The
economy is in trouble because banks borrowed massively, and
they borrowed many multiples more than they could afford.
CNBC acts as if over-borrowing by U.S. consumers created
a global financial crisis. This myth protects Wall Street
banks.
Predatory Lending: Consumers Need Protection
At times individual borrowers overreached, flipped houses,
or lied about income. But those weren’t our only problems.
Borrowers were often targeted and actively misled. Wall Street
supplied the funds to predatory lenders. Then it packaged up
those loans into phony securitizations.
In the past decade, lending fraud lawsuits against Ameriquest
and FAMCO made the news. Instead of cracking down, regulators
removed the brakes. America suffered an epidemic of predatory
lending after that.
By
the time of Wall Street’s 2008 bailout, delinquencies
on subprime mortgage loans made in 2005 and 2006 exceeded 37
percent and were climbing. The brand new (at the time) 2007 loans
had a default rate of almost 26 percent and climbing. The loans
made in 2007 defaulted almost immediately, a classic situation
for fraud. That doesn’t include other risky mortgage products
made to borrowers with better credit. Meanwhile, subprime loans
made by Warren Buffett’s Clayton Homes division were performing
just fine. The delinquencies were in the low single digits and
constant.
Wall Street banks bear most of the responsibility for this debacle.
Most of the CDOs that came to market in 2007 defaulted very rapidly.
At the end of a Ponzi scheme, the schemers speed up (as they
did in 2007), because they are desperate to hide losses in new
securities. Wall Street banks disguised the risk on their own
books, passed the problem to investors, or bet against their
own trash to make even more money.
CNBC Blames Taxpayers Not Banks’ Titanic Losses
and Enormous Bailouts
I
appeared on CNBC on Tuesday to discuss consumer protection. Everyone
else in
the clip below is on CNBC’s payroll.
CNBC editor Rick Santelli wants to blame taxpayers for a problem
created by Wall Street Banks (and denies predatory lending is
an issue). He suggests losses are the fault of individual borrowers,
yet is silent on the titanic losses and enormous bailouts for
the Wall Street Banks.
CNBC contributor Bill Isaac has long been a denier of mortgage
problems. In 2007, he told Mortgage Banking: “
I believe that [the housing market’s] already showing
signs of leveling out. I believe that over the rest of 2007
and 2008, we’ll be seeing the market stabilize and improve.
Generally as a nation as a whole, I don’t have any concerns.”
By 2007, dozens of mortgage lenders had already imploded.
Isaac is wrong again when he says banks were not involved. Here
are just a few examples: JPMorgan Chase bought troubled Washington
Mutual and Bear Stearns. Goldman Sachs ran Goldman Sachs Alternative
Mortgage Products. Bank of America bought predatory lender Countrywide
and Merrill Lynch.
Hundreds of billions of losses—not merely paper write-offs,
actual losses—have subsequently occurred due to foreclosures
and delinquencies. We’ve had a negative feedback cycle
of falling housing prices leading to more foreclosures and
delinquencies. Denial is not an option.
Give Taxpayers an Even Break: Banks were Responsible
Wall Street got bonuses, taxpayers paid the bill, America got
a deep recession, and the world got the worst financial crisis
in history. Financial holocaust deniers obstruct solutions that
can help prevent the next crisis and would stick taxpayers with
the bill again.
Janet
Tavakoli is the president of Tavakoli
Structured Finance, a Chicago-based firm that provides consulting
to financial
institutions
and institutional investors. Ms. Tavakoli has more than
20 years of experience in senior investment banking positions,
trading,
structuring and marketing structured financial products.
She is a former adjunct professor of derivatives at the University
of Chicago's Graduate School of Business. She is the author
of:
Credit
Derivatives & Synthetic Structures (John
Wiley & Sons,
1998, 2001), Structured
Finance & Collateralized Debt
Obligations (John Wiley & Sons,
2008), and Dear
Mr. Buffett: What An Investor Learns 1,269 Miles From Wall
Street (John Wiley & Sons
January 2009) Clients
of Tavakoli Structured Finance
have the benefit of proprietary consultation, which is
not available in any other paid or public forum. Clients
also commission proprietary research and analysis. TSF
makes some information available to the general public.Please
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