seeking knowledge and laughter, putting a bullseye on inaccuracy

The Great Recession was Caused by Wall Street, Not All of Us

I just finished reading the memoir, Bull by the Horns by Sheila Bair, former head of the FDIC - which insures our bank deposits and is responsible for preventing more banking crises than you can imagine. It is a very good intro to how government regulators failed to stop the incredibly stupid gambling on Wall Street by irresponsible banksters.

A shorter article that overlaps some with the book is helpfully entitled, "No, Americans Are Not All to Blame for the Financial Crisis: Exposing the big lie of the post-crash economy" by Dean Starkman. He nails it and I plan to add his book to my reading list.

In the short article, he debunks the common sentiment that we are all to blame for the Great Recession.

The alleged responsibility that the average American bears for the crisis rests largely on the notion that people knowingly (key word) took out bigger, riskier loans than they could afford—and that they all decided to do it rather suddenly around 2004. Which, see, that’s crazy right there.

...

In 2010, an FBI report drawing on figures from the consultancy Corelogic put total fraudulent mortgages during the peak boom year of 2006 at more than $25 billion. Twenty-five billion dollars is obviously not nothing. But here again, teasing those mortgages out of that year’s crisis-related write-downs of $2.7 trillion from U.S.-originated assets leaves our infamous “cagey” borrowers to blame for only a tiny share of the damage, especially since not all of the fraudulent mortgages were their fault.

Bair's book touches on the notion that spurred the creation of the tea party - that the crisis was created by people who bought too much house. But a stunningly high number of home owners that got into trouble were people who simply refinanced their homes with a company that lied to them and basically committed fraud.

Michelle and I bought our house almost 5 years ago and refinanced it last year. We chose banks we believed we could trust because it simply is not possible for the average home owner to understand all the forms we have to sign. We did the best we could and trusted the bank to the do the rest.

In a modern country with basic oversight, that shouldn't put anyone at risk of losing their home but it did because the regulators failed. The lesson is not to get rid of the regulators but rather to reform our government so powerful interests cannot buy the laws they want to screw us.

Something that comes in the Starkman article reminded me of just how important race still is and how disadvantaged some populations remain despite the progress we have made over the past 50 years.

At the height of the madness, when subprime made up an insane 27 percent of the multitrillion-dollar home-loan market, nearly half of new African American mortgage holders found themselves in one. Black and Latino borrowers with credit scores of more than 660 were more than three times as likely to be in a subprime loan than their white counterparts.

The article finishes strong, reminding us why the narrative that "everyone is to blame" is so powerful.

Sorry, everybody was not to blame. “We” didn’t all do it. “Main Street” didn’t succumb to a new tulip mania, and cheap credit didn’t expose anything but the corruption and immorality of a financial industry that systematically put huge numbers of even credit-worthy borrowers into defective products. Cultural theorizing—especially the evidence-free kind—should be seen for what it is: an exercise in complacency. It’s easy. And it’s what you lean on when you don’t want to take on structural problems, the kind you actually have to do something about.

We didn't all do it. The truth doesn't always lie in the middle of competing claims. Sometimes you have to work to understand something and when you don't, democracy fails.

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