Basic Job Qualifications for Politicians: Stupidity and/or Ability to Lie

Something tells me I need to step away from the political news for awhile.  I’m just blown away by all the information out there about today’s crop of political leaders that appears to be met with insouciance by many voters.  How can you support people that clearly don’t have their facts straight? First, I read that Herman Cain seems to be blissfully unaware that China has had nuclear capabilities for some time.  He seems to think they are “trying to develop nuclear capability”. Then, I watched parts of a speech given by Texas Governor Rick Perry Thursday night that was characterized by CBS as “giddy”    I can say that “giddy” wasn’t exactly the first word that came to my mind from having spent tons of time in the French Quarter happily surrounded by drunk gay men. Is giddy some new code word that means your gaydar has gone off big time? While Perry was talking about his ‘brother in Christ”, I had a feeling that there was a different sentiment stirring some where beneath his belt.   This speech made me believe ” THE  rumor”.

Then there was this “awful comment” yesterday by Mayor Bloomberg that I just can’t forget.  Bloomberg wants to forget about any role that the commercial and investment banks played in the financial crisis and blame the entire thing on Fannie and Freddie and the 1994 Community Reinvestment Act.  Fannie and Freddie exacerbated the entire problem but there is no way that poor people can be blamed for a speculative bubble.  Bloomberg simply ignores so many facts and studies that all I can say is that it was shameful to watch some one try to defer blame for incredibly high social costs on their political donor base.  He should be embarrassed at being so transparent or ignorant or capable of lying so badly.  I still can’t figure out which one is most applicable.

Here’s Bloomberg’s faulty analysis of the financial crisis:

This link from Rortybomb’s Mike Konczal has a lot of good information that debunks the obvious canards.  It uses peer reviewed studies not right wing canards and memes meant to promote the interests of the financial services industry.

The first thing to point out is that the both the subprime mortgage boom and the subsequent crash are very much concentrated in the private market, especially the private label securitization channel (PLS) market.  The GSEs were not behind them.  That whole fly-by-night lending boom, slicing and dicing mortgage bonds, derivatives and CDOs, and all the other shadiness of the 2000s mortgage market was a Wall Street creation, and that is what drove all those risky mortgages.

For some data, start here: ”More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions….Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.”

As Center For American Progress’ David Min pointed out to me, the timing doesn’t work at all: “But from 2002-2005, [GSEs] saw a fairly precipitous drop in market share, going from about 50% to just under 30% of all mortgage originations. Conversely, private label securitization [PLS] shot up from about 10% to about 40% over the same period. This is, to state the obvious, a very radical shift in mortgage originations that overlapped neatly with the origination of the most toxic home loans.”

The source of that bolded quote was the Federal Reserve Board, btw.  It clearly showed through reported data that the majority of bad loans came from the private sector, not Fannie and Freddie.  That’s not to say that Fannie and Freddied didn’t jump on board and add to the problem. It just shows that the clear motivator was not the Affordable Housing Act which was supported by both the Clinton and the Bush administrations.  Here’s some additional data that’s germane to the analysis.

• Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
• Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.

The numbers on subprime lending are extremely clear. The loans that were offered to the weakest borrowers–including NINJA or zombie loans–basically showed up during the housing bubble.  Most economists date that period from 2001 to 2007. The worst of the subprime lending occurred during 2004 to 2006 which is around ten years after the affordable housing laws were passed. Ten years is way too long of a window to try to connect bad lending behaviors to the bill.  The bad lending behaviors clearly came from institutions trying to profit from the speculative bubble.  There’s a really good graphic at McClatchey that shows exactly which 15 private lenders were most responsible for the problem.  I’m sure you’ll recognize the usual suspects.

The other thing that the Bloomberg diatribe ignores is the number of legal inquiries being made into the practices meant to speed up both securitization and foreclosure practices by private lenders.  There are many, many studies in the legal journals that show that the banks were quick to do both of these thing to earn fee income. Why would you foreclose on people if you wanted to have a huge portfolio of loans to poor and minorities to show the government?  Also, why would you sell them off?  Wouldn’t you want to keep them on your books to show you weren’t redlining?  The rush to foreclosure with inadequate documentation is just one example.  Mortgage appraisal fraud was another problem during the peak of the crisis. It just makes absolutely no sense that so many laws could be broken in the name of pleasing a government with an affordable housing agenda.  Clearly, these moves were profit-motivated because most of the banks securitized the loans to get rid of them from their books plus, the holders of the loans and the securities sought insurance to guard against default. They were moving the assets off their balance sheet and betting they all would default at the same time.

Economists and financial analysts are taking on Bloomberg’s comments all over the place.   Here’s one such article from Forbes. Barry Ritholtz characterizes Bloomberg’s comments as “extremely disappointing” and Bloomberg himself as “clueless” and “empty headed ideologue”.   The Forbes article points to further research indicating that Bloomberg’s comments fly in the face of the data.

In a February article for the Journal of Urban Affairs, Dan Immergluck shows how the Federal Housing Authority (FHA) hit the lending accelerator after the housing bubble burst. As the real estate market roared, FHA lending dropped to historic lows, only to rev back up once the subprime mortgage market bottomed out.

This clearly represents the ongoing break with reality that  characterizes the thinking and words of so many elected officials. It’s disheartening because I know that this seems more motivated by protecting ‘evil doers’ than the public.  It’s deliberately false, deliberating misleading, and creates an atmosphere where it will be impossible to correct laws and regulations that could prevent this from recurring.

I’m beginning to think that a requisite for running for office is the ability to lie or to deliberately remain ignorant of the facts.  I can look at politicians like Rick Perry, Herman Cain, Michelle Bachmann, and Sarah Palin fully realizing that they’ve only got primary colors in their school box and that they really have no desire to look for the rest of the rainbow.  However, Mayor Bloomberg can only be characterized as up to something because he has never struck me as stupid.

I call shenanigans!