Klaavan: How Network News Helped Bring About the Crash

When we seek out the causes and culprits of our current economic crisis, there is one area in need of reform that should not be overlooked:  the mainstream news media.  It is not too much to say that the people in the NBC, ABC and CBS news operations were major contributing factors to the crash of 2008 and are helping to pave the way to future economic troubles now.

In the book Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon, authors Gretchen Morgenson and Joshua Rosner tell how, in the early nineties, faulty or skewed studies by ACORN and other groups fed the idea that there was pervasive racial bias by mortgage lenders, with blacks and Hispanics being unfairly rejected for loans.  “The findings lit up the media, confirming many people’s suspicions about banks’ lending practices,” the authors write of one such study.  In fact, properly interpreted, the data suggested that banks were making their loans not on the basis of race but on the basis of credit-worthiness.  But as the misinformation confirmed left-wing ideas, the media pressure was on for a government fix.

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7 Responses to Klaavan: How Network News Helped Bring About the Crash

  1. FredR says:

    Good article – but the Media Party (both in the US and in Canada) won’t change it’s ways until it’s at the cusp of destruction. At home, even the rise of Sun Media won’t be sufficient for journalistic reform: only when grants stop flowing and customer stop buying and advertizers stop paying – only then will the MSM reform itself.

    Unfortunately, I don’t think we’re at that juncture, yet.

  2. Cy says:

    Ha, blaming darkie again. Two problems with that comforting conservative view -

    Problem: Nearly 2/3 of subprime loans were re-fi’s not new homes. People were using their homes as ATM’s, cashing in on the rising value
    Problem #2: The mortgages were rolled into bonds (add more value), which were rolled into CDO’s (add more cost), demand for which spawned synthetic CDO’s (theoretically infinite more cost since they were based on derivatives). What killed the banking system wasn’t a few bad loans so much as the fact that an infinite number of side bets could be based on these bad loans.

  3. nomdeblog says:

    “What killed the banking system wasn’t a few bad loans so much as the fact that an infinite number of side bets could be based on these bad loans.”

    That’s a circular argument of what came first …the chicken or the egg?

    If the government had not intervened over decades into the risk management of the banks, muscling in with the race war machine of ACORN and using the Community Reinvestment Act as a battering ram on banks; then the underlining product of mortgages would have been solid enough upon which to base “synthetic derivative CDO MUMBO JUMBO”.

    The problem started with too much government intervention!

    “What killed the banking system wasn’t a few bad loans so much as the fact”…. That over decades conflicts of interest have piled on between regulators, Fannie and Freddie, ACORN, Community Reinvestment Act, the credit rating agencies, on and on. Let’s hope this new book Reckless Endangerment is the start of appropriate analysis of crony capitalism between big regulated businesses and their political masters that have corrupted the USA for too long. It is a big mess but accepting that fact is a first step to fixing it. We had a similar problem between the Liberals and Power Corp. That seems to have been sufficiently disclosed to permanently weaken that corrupted juggernaut.

    Canada listen up. Don’t monkey with the free markets and the assessment of financial risk.

  4. Cy says:

    That’s a circular argument of what came first …the chicken or the egg?

    In this case it was the chicken. The side bets were derivatives (e.g. Credit Default Swaps) which by definition derive their value from an underlying financial instrument (in this case, the Mortgage Bonds). So a default on a $10M mortgage bond could actually cost $50M or more depending on how many dervatives are based on the chance that the mortgage bond doesn’t tank. Since a default swap is basically insurance (against the chance THAT many people can’t pay their mortgages), you can take out as many “policies” as you like. That’s what happened since “the price of housing never goes down” :)

  5. nomdeblog says:

    Cy you start off on the right foot with “by definition derive their value from an underlying financial instrument”. But you need to follow through with the ultimate “instruments” being the mortgages themselves and that is what the government toyed with.

    Furthermore you don’t need to be a financial expert to understand what went wrong. The mortgage bonds were bad because the government mortgage policy was bad and the government intervention situation had been getting worse and worse since Jimmy Carter in 1979.

    Here’s the critical path:
    Bad government mortgage lending polices begot bad mortgages which begot bad mortgage bonds which begot bad derivatives.

    It all started with flawed government intervention…that’s what this new book is finally starting to expose and until we get that through our heads we will have learned nothing from the financial fiasco. Because what has happened by leaving the government out of the equation of this debacle is to have left the foxes in the hen house; e.g. perpetrators like Chris and Dodd have actually been allowed to design “Financial Reform”. That’s insane.

  6. Cy says:

    The policy of getting those contemptible poor people into home ownership has been around for decades and was never merely a tool of the left – high home ownship is considered good for the economy and very good for a nation whether social security is seen as unstable.

    Your critical path is wrong. Subprime mortgages took off in the private sector long before Fanny got into the act. Private enterprise works for profit, not public goods. Moreover, if nearly 2/3 of the mortgages are re-fi’s, as stated before, and you accept that subprime mortgages were not just used by extremely risky customers, then your “ant and grasshopper” interpretation of what went wrong applies to less than 1/3 of subprime mortgages.

    So what about that rest, nom? What about the people who simply used subprime to take cash out of the appreciating values of their homes? Is that ACORN’s fault as well?

    Also, it is unconscionable for you to completely omit the Federal Reserve’s role in this. Getting poor people into houses or getting refinancing with low teaser rates was not possible until the fed rates dropped dramatically. This was done to spur all that growth that Reaganites like to brag about (and also to restart growth after 9/11).

    http://en.wikipedia.org/wiki/Alan_Greenspan#Housing_bubble

    Basically it was an across-the-board tax decrease that also allowed the government to devalue its existing deficit. Turns out it also made low rate lending easy. Go figure.

  7. nomdeblog says:

    “The policy of getting those contemptible poor people into home ownership has been around for decades and was never merely a tool of the left – high home ownership is considered good for the economy and very good for a nation whether social security is seen as unstable”

    Cy …one more time with feeling…I said this has been around since 1979. All Parties are guilty of bad policy.

    “what went wrong applies to less than 1/3 of subprime mortgages.”

    Cy that is 33% and a typical bank has less then 10% capital…33% wipes it out 3 times over.

    “Also, it is unconscionable for you to completely omit the Federal Reserve’s role in this.”

    No it is not unconscionable …I’m not the President, I’m just posting some thoughts… not writing a book …lighten up Cy.

    I’m not blaming ACORN for everything, or any other entity for everything…there is lots of blame to go around …including the greedy middle class voter who liked the ATM attached to his house. The point here is that this book is about blaming the government as one of the many contributors to the problem …that plus the same perps in the government that ran Fannie and Freddie are being exposed for the first time as being the same guys as doing the Financial Reform …. that is stupid and dangerous.

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