After several weeks of playing Mr. Nice Guy with innocuous, grade-school level essays that were a complete waste of print, and then one week off (yay!), Russ Sloan returned to the Money section of the Leesburg Daily Commercial today with one of the worst contributions to public discourse that one could possibly imagine. As with the recent exercise in corporate pleading by Jay Ambrose, Sloan presents us with a version of reality that is so fundamentally dishonest we really have to wonder why the Daily Commercial continues to provide him with a forum. But we need not wonder for too long: this is what they really believe, and this is what they want their readers to believe, too.
Sloan’s case on behalf of the banksters comes straight from the playbook of Republican Central Command (as do most of his other arguments). Thus, while Wall Street “played a role in compounding” [emphasis added] the housing crash, the root cause lies – where else? – in the federal government. Displaying his patented lack of originality, Sloan asserts that the “main culprit” was “governmental pressures on lending institutions to give home loans to people with no money down and poor-to-marginal credit.” This old chestnut is polished by a reference to a supposedly supportive book written by Gretchen Morgenson and Joshua Rosner, Reckless Endangerment, which Sloan encourages us to read. It would help if he had read it himself.
For the benefit of readers capable of unbiased perception, unlike our Russ, here is a telling quote from the book:
Of all the partners in the homeownership push, no industry contributed more to the corruption of the lending process than Wall Street. If mortgage originators like NovaStar or Countrywide were the equivalent of drug pushers hanging around a schoolyard and the ratings agencies were the narcotics cops looking the other way, brokerage firms providing capital to the anything-goes lenders were the overseers of the cartel.
Whoops. Did you miss that part, Russ? Or did you just read the sections that bashed the government while ignoring everything else? Seriously, if you’re going to try to bolster your positions with an appeal to authority, you might want to make sure that it actually does corroborate your position.
Here’s another extract that Uncle Russ won’t be presenting any time soon, even though it would be most appropriate for the financial section of a newspaper:
In 2001, mortgage lenders like Fremont understood that the low-interest-rate environment was driving investors to securities that yielded more than Treasury bonds and other relatively conservative fixed-income instruments. The Federal Reserve Board’s decision to slash interest rates to propel the economy was hurting investors who lived on the income generated by their holdings. Mortgages, with their relatively higher yields, provided a handy answer to this problem. Many investors still believed that home loans were relatively conservative instruments. Ratings agencies, blessing the majority of these securities with triple-A ratings, only confirmed this rosy view.Teaming up with lenders, major brokerage firms like Bear Stearns, Lehman Brothers, Morgan Stanley, and Goldman Sachs pressed them for loans to feed the mortgage securities machine. It didn’t hurt that the fees generated by these securities made up for stagnant businesses — such as investment banking and stock trading — that were generating only paltry revenues on Wall Street.
With yield-hungry investors on the prowl for profits, and Wall Street eager to please, the subprime mortgage market started to rouse. The billions of dollars being dangled before cash-strapped lenders were mighty alluring; they knew that tapping those funds could juice their volumes and their profits.
In a world of tough sells, this wasn’t one. The race to the bottom had begun.
That race accelerated once the major investment banks saw the profit potential of collateralized debt obligations (CDOs) and similar mortgage-backed securities that could be sold to unsuspecting investors the world over. The demand for mortgages that could be bundled into securities had far more to do with the housing crisis than Russ Sloan is willing to admit, and involved increasing levels of dishonesty throughout the financial services industry. Far from being forced by the government into issuing bad loans, the industry couldn’t get enough of them to satisfy the greed of Wall Street:
As CDO issuance soared, investment banks increased their cash commitments to small lenders, securing critical loan production. They also bought their own mortgage companies so they could be sure the supply of loans met the demand fueled by CDOs. With CDO managers lapping up all manner of mortgages, lenders soon found that their production targets were harder and harder to achieve. Countrywide, NovaStar, Fremont, and the rest responded by ramping up the profits generated in each loan. This meant steering borrowers who would otherwise qualify for lower cost mortgages into highly profitable but much more toxic loans.
Borrowers who could prove that their incomes and assets were ample were pushed into more expensive loans that required no documentation. Mortgage brokers peddled them as easy and hassle-free. These and other tricks hurt borrowers. But they increased the industry’s and investment banks’ profits. At the same time, lenders redoubled their efforts to refinance existing borrowers into more exotic mortgage products. The push for production fueled by Wall Street’s CDO factories fostered the massive growth in “liar loans,” for which borrowers did not have to produce any proof of income or assets.
The problem with Russ Sloan’s account is not just that it displays a spectacularly cynical selection bias; it is also too simple. As we have discussed elsewhere on this site, the role of government action in this, and many other, arenas cannot be understood without recognizing the influence that corporate money exerts on policy-making. One of the key ways in which this influence expresses itself is through the career movements of the participants in the great game, with periods of “public service” coming both before and after lucrative spells in the private sector. While the movie Inside Job focuses on Robert Rubin and Alan Greenspan, Reckless Endangerment is highly critical of Jim Johnson, who transformed Fannie Mae into a “personal ATM” before joining the board of Goldman Sachs, where he headed their compensation committee through 2010. In Russ Sloan’s childlike version of reality, the government is a big, bad wolf waiting to prey upon innocent, hard-working, virtuous capitalists. In the real world, where the rest of us live, government is simply part of a cozy scheme in which the corporate oligarchy enriches itself at the expense of the general public. No discussion of government policy or regulation is complete without recognition of the revolving door that keeps the agencies of the state firmly in line with the priorities of private wealth.
And this brings us to the second prong of Russ Sloan’s plastic fork in the eyes of common decency. Reprising his favorite theme that the rich pay more than their fair share of taxes and contribute generously to charity, Sloan assails the Occupy Wall Street (OWS) movement for demonizing the 1% and coveting their wealth – in violation of the Ten Commandments – instead of admiring them. Now, I love it when a so-called conservative trots out the Bible, because that’s a sure sign we’re in for a heaping-dose of hypocrisy. First, the Occupiers do not covet other people’s wealth; they just want a fair shake. Sloan should realize that himself when he wonders why they don’t seem to have a problem with the wealth of sports stars and actors, but only of business people. He might find the answer to that seeming inconsistency by looking elsewhere in the Ten Commandments and the words, Thou Shalt Not Steal. What Wall Street did in the last decade, as laid out in unmistakable detail by Gretchen Morgenson, amounted to systematic theft on an unprecedented, industrial scale. To attempt to excuse criminal behavior and to distract the public’s attention from the need to prosecute that behavior amounts to a moral failure of far greater scope than anything that can be laid at the feet of the young Occupiers.
Ironically, given that Russ Sloan’s reason for jettisoning intellectual integrity is his desire to discredit Democrats, his abject failure to place the blame for the mortgage meltdown where it really belongs places him on common ground with Barack Obama and his Administration full of Wall Street cronies. If we look at what Obama has done, rather than at anything he might have said, we find a president who needs to be remembered for all time as the man who failed to break up the banks that were “too big to fail” and instead bent over backwards to restore them to business as usual. Only at the state level have we seen any serious, concerted efforts to punish criminality; Obama’s Department of Justice is nowhere to be seen. That will surprise no one who understood where Obama’s campaign contributions were coming from, or the nature of the Faustian bargain that modern Democrats have made with Wall Street. All of this is way over the head of Russ Sloan, which is rather a shame, for the pain of perceiving his commonality with Barack Obama would constitute a condign penalty for his shameful lies.