What Mitt Romney and Liar Loans Have in Common (Be Very Afraid)

As I watched Governor Romney in the presidential debate Wednesday night I was reminded of a financial tactic the candidate's political supporters and financial backers on Wall Street used during the mortgage boom -- the one that netted them billions of dollars while simultaneously pushing the American economy off a cliff.
This post was published on the now-closed HuffPost Contributor platform. Contributors control their own work and posted freely to our site. If you need to flag this entry as abusive, send us an email.

As I watched Governor Romney in the Presidential debate Wednesday night I was reminded of a financial tactic the candidate's political supporters and financial backers on Wall Street used during the mortgage boom--the one that netted them billions of dollars while simultaneously pushing the American economy off a cliff.

I'm talking about the liar loan, a line of credit based on smiling assertions without a shred of proof--the practice that helped flatten the mortgage market and gut the U.S. economy. This time around, though, the Governor was manipulating the truth not to score some jumbo re-fi deal (after all this is a man who could buy the White House outright), but to gain access to the U.S. Treasury and all the mechanisms of American fiscal and monetary policy. The loan he's looking for would be a four-to-eight-year instrument--one that would allow the nation's wealthiest Goldman Sachs-types to resume the looting of America that came to a screeching halt (or at least slowed dramatically) when President Obama took office.

Governor Romney's performance at Wednesday night's debate was solid. The pundits (even the true believers at MSNBC) said he won. The polls were a mixed bag. But it doesn't matter, really. What does matter is the extreme makeover Romney pulled off in the blink of an eye. Gone was the right-wing rabble-rouser who dissed 47% of the country. Gone was the Wall Street darling who promised to gut consumer protections and give huge tax breaks to the wealthiest among us. The new, politically improved Mitt Romney leveled a condescending gaze at the president and morphed into a pro-business, anti-Muppet moderate.

What are we to make of the fact that within 24 hours of the debate, the Governor told Fox News he had been "completely wrong" about that 47% comment in the video exposed by Mother Jones--you know, the one for which he refused to apologize two weeks ago? How should we read the fact that, in the time it takes for a hummingbird to flap its wings, Romney disowned his cronyistic $5 trillion tax cut for his friends and colleagues? The retooled Romney who showed up at the debate was suddenly passionate about regulating big business--and even claimed that a nouveau "Romneycare" would, lo and behold, cover pre-existing conditions. His campaign later said Romney had misspoken on this last point; still, it's amazing they didn't just shoot him with a tranquilizer gun as they watched him disavow the GOP platform, plank by plank, in the course of his supposed "big win."

Governor Romney's debate appearance was a classic bait-and-switch. For a riveting ninety minutes, he dangled the bait of moderation--vague, smiling words about business-friendly regulation and blue-sky economic recovery, unburdened by any indication of how he would get it done. Not the worst way to divert attention from everything he's said over the past few years to clinch the Republican Party's nomination--a list that includes aggressive deregulation of Wall Street, tax cuts for the wealthiest few, and cuts and privatization for the programs upon which millions of Americans depend, such as Social Security and Medicare. And, of course, the deficit's linchpin: Sesame Street.

Which brings us to the switch--the scam that could make this the biggest liar loan America has ever seen.

Also referred to as no-document or stated-income loans, liar loans were mortgages in which borrowers promised to tell the truth about how much they earned and owed. It was virtually an invitation to lie, and people did--many of them eagerly and egregiously. They told the story everyone (banks, credit unions, home builders, even government bureaucrats) wanted to hear, and everyone quietly agreed not to call them on it--or at least not until it was too late. When the crisis came and people at the Texas Hold 'em were "called" to show their hands after the last deal, their losses slammed into the American economy like a tsunami.

Now, when it comes to bluffing, it's clear we have a match. (Rolling Stone has provided the top five lies Romney told here.) The main difference is that while many people used liar loans to bootstrap their way into homes they couldn't afford, Governor Romney is trying to bootstrap his way into a job he is neither qualified nor trustworthy enough to do. But this time, Wall Street could be in line for a payout the likes of which the world has never seen--and, once again, the American people would be footing the bill.

Much of the blame for the liar loan's failure has been placed on the shoulders of greedy homebuyers, and rightfully so. But what about the Wall Street bankers who created the moral hazard of those loans in the first place? They were also responsible for the bait-and-switch at the institutional level with their mortgage-backed securities--and they profited enormously. It was Wall Street insiders who ratcheted down their own banks' lending rules to make liar loans possible, Wall Street insiders who lent the money, Wall Street insiders who used captured regulators to prevent states from protecting their citizens. Using tricks like super-low "teaser" interest rates, balloon payments, and indecipherable exotic mortgages, the inside guys conned millions of Americans into buying homes they couldn't actually afford. And unlike many of those homebuyers, who lost everything to foreclosure and bankruptcy, the mortgage mavens on Wall Street made out like "The Hole in the Wall Gang." They and their colleagues in financial services reaped billions of dollars in fees from selling the loans, servicing the mortgages, and foreclosing (even when other alternatives would have better served the consumer and the economy) when the loans inevitably failed.

The liar loan was the ultimate con, a gigantic bait-and-switch--one that left the entire nation on the hook for a painful period of unemployment and an excruciatingly difficult economic recovery. Mitt Romney's performance in the first debate was, in my view, a con structured on exactly the same lines--one where he works both sides of the deal and leaving the American people holding the bag.

Romney, Adelson, the Koch boys, and others equally clever but less public don't just want to loot the Treasury. They want to empty the pockets of Americans like you and me. To do it effectively, Romney's got a no-doc approach: "I'll tell you later." That's his mantra. We can safely assume that his version of a balloon payment will involve cutting taxes for the rich, which will blow a $5 trillion hole in the federal budget. His deceptively low teaser rate is repealing "Obamacare," which will add another $109 billion to the federal budget deficit. His idea of an exotic mortgage: destroy Medicare, costing senior citizens $3.9 billion extra on prescription drugs alone.

But the Governor's debate performance also showed that he understands how important it is to keep those facts hidden. The most deceptive thing about this latest Etch-a-Sketch version of Mitt Romney, and the scariest, is not that he avoided talking about the various impacts of his radical policy proposals. It's that he denied proposing them at all.

"I don't have a $5 trillion tax cut," Romney said during the debate. "I don't have a tax cut of a scale that you're talking about."

Or does he? Like all good financial instruments designed to dupe consumers (somewhat less common in the wake of Dodd-Frank and the advent of the Consumer Financial Protection Bureau) the most important details are buried in the wee words; in this case Romney's own campaign's website, which says he will "make [a] permanent, across-the-board 20 percent cut in marginal rates," costing the government $456 billion a year, or $5 trillion over the next decade. The "contrast" here is more conventionally called "a lie."

Romney's bait-and-switch is, of course, about money and power. But instead of the keys to your house (or in addition to them), he wants the keys to the White House. And he needs those keys because with them he can repeal the Dodd-Frank Wall Street Reform Act, which regulates predatory practices heretofore either unregulated or under-regulated and requires lenders of all stripes to be transparent and open about the terms they're promising. If that happens, the Consumer Financial Protection Bureau will be roadkill on the conservative superhighway. There will be no more peering behind the smoke-and-mirrors of Wall Street to protect consumers from getting conned. It will be all con, all the time.

Since the beginning, Romney has said one thing to his insider friends and another (and another and another) to the millions of American people who are his yellow brick road to the Presidency. To him, transparency is anathema. Snowing your marks with glittering platitudes of bipartisanship while stuffing anti-consumer plans into the fine print and stacking the deck with debunked conservative radicals is simply what he must do to make the sale. And it's all about the sale.

America has been conned by liar loans once already. Now there's another financial wiz at the door, proposing to mortgage America's future for massive short-term gain. Let him knock. Let him lie. Let him huff and puff. Let's show him how hard it is to blow down the brick house--sturdier by the day--that the President and the American people have begun to rebuild.

Popular in the Community


HuffPost Shopping’s Best Finds