Thursday, April 22, 2010


I read through the speech President Obama gave at Cooper Union today, and I'm pleased. I was actually pleased before the full text of the speech was released, when I read a preview of the speech and saw that it included this (emphasis added):

One of the most significant contributors to this recession was a financial crisis as dire as any we've known in generations. And that crisis was born of a failure of responsibility -- from Wall Street to Washington -- that brought down many of the world's largest financial firms and nearly dragged our economy into a second Great Depression.

Thank you, Mr. President. Thank you for not falling into the usual trap of saying "from Wall Street to Main Street."

Well, actually, the president did toss a bit of the blame Main Street's way -- but I give him credit for not making the typical lazy argument that "we" are all to blame equally:

...this plan would enact the strongest consumer financial protections ever. (Applause.) And that's absolutely necessary because this financial crisis wasn't just the result of decisions made in the executive suites on Wall Street; it was also the result of decisions made around kitchen tables across America, by folks who took on mortgages and credit cards and auto loans. And while it's true that many Americans took on financial obligations that they knew or should have known they could not have afforded, millions of others were, frankly, duped. They were misled by deceptive terms and conditions, buried deep in the fine print.

And while a few companies made out like bandits by exploiting their customers, our entire economy was made more vulnerable. ...

I'd go further in exonerating the public: frankly, I don't care how many speculators, house-flippers, and liar's-loan prevaricators sought mortgages that weren't right for them, because the simple fact is that no one was forced to offer bad loans in massive quantities. No one was forced to slice and dice those loans into ultra-slick investment instruments. And no one in the regulatory agencies was forced to do absolutely nothing as the potential risks resulting from all this escalated.

I don't resent the borrowers because they had no reason whatsoever to believe that their actions threatened anyone but possibly themselves and their families. What ordinary schmuck thinks that his or her individual decision to take a perhaps ill-advised loan without thoroughly absorbing the fine print is going to have massive consequences? Why would an ordinary citizen be aware of that possibility?

But the lenders understood, as did the financial world's mad scientists, and as did the (non)regulators.

Today's Wall Street Journal, unsurprisingly, implicitly tries to blame the borrowers for the deal over which Goldman Sachs has been sued by the SEC. It describes four of the real-life mortgage deals featured in the Abacus 2007-AC1 collateralized debt obligation.

The Journal's focus is entirely on the borrowers who got in over their heads. Mentioned in passing are the lenders -- First Franklin, Fremont Investment & Loan, and Washington Mutual. These were three of the top seven subprime lenders of the period 2005-2007, according to the Center for Public Integrity. Between them, First Franklin Corp./National City Corp./Merrill Lynch & Co., Long Beach Mortgage Co./Washington Mutual, and Fremont Investment & Loan/Fremont General Corp. wrote $194.9 billion in subprime loans in that three-year period. No one's going to tell me that that kind of massive lending was because ACORN and Barney Frank forced these guys against their better judgment to write loans they despised.

(No lender is ID'd for the fourth loan -- which is pretty remarkable in itself, considering that seven reporters worked on this story. If seven reporters from The Wall Street Journal can't manage to dig up the name of a mortgage lender, that says something about the opacity of this system, no?)

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