Republican Members of FCIC to Promote Crisis Urban Legends, Shift Blame From Banks

[Hannah Bell]

Lordie, the Big Lie is with us in force.

The New York Times reports that the Republican members of the Financial Crisis Inquiry Commission are going to pre-empt the report (due in mid-January) and issue their own 13 page screed later today focusing blame for the crisis on…Fannie and Freddie, and no doubt the CRA too.

Let’s look at a few inconvenient facts. We had housing bubbles in the UK, Australia, Ireland, Spain, Iceland, Latvia, Canada, and a lot of Eastern Europe. Can we blame the CRA and Fannie and Freddie for that? How about the M&A boom, which resulted in a ton of leveraged loans being issued at super low spreads?

If the Fed and other central banks had not driven rates to the floor, we’d see a good bit more distress and dislocation in this sector of the market. Oh, and how about the fact that banks in Continental Europe, which had no housing bubble in their home markets, and no evil Fannie or Freddie analogues, also nearly keeled over in the crisis?

This whole line of thinking is garbage, the financial policy equivalent of arguing that the sun revolves around the earth. Yes, the US and other countries provide overly generous subsidies to housing, and curtailing them over time would not be a bad idea.

But that’s been our policy for decades. Calling that a major, let alone primary, cause of the crisis, is simply a highly coded “blame the poor” strategy.

In reality, both the runup to the crisis and its aftermath were on of the greatest wealth transfers from the citizenry at large to a comparatively small group of rentiers in the history of man.

The intent is pretty transparent: to discredit an effort at fact finding into the roots of the crisis, what was hoped to be a Pecora Commission, by making it appear partisan and launching an alternative narrative to muddy the waters.

And the reason is clear. Even though FCIC is certain not to have the same effect that the Pecora Commission did, of discrediting major financial services industry figures and exposing various forms of chicanery, it appears that even lesser forms of criticism of the banksters must be sandbagged (the bizarre part of this drama is that at least some Democrats and very selectively, Republicans in office are willing to call out the predatory, extractive behavior of the large banks. But no one has the guts to buck an industry that is a major paymaster in a very serious way).

...Perversely, this development may be a positive indicator on several fronts. First, the FCIC report may be tougher and more probing than I dared hope. The New York Times indicates, for instance, that it highlights the role of CDOs, an area our research (both here and in ECONNED) indicates was rife with abuses and also central in the crisis.

It may also suggest that the banking industry is feeling more cornered than its continued high-handed posture might suggest. I continue to receive reports from industry insiders confirming that the biggest banks in the US are insolvent.

The only sensible resolution of the mortgage mess involves deep principal mods, which will force the top four banks to write down their second mortgage books, blowing big holes in their balance sheets, and raising numerous, embarrassing questions (how could they and the Treasury defend paying back the TARP, much the less the level of 2009 and 2010 bonuses?)

http://www.nakedcapitalism.com/


This is the same industry which is bringing you Michael Milken's comments on how the middle class has too much house.

The ruling class is going to cut back its subsidies to middle-class housing; (they cut off subsidies to low-income housing long ago).

We can become more like Europe, where most people rent, & the rentier class lives on those rents.

[Hannah Bell]

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