Easy Thursday Morning Fisk

Because I know that Sunny likes to have a high Wikio ranking and this is an easy fisk:

Here’s an excerpt from the New Yorker:

You’d think the Street would have learned its lesson. Instead, it’s now threatened by an even bigger back-office crisis: Foreclosuregate. Banks, faced with a flood of delinquent mortgages resulting from the bad loans they made during the housing bubble, have done exactly what the brokerages did forty years ago: they’ve cut corners. They’ve foreclosed on homes without having the proper documentation, and relied on unqualified people to sign affidavits attesting to things they didn’t know—so-called “robosigners.” In a few cases, they seem to have actually tossed people who didn’t have mortgages out of their homes.

As a result, federal regulators and attorneys general in all fifty states are now investigating. And, in the weeks since the scandal first erupted, other issues have appeared, calling into question the legitimacy of the way mortgages were packaged and sold, and raising the possibility that the banks might have to buy back piles of bad mortgages. Forecasts of “catastrophe,” “Armageddon,” and “apocalypse” have now become routine.

Doesn’t look like this crisis will explode, but it shows the extent to which banks deliberately and callously oversold mortgages. There’s still major bad debt on those books. This crisis isn’t going away anytime soon…

I'll concede that 'bankers' aren't blameless but Sunny is over egging the pudding somewhat with this line:

...but it shows the extent to which banks deliberately and callously oversold mortgages.

 Now... let's operate on the not so risky rational that at least 80% of the time people act rationally from their perspective.

Put yourself in the shoes of an investment banker, their job is to buy and sell things to make a profit.  The progression of their career is dependent upon how much profit they make.  The quality of their life and retirement is dependent (in part) upon how successful their career is.  So the rational action for an investment banker is to make profit on transactions.

The US government wants more people to own their own houses so they promote the building of low cost housing and the financing of mortgages for people to buy them.  All well and good...

...Until the Fed raises interest rates, the once cheap credit (i.e. cheap affordable mortgages) is no longer cheap and people can no longer afford their repayments... sub-prime mortgage market is born.

Eventually more and more people defaulted and the dominoes began to fall leading to the 'Credit Crunch' and the 2008-2009 recession.


Back to Sunny's line:

...but it shows the extent to which banks deliberately and callously oversold mortgages.

 Did the banks deliberately over sell mortgages? Yes.  Did they do it callously? No.

Bankers were just doing what they get paid to do, credit was cheap at the time and the risk fairly low and the US government had just opened a previously inaccessible market to them (think Yukon gold rush).  They aren't the only ones to blame for the economic crisis and there is a lot of blame to go around.  I don't think that I could list all the peoples and groups who have had some impact worldwide that exacerbated the problem.

So the banker bashing is pointless, quit it.