It's not as if we needed a shiny new set of scandals to demonstrate how the 2008 financial meltdown was rooted in a massive, unchecked campaign of snake-oil peddling and predatory lending but, when it comes to emphasis, you could really do a lot worse than the recent news of documentary incompetence and outright fraud embodied by those whom Chris Lehmann refers to as "the last mortgage robo-barons."
But that's not stopping the efforts of those who'd lay the blame foursquare on the borrowers. To wit, CJR's Ryan Chittum discovers Fortune's Duff McDonald, spinning so hard for the banks that it basically qualifies as a tropical depression, meteorologically speaking: "Before we take the entire banking industry to task on the foreclosure mess, it bears reminding that the source of the problem is people who bought homes they couldn't afford. Let's blame them, too."
One: I am not a righteous fiscal (or social) conservative, spouting self-reliance. People make mistakes and they also experience sudden turns of fortune. But I find it very hard to process the notion that the onslaught of foreclosures in this country does not have more to do with a failure of conservative financial planning than with some insidious criminality by lenders. My wife has wanted a bigger house for years, but we have chosen not to buy one. Why? Because we couldn't afford it.
Two: Like most rational folk, I take issue with outright fraud. If laws were broken, send the crooks to jail. That said, I'm amazed that the country has congealed into the belief that every single borrower who signed a mortgage document has an escape hatch that somehow puts blame on their lender when they can't pay their debts.
That's basically the entire argument: in one corner, you have McDonald's household fiscal prudence and, in the other, you have a straw man borrower who has always insisted that they deserve an escape hatch. Chittum, who does an exquisite job fisking this argument (go read the whole thing), makes the obvious point:
I find it very hard to process the notion that revelations of mass-scale lender fraud leads to an unsupported attack on borrowers. Odder still, we have actual evidence of "insidious criminality" on the lender side. That's why the feds are investigating.
As for McDonald's cri du coeur, "Send the crooks to jail!" -- well, that's adorable, really. But where does McDonald think we're living? Some nation with a robust sense of justice, like Hungary?
The hilarious irony of the robo-foreclosure scandal is that these lenders might be brought low by the investor class itself, which might finally extract the pound of flesh in the form of "put-backs." If you missed it, Kai Ryssdal and Bob Moon of NPR's Marketplace had a great explainer on this last night:
MOON: Exactly. Remember we talked about these mortgage-backed securities that were sold to investors, either private funds or the government-backed mortgage-investment giants? They bought up the proceeds from pools of mortgages that get packaged up in the form of these securities. Now the financial industry calls it a "put back" when the bank or lending institution is forced to buy back the mortgage-backed security at face value -- essentially give a refund to the investors who bought it -- because there was something faulty about the way it was issued or sold.
RYSSDAL: O.K. make the connection for me then, between the foreclosure slowdown we've been hearing about the last couple of weeks with all these paperwork problems and this developing problem of the mortgage bond market.
MOON: Well, this logjam focused a spotlight on the problem of faulty documentation of these mortgages, and we all know that's thrown a wrench into the foreclosure process. But analysts are saying this "put back" problem goes beyond that, because we're not just talking about people not making their mortgage payments, we're talking about whether the banks can be held liable for misrepresentation or fraud for those bonds and if they'll be on the hook for tens of billions in "put backs." Already Bank of America has paid out more than $3.3 billion to settle claims stemming from faulty underwriting or documentation.
RYSSDAL: So they're paying out some money but they are also saying, out of the other side of their mouths, listen this is simple a paperwork drill. We will fix this, there will be no problem with the bond market; trust us, basically.
MOON: Yeah I'll tell you about what the investors are saying: "I'll see you in court."
With bond giant PIMCO, private-equity titan BlackRock, and the Federal Reserve of New York calling out the lenders for fraud, we might finally get to witness the sort of justice that only the plutocracy can purchase. And for those taking McDonald's "Save Our Bluths" position on the matter, it's becoming something of a lonely island. For a lifeboat, let's kick it back to Lehmann, with a fitting reminder:
In the face of such outrages, we could do a lot worse than remember Samuel Johnson's crisp assessment of the inequities of the British debtor prison: "Those who made the laws have apparently supposed, that every deficiency of payment is a crime of the debtor. But the truth is, that the creditor always shares the act, and often more than shares the guilt, of improper trust...and there is no reason, why one should punish the other for a contract in which both concurred."
Fortune Writer Steps Up for the Banks [CJR]
It's time to stop blaming the lenders [Fortune]
"Put backs": A refund for banks' investors? [Marketplace]
Rich People Things: The Last Mortgage Robo-Barons [The Awl]
PREVIOUSLY, on the HUFFINGTON POST:
Nine Stories The Press Is Underreporting -- Fraud, Fraud And More Fraud