Much of Time's "25 People to Blame" is a sham. Instead of pinpointing culpability among the key players, it deflects blame away from Republicans and falsely implicates Democrats, to create a muddleheaded "plenty-of-blame-to-go-around" narrative.
For a sense of how Time distorted the facts, imagine an article on 25 people deserving blame for the Iraq quagmire. And then consider a passage like this: "When he ordered the bombing of Iraqi security targets in December 1998, Bill Clinton began a policy of continuous escalation that led to the full scale invasion in March 2003. Like Clinton, Bush had aggressively supported the U.N. inspection regime, but it can't be denied that the burdens of a 140,0000 troop occupation occurred under his watch." Time's article on the financial crisis is even more misleading.
The article's phony and contrived "balance" serves as fodder to conservative talking heads who, perversely, are given a platform for falsifying the history of the financial crisis. Remember, sixty years ago nobody asked Albert Speer to critique the Marshall Plan, but today Larry Kudlow spins for five hours a week on CNBC.
Here's how Time got it very wrong. But first,
A brief precis about what really happened. (Feel free to skip over this, and go to corrections on the 25 People.)
CNBC's David Faber confirmed that the problems all occurred during the Bush Administration. "There was a precipitous drop in [residential mortgage] lending standards that took place in this country... from 2003 until 2006," Faber told Charlie Rose. "Wall Street [] became a much larger player in those securitization markets, beginning in 2003 right through 2006. They did not apply the same lending standards that did Fannie Mae and Freddie Mac to originators, and that is where the balance shifted significantly..."
Why was there a drop in lending standards? Several reasons:
The rating agencies stopped performing independent analysis of mortgage pools. In March 2001, Standard & Poor's started rating real state investments without first going through the analytic review process. As reported by Bloomberg, S&P and Moody's would rely on each other's analysis and "substituted theoretical mathematic assumptions for the experience and judgment of their own analysts. Regulators found that Moody's and S&P also didn't have enough people and didn't adequately monitor the thousands of fixed-income securities they were grading AAA."
Then, in August 2004, reports Bloomberg, Moody's took another step to subvert the independent ratings process. It removed the diversification criteria used for rating collateralized debt obligations, or CDOs. Subprime mortgage CDOs, of which about 3/4 were rated AAA, took off.
The investment community's reliance on AAA ratings cannot be overestimated. Although bankers and regulators are obligated to do independent analyses, they still tend to reference the agencies' opinions as a benchmark. Trillions of dollars of AAA securities were held by banks and others in the belief that they would pay out at close to par.
In 2003 the Bush Administration opened the floodgates to predatory lenders.
"Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye...[though] the Office of the Comptroller of the Currency (OCC)."In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules...But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks." "Predatory Lenders' Partner in Crime," By Eliot Spitzer, The Washington Post, February 14, 2008
As for unregulated mortgage lenders, Greenspan ignored his duty to provide regulatory oversight. In the aftermath of the S&L crisis, unregulated lenders were becoming a major force in mortgage lending, so in 1994 the Democratic congress passed the Home Ownership and Equity Protection Act (HOEPA) directing the Federal Reserve protect the public against predatory lenders. Greenspan, warned repeatedly about the problem, refused to do anything.
How did the drop in lending standards play out?
Fraud and predatory lending took off. The primary participants of the fraud, the mortgage brokers and mortgage lenders, were not subject to any real regulatory oversight. Consumers went to mortgage brokers, who got bigger upfront fees from steering their customers to subprime mortgages. The loans were issued by mortgage lenders like Countrywide Financial, which then packaged and sold the loans to investment banks. Because there were no protections against predatory lending, consumers got mortgage loans that they could not afford to repay. Loans had teaser rates of 3% for the first two or three years, before the monthly payments doubled or tripled.
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