Posts Tagged ‘subprime mortgages’


Special mention



Special mention

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Special mention

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The Center for Public Integrity has put together a three-part series on what has happened to the principals after the great meltdown of Lehman Brothers in September 2008.

  • The executives of the Wall Street banks: Richard Fuld (Lehman Brothers), Jimmy Cayne (Bear Stearns), Stanley O’Neal (Merrill Lynch), Chuck Prince (Citigroup), and Ken Lewis (Bank of America)—all “living in quiet luxury.”
  • The subprime lenders: “top executives from the 25 biggest pre-crisis subprime lenders—including at least 14 founders or CEOs— re back in the mortgage business at mortgage companies that are less regulated than banks.”
  • Their banks: “the major banks that survived the crisis, largely because they were saved with taxpayer money after being deemed ‘too big to fail,’ are now bigger and more powerful than ever.”
  • The government regulators: “most of the leaders of the agencies charged with oversight of the financial system—the SEC, Federal Reserve, Treasury, FDIC, and OTS—have moved on” while “many former regulators are cashing in on their experience—helping companies navigate reforms made after the crisis, writing books on their experiences, making a killing on the speaking circuit—or have retired quietly.”

Note: Cosmopolis accomplishes, in film, for the post-2008 meltdown what The Cook, The Thief, His Wife, and Her Lover did for Thatcherism.


Special mention

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The series continues with the Nine of Hearts: Angelo Mozilo.

Angelo R. Mozilo was chairman of the board and C.E.O of CountryWide Finance until July 2008. Countrywide was not so interested in sub-prime loans in the beginning when the sub-prime loan industry took off. Mozilo described the people involved with those loans at the time as “crooks”. But facing significant loss of business, Country Wide moved quickly into the sub prime business.

Mozilo used his fiscal power to give favorable mortgage financing to key political figures and power brokers. This included loans to Senate Banking Chairman Christopher Dodd, Senate Budget Committee Chairman Kent Conrad and former Fannie Mae CEO Jim Johnson. Other people received favorable mortgages to buy political favors. This included Nancy Pelosi’s son, Paul, Barbara Boxer, Richard Holbrooke, Donna Shalala and others wielding influence and power.

Mozilo sold hundreds of millions of dollars worth of mortgages over the years personally. The SEC charged him in 2009 with insider trading and securities fraud. He reached a settlement with SEC in 2010. He paid $67.5 million of a fortune estimated as over $600 million.

[the Birwood Wall in Detroit]

Beware of “The Ascent of Money,” produced by PBS and narrated by Niall Ferguson.

I’m currently using the two-hour version in my Commodities: The Making of Market Society course. (There’s also a four-hour version and, of course, Ferguson’s book of the same name.)

The program is very useful, starting with money as debt (and not as, as neoclassical economists often teach it, as the medium to overcome the limitations of barter) and passing through the various bubbles and busts of a monetary, financial economy.

But, in the section on the subprime mortgage crisis, Ferguson draws a straight line from federal redlining in the 1930s through the Detroit riots of 1967 and George W. Bush’s call for expanded homeownership to the crisis of 2007-08. He therefore leaves viewers with the impression that the housing crisis was a result of (a) federal policy (and not private mortgage lenders) and (b) too many mortgages to racial and ethnic minorities.

Don’t get me wrong: I’m glad the ignominious history of redlining is raised (a reminder of which is the Birwood Wall in Detroit). But what happened in the run-up to the subprime mortgage crisis was a combination of reverse redlining, as private mortgage lenders descended on minority neighborhoods to extract higher interest rates, and a plundering of working-class people, regardless of race or ethnicity, by private banks.

The result is both that racial and ethnic minorities have suffered from much higher subprime rates (and, then, foreclosure rates) than whites and that the majority of subprime mortages (and, later, foreclosures) were imposed on white homeowners.

Data from the Center for Responsible Lending make this clear.

So, my advice: go ahead and use Ferguson’s program to teach the commodification of money—but use it as an opening to a discussion of the a history of the role of money and finance in the United States and around the world that is much more complicated than Ferguson leads one to believe.