, just exists to give other people power over me.

But yeah, it's all my fault, like you say. I am so sorry.

You can't have a populace that needs an card in their wallet to tell them how much to tip at a restaurant but doesn't hesitate to take interest-only mortgages...

I know how much to tip in a restaurant because my wife works in a restaurant. You know, work, as in be productive. For $2.13 an hour, plus the kindness of strangers.

Back in 2003, we were moving in together. We were just going to rent an apartment, but all of our friends and family told us that since interest rates were so low we should look into buying a house. No use throwing your money away, they said. Better to pay rent to yourself, they said. Well, that certainly makes sense. So we applied for a loan from a mortgage company and got one. 30 year, 6% fixed rate. We were worried about spending so much for a house, but our monthly payments came out to be less than our two rents combined, so that made sense. The day before we were to close was the first day of the Iraq war. Our loan officer called my then-girlfriend (now wife) to tell her that if we wanted to lock in our 6.5% loan that we needed to do it right then. She said, hey, I thought we had been over this, I thought it was 6%, and we can't afford 6.5%, and you should call my boyfriend. So the loan officer called me, and I went ballistic. "Hey, the markets are going crazy because no one could have seen the war coming," the loan officer said. "I knew there was going to be a war in September. Did you not read the fucking papers?" I said. I called her a war profiteer. She didn't know what it was, so I explained the concept to her. She offered me a variable rate mortgage, and I told her I want the deal we had agreed on and that she had assured me was written in stone and that I would nuke the fucking deal right then if she didn't do what she had agreed to do. Eventually, I ended up paying $500 extra in closing costs and getting my 6% fixed rate. The signing session in the loan woman's office was extremely tense.

Since then, my loan has been sold to another company an average of once a year.

And that's how i helped destroy the economy with my ignorance and greed. The financial professionals involved obviously had nothing to do with it.

You can't an average citizen that makes roughly $40k and then spends $1500 of it on an HDTV, and then connects it to their cable service which carries no HDTV channels, instead of connecting it to an antenna and getting free HDTV programming. That stupidity is not acceptable in the industrialized world. And it isn't the stores fault for selling it of the cable company for overcharging and underdelivering.

There is only one cable company that serves my entire city. If I want high speed internet, I don't have a choice as to where to go. That's how I help destroy the economy. I know, I suck.

You bought SUVs when gas was at $1.08 a gallon because you thought the price would stay there forever. Then you bought overpriced hybrids when gas was $4.08 because you thought the price would stay there forever. Now gas is $1.98, your car's been repossessed and you still don't realize that the same guy sold you both cars.

I bought a Honda Civic in 2001. It gets 40 MPH on the highway, 35 in town because it's a stick shift. We have one car between the two of us. I apologize for destroying your economy with my stick shift.

The barkers, the signals, the hawk-eyed agents. The rigged games. Footswitches and marked cards. The money counted in the backlots. You don't see the crowd flow from the gate to the back end and the evacuation of pockets along the way.

You don't see because you don't want to see.

...

There's nothing like a carnival. And it ain't a carnival without the rubes.

Yeah, it's not the BARKER's fault that they're out there scamming. It the rube's fault. It's not the liar's fault, it's the lied-to. After all, the financial professionals have no choice but to scam people. They couldn't do what I did and get an education, learn a set of skills and work at what I considered to be a productive job but that the market said was worth a whole hell of a lot less than than the bevy of financial professionals who scammed me. See, the market has forced them into lying, and everybody knows that you must always do exactly what King Market tells you to do. Morality doesn't enter into it. Market players have no morality. They have no choice but to lie and scam and steal and defraud. It's my fault because I didn't WANT to scam, steal and defraud. I wanted to practice the skills that I am good at and was trained for. So here I am, not really sure about what I could have done differently, and I'm ass-deep in debt and have no job because I got laid off. I'm sure that's all my fault and not the fault of the financial professionals who chose to lie, steal, defraud, and ignore the basic tenants of risk management because King Market told them to.

So, pastabagel, I apologize for destroying your economy.
posted by vibrotronica at 11:19 AM on January 29 [9 favorites has favorites]

"How funny. We went looking for weapons of mass destruction and they were right here all the time. In the form of rampant greed and stupidity."

Well, yeah. But not funny 'ha ha.'
posted by Smedleyman at 11:45 AM on January 29

Predatory lending was NOT the problem here. The problem was the consumer culture. YOUR culture. The problem was not the government. The problem was the people.

Agreed, to a certain extent. How about banks, government and the people who took out the loans all share an equal part of the blame?

Yeah, it's not the BARKER's fault that they're out there scamming. It the rube's fault. It's not the liar's fault, it's the lied-to.

There is a such thing as personal accountability. If you're signing your name to no-deposit mortgage, based on the premise that the value of your investment will continue to infinitely increase, well, you bear some of the responsibility for the mess you're in.

Personally, I have limited means, and I would have qualified for a mortgage, and most likely I would be in trouble right now if I have purchased a house during the bubble.

However, I did not, because I understood it was too risky.

If the "rubes" are guilt-free, and thus should be awarded with some sort of protection from the results of their own bad choices, shouldn't folks who behaved more responsibly and didn't get into a mess also get some sort of award?

Or is it the typical bleeding-heart liberal dogma that the stupid always get a break, while the smart responsible types should be punished for working hard?
posted by KokuRyu at 11:51 AM on January 29

There is a such thing as personal accountability. If you're signing your name to no-deposit mortgage, based on the premise that the value of your investment will continue to infinitely increase, well, you bear some of the responsibility for the mess you're in.

What about the personal accountability of the people who created the financial instruments and offered the loans to people who they knew who couldn't afford them? How come I am responsible for my actions and they aren't? Is it typical conservative dogma that the rich are not responsible for their actions when they lie to and steal from the poor?
posted by vibrotronica at 11:55 AM on January 29 [3 favorites has favorites]

"Consumer culture" is to blame? The people who camp out overnight for a PS3, they're the ones who did this to us? Financial crises are like flus?

Excuse me a moment, I need to go outside and check to see if the sky is green, and if the Earth is shaped like a cube.
posted by Marisa Stole the Precious Thing at 12:12 PM on January 29

Is it typical conservative dogma that the rich are not responsible for their actions when they lie to and steal from the poor?

Shouldn't have worn that dress.
posted by Blazecock Pileon at 12:42 PM on January 29 [1 favorite has favorites]

Shorter Pastabagel: Anyone who died in a Ford Pinto explosion back in the day was a rube who totally had it coming to them. Wake up, sheeple!
posted by Halloween Jack at 12:56 PM on January 29 [1 favorite has favorites]

Or is it the typical bleeding-heart liberal dogma that the stupid always get a break, while the smart responsible types should be punished for working hard?

I had a bleeding-heart liberal dog ma once, but she wasn't typical. A mixed-breed flowering bush and black lab. Those labs will hump anything. Her first litter was pink, oddly enough.
posted by Kirth Gerson at 1:02 PM on January 29

They were conscientious. They made their money, and their bonuses. They are currently making money in a bubble in treasuries. They made money in the dotcom bubble, they made it in the real estate bubble, they are making it now and will continue to do so in the future. They are still there, making money. The names of the banks change, but by and large the people participating and driving the markets are still there.

I'm not sure what you're arguing, Pastabagel. Is it that conscientiousness stops at the ability to take home your own paycheck, bonuses, and capital gains? If so, I guess I can see why you'd absolve the professionals from any responsibility in creating this mess, despite the huge information asymmetry that exists between them and consumers, despite the fact that the lender generally sets the criteria for lending and the terms of the loan, despite the fact that no one holds a gun to their head and tells them they must invest their money in any risk class of lending.

It would have happened no matter what the banks did.

I'm interested in how the loans underlying the assets in crisis would have magically made themselves without any lending institution. I imagine such things are not impossible in the world of economics and finance.
posted by weston at 1:29 PM on January 29

It seems like everyone is a little dirty these days. Did bankers knowingly lie? Yes. Were consumers willingly gullible? Yes.

We need more regulations on the sectors of the economy which caused/enabled much of the current mess, but we also need people to take some responsibility for their poorly thought-out choices as well. It is easier to regulate industries than it is to change the values of a culture, but that isn't a good reason to ignore the very deep problems of our culture. People broke the economy, people like you and me. And it's going to require people like you and me taking responsibility to fix it.
posted by elwoodwiles at 1:47 PM on January 29

Sound bankruptcy laws are the best protection against predatory lending. If you loan our money, assessing the likelihood of repayment is your responsibility, period.

p.s. Bertrand Russell pointed out that nobody should really work more than 4 hours per day.
posted by jeffburdges at 1:53 PM on January 29

Is it typical conservative dogma that the rich are not responsible for their actions when they lie to and steal from the poor?
posted by vibrotronica at 2:55 PM on January 29

The poor?! The house-flipping, McMansion buying poor? The poor on their iPhones, wearing Uggs, hopping in and out of late model Priuses? Is that the poor you were referring to? Or were you tossing out some hackneyed class warfare nonsense because that's in vogue now?

Whoever was poor before is poor now -- their condition has not changed. What has changed is the condition of the middle class, specifically the upper-middle class. They are the one's preaching the mantra of free market capitalism when times are good and extolling the virtues of collective effort and profligate government spending when times are tough. The philosophy they ascribe to is whichever suits them most at the moment.

No. You wanted it all, you bought it all, now pay for it. If you walk into a Vegas casino expecting to clean up with your bulletproof blackjack system, too bad. The time to complain about the interest rate on your credit card is when you sign up for it. Not three years of late payments and accrued interest later. At that point it's reasonable for everyone involved to assume that you are aware of the rate and are comfortable with it.

Yes, the system is rigged against you. Does that surprise you? Does that come as some kind of adulthood revelation? Goldman Sachs hires lobbyists. They lobby both parties, nearly equally.What the hell do you think corporations pay lobbysists for? To ensure a level playing field? To tip the balance in your favor?

It's hard enough to get a job and scrape together some savings. Why wouldn't you invest even a cursory amount of time in trying to figure out how to keep it? Why wouldn't you make a conscious effort not to part with it casually?

Do you really think "the rich" are getting their comeuppance now? Obama's Treasury secretary didn't pay his taxes, now he gets to run the IRS. There have been literally hundreds of wars, immesurable upheaval, and countless revolutions in Europe over the last 200 years. Yet the Rothschilds still have all their money.

Regulate housing all you want. Drugs are banned, and people are taught as children that they are dangerous and will kill you, yet people still want to take that first hit. They pay premium $ to take that first hit. Cigarette packs state in no uncertain terms that the product in the package will kill you if used as directed. And yet people still take up smoking, saying brilliant things like "everyone knows it looks cool."

I'm sorry, the people are stupid. A government by, of, and for the stupid people will in turn be stupid itself. And it will be manipulated by the smart and the wealthy to serve their interests.
posted by Pastabagel at 1:58 PM on January 29

I'm interested in how the loans underlying the assets in crisis would have magically made themselves without any lending institution. I imagine such things are not impossible in the world of economics and finance.
posted by weston at 4:29 PM on January 29

The crisis wouldn't have happened in loans underlying the crisis, they would have happened in commodities, metal, foreign stocks, oil corn, solar panels, windmills, or any of the other booms that happened simultaneously with but were dwarfed by the real estate boom. Without a real estate boom fueled by lending, it is reasonable to conclude that those other booms would have been bigger. And all of those booms also collapsed, btw. every single one of them.

Of course any lender who broke the law should be punished, but much of what happened was not against the law. The information asymmetry is not in the lender's favor, its in the borrowers. That's the point. The borrower should know how much he can actually afford, what his income prospects really are, etc. The system assumes he is. When the consumer chooses to be ignorant, chooses not to ask the obvious questions, the consumer bears the responsibility for not doing what he should have done.

The consumer should never EVER think for a second that he is absolved of his responsibility to protect himself simply because the industry is regulated. Nothing can protect consumers from their own stupidity.
posted by Pastabagel at 2:16 PM on January 29

Whoever was poor before is poor now -- their condition has not changed.

Except for the ones that lost their jobs.
posted by vibrotronica at 2:19 PM on January 29 [2 favorites has favorites]

The time to complain about the interest rate on your credit card is when you sign up for it. Not three years of late payments and accrued interest later.

I don't disagree if we're talking about the personal consequences of debt decisions, which I believe individuals should bear. But that's not what we're talking about, we're in the realm of society-wide consequences, we're talking about how we got into a mess where lenders built and inflated an entire asset class on poor assumptions and it's quite nearly taken down the whole system. And the system wide collapse is solely the buyer's fault?

Tell you what. Let's be generous, and assume that the knowledge asymmetry that nobel prizes in economics have been awarded on doesn't exist. Let's assume complete symmetry of information and responsibility between actors, consumer and lender alike, 1 point each, for each transaction. Each irresponsible individual walks away with 1 point per bad loan, maybe a few Casey Serins end up with 10 or 20. But the lender? How many loans are they engaging in? Hundreds? Thousands? Sure. For bigger lenders, quite literally, hundreds of thousands to millions and millions of loans. So, yeah, I accept there's these dots of responsibility diffused out there amongst millions of borrowers, but it really ought to be clear where the concentration of responsibility lies.

Do you really think "the rich" are getting their comeuppance now?

A few of them, perhaps, but by and large, no. Maybe in no small part because of philosophies that excuse the manipulation of society by the smart and wealthy to serve their own interests.

If what you're trying to do is to goad sheeple into realizing that no, the pros and the rich and the wealthy aren't in fact looking out for you and you better well grow some common sense and use it if you don't want to get p0wned, then I suppose that's almost a public service, especially since there are still some people out there who are convinced the system works for everyone. But that really doesn't require a misdirection of responsibility away from empowered parties who bear a reasonable share of the blame for the current mess.

On preview:

The crisis wouldn't have happened in loans underlying the crisis, they would have happened in commodities, metal, foreign stocks, oil corn, solar panels, windmills...

I have my doubts it would have worked out exactly the same way. Bubbles, sure, but even though markets aren't always efficient for these things, they're goods/capital rather than securitized bad debt. Even the dot come bubble was a different beast.

But in any case, these realms you're talking about are ones most consumers certainly wouldn't have borne any direct responsibility in evaluating and assuming risk for.

The information asymmetry is not in the lender's favor, its in the borrowers.

If you've got a really good argument for this, I'm interested. But you've got an uphill battle. The lending institutions we're talking about here are composed of multiple people who by vocation devote themselves to engaging the details of these transactions daily. Borrowers generally engage in this transaction once every few years at *most*, so even for the ones that might take pains to understand things, the difference we're talking about here is more or less what you might find between a practicing engineer's math/physics knowledge and someone who gets out a textbook periodically to help their kid with a spot of homework. The lenders are also in a strong position to compel release of information as a condition of even considering the loan, certainly a stronger position than all but a few consumers have.... assuming that consumers would even have an idea of what to ask for. The borrower is basically only in a position to hide any details a lender wishes to know about their past and current status based on fraud, and lenders have known for a long time some good questions for figuring out if a borrower's a decent risk. On the other side? Any lender can hide a good number of important details or even outright deceptions under the cloak of professional authority and a hundred or three pages of print.

The consumer should never EVER think for a second that he is absolved of his responsibility to protect himself

I agree. The consumer's responsibility to the health of the bank and a society that depends on banks, on the other hand, is a different matter.
posted by weston at 3:21 PM on January 29

Of course any lender who broke the law should be punished, but much of what happened was not against the law.
Except for the balance sheet irregularities, fraudulent loan recruitment practices, falsified documents, and shoddy ratings practices that have been involved in many of the major bankruptcies? Not to mention more subtle issues, like reverse redlining.

The house-flipping, McMansion buying poor? The poor on their iPhones, wearing Uggs, hopping in and out of late model Priuses?
This is a straw-man argument. So long as we're going to keep bringing up this hypothetical hyper-consumer, who's presumably dredged down in credit card debt, bedazzled in Swarovski crystals, and in the habit of snapping her gum while clicking her acrylic nails, we might as well give her a name. Let's call her Becky. Becky is vain, greedy, and given the chance, outright venal. Her ignorance isn't an excuse—even if people were deceiving her—'cause Becky, she's willfully ignorant. She probably learned about flipping houses from some kind of late-night informercial! Booooo, Becky!

Let's be honest. We're talking about a full spectrum of people from a truly slim minority of Beckys (and their irresponsible, i-banker fiancees), through people who were genuinely misled into bad loans, through people who were perfectly well affording their loans before the economy imploded and they unexpectedly lost both their job and considerable savings...and finally, through my mom.

My public school teacher mom, who has two to three jobs at any given time, not only saves diligently, but makes a point of keeping well educated about the market. As such, her portfolio is well diversified. Even so, my mom lost a 5-digit chunk of her retirement funds last fall, in part through the city's tax-deferred retirement plans. Tough cookies, but Becky she's not.

She's on her second free Verizon phone in eight years, doesn't have a car, lives in a rent-stabilized apartment, hasn't taken out a mortgage in her life, doesn't have an iPod or Uggs (thank god), and has made something on the order of one late credit card payment in 30 years. So, yeah, we can focus on hypothetical, stereotypical Becky. Or we could concern ourselves with relief and justice for the real-life people who are out on unemployment, or truly screwed through not fault of their own.*

*Also, maybe we can build an SEC capable of doing its job. Also, I want a pony. And some ice cream.
posted by evidenceofabsence at 4:14 PM on January 29

It is, as far as I can tell, becoming almost literally impossible for most people in America and Canada and other developed nations (to varying degrees) to live anything like the kind of life that their parents or grandparents could, the kind of life that most people growing up in those countries came to expect as their birthright -- a decent home that is owned as a home and not a three-card-monte investment, enough income to live comfortably and save for eventual retirement, possibly a family, some small luxuries -- without borrowing large amounts of money.

Whether the expectations of people growing up in ostensibly rich, developed countries are out of line with reasonable reality is maybe another argument. Certainly McMansions and SUVs are foolish, but even reasonable people who are not interested in ostentation or suckered in by peer pressure or advertising, who wish to live frugally but well, are finding it difficult to impossible, even before the recent Troubles. Stories about people who do OK, but only because they have 3 jobs, for example, point to this.

Certainly, for many who understand money to an extent, who are diligent about avoiding the debt trap, and who are educated (oh dear, tens of thousands of dollars in student loans) and fortunate enough to find work that's reasonably remunerative, it is almost possible to live.

But I am quite firmly of the opinion that for whatever reasons -- the failure of governments, the greed of the financial industry, the Reagan-launched foolishness of deregulation, the evaporation of the middle class as the gap between rich and poor widens, the dismantling of social safety nets, the pervasive and pernicious mindfuck of advertising, the twisting of the ethos of self-reliance into 'fuck you Jack I've got mine', the kind of wild consumerist aquisitiveness that seems to so many unremarkable, the cult of celebrity even, I don't know what all and what else -- the 'system' has gotten to a state where the majority people, individuals or couples or families, are locked into a modern form of serfdom. Deeply indebted, living paycheck to paycheck, barely able to keep afloat even with multiple incomes, locked deeper into it as each year passes, and being forced to ignore prudent and sufficient saving for their old age, because it's just not viable.

Certainly this doesn't describe everyone, but I think it describes the overall shape of things, and though it can be argued, I suppose, that it's not so much different from times past in some ways, I think the structure of modern serfdom interpenetrates the fabric of most people's lives to such an extent these days that it takes astonishing luck or herculean effort to break out of it.

I have hopes that the current troubles may be enough of a shock to the overall system of the body politic that things become more sensible. But I opted out and left Canada 20 years ago, so, to some extent, for me, it's academic.
posted by stavrosthewonderchicken at 4:21 PM on January 29

To be clear, I do not deny the primacy of personal responsibility, but I wanted to make a bit of a counterpoint to Pastabagel. I believe that the way things have gotten, even those who make great efforts are often doomed to debt bondage. After a certain threshold, it just becomes easier for many to stop fighting the current and settle into the credit treadmill.
posted by stavrosthewonderchicken at 4:24 PM on January 29

You can't eat hope.
posted by shoesfullofdust at 7:47 PM on January 29

"If the 'rubes' are guilt-free, and thus should be awarded with some sort of protection from the results of their own bad choices, shouldn't folks who behaved more responsibly and didn't get into a mess also get some sort of award?"

This is not about awards. It's about stemming risk. There is no moral scale involved in figuring out where to put money to prevent serious issues with the economy.
posted by krinklyfig at 9:17 AM on January 30

"Do you really think 'the rich' are getting their comeuppance now? Obama's Treasury secretary didn't pay his taxes, now he gets to run the IRS. There have been literally hundreds of wars, immesurable upheaval, and countless revolutions in Europe over the last 200 years. Yet the Rothschilds still have all their money."

You're conflating a lot of different issues, but you can't see the problem in a larger sense. You have tunnel vision.
posted by krinklyfig at 9:19 AM on January 30 [1 favorite has favorites]

The house-flipping, McMansion buying poor? The poor on their iPhones, wearing Uggs, hopping in and out of late model Priuses?...
This is a straw-man argument. [Etc.]

Another important group of responsible individuals are being given far too much leeway in the role they played in this mess: namely, real estate investors, who took advantage of the loosened regulatory requirements to do business. By some estimates, small and large scale real estate investment activity--much of it fraudulent--played the biggest role of all in the fiasco. Why?

Because lower lending standards that were intended to make low-income home loans more accessible ended up being exploited by fraudulent borrowers and borrowers who would normally have been candidates for prime loans (after all, why not take advantage of the comparatively better terms--low to nonexistent down payments, low introductory period interest-rates, etc.). And the lack of regulatory oversight at the point of loan origination virtually guaranteed systematic fraud would occur.

In Florida and California, there's evidence of blatantly fraudulent activity at every point along the mortgage supply chain. Loan originators with documented criminal records falsified loan documentation to issue bad loans in order to collect large originator fees. Known fraudsters would establish dummy real estate investment firms, take out NINJA loans, cash them out, and then fold up shop, letting the property be foreclosed and the firm "go bankrupt" while pocketing the cash difference. The lax regulatory scheme created so much opportunity for fraud that it was virtually inevitable.

This is not simply a story about consumerism run amok anymore than the Madoff scandal is. This story in large part also concerns sophisticated financial fraud on a systematic level.
posted by saulgoodman at 9:50 AM on January 30

Here's a link to a site that focuses on these kinds of stories of sophisticated real estate investment fraud.
posted by saulgoodman at 10:04 AM on January 30

« Older The video for Metronomy's A Thing For Me features ... | Perfect Balance... Newer »

This thread has been archived and is closed to new comments

The high cost of Lisa's tiger-repellant rock January 29, 2009 4:09 AM Subscribe

The high cost of Lisa's tiger-repellant rock
January 29, 2009 4:09 AM Subscribe