I Made a Mistake

Wanting to watch coverage of the second day of financial crisis Commission, I turned on CNBC.  Instead of hearing the regulators questioned by the panel, I was treated to an endless repetition of falsehoods.

The weird part is that the falsehoods weren’t tough to see, and didn’t require extensive study or research to unravel.

What I saw accepted as fact were a series of political talking points that could have come straight from a Newscorp political interns weekend getaway.  Did GE sell CNBC to Rupert Murdoch while I wasn’t paying attention?

Now if only the million dollar a year “reporters” at CNBC could bring themselves to do the basic research any journalist worth paying has to do.  How can they keep repeating outright falsehoods as facts?  Doesn’t anybody at their employer check them?

A list of four top lies about the subprime meltdown that CNBC helps propagate by asserting they are true:

1)  The banks and their regulators pulled off a massive fraud on America by pushing subprime mortgages.

In fact, about two thirds of the subprime securitization business was done by captive non-bank subsidiaries of Wall Street dealers.  Most of the rest of the business was controlled by non-bank finance companies such as Ameriquest and New Century and Countrywide (which also had a Primary Dealer under its non-bank financial company).  When reality rather than political bias is checked, you can easily find that 90% of subprime lending and securitization was NOT done by regulated banks.

Not opinion, fact.

2)  Fannie and Freddie are the real source of the problem.

The spectacular growth of subprime mortgage securitization from 2002 through 2007 was specifically at the expense of Fannie/Freddie market share.  There’s a reason we called the subprime business “private label,” as opposed to “Agency.”  So if Fannie and Freddie are to blame for the bubble, why did they actually securitize and guarantee fewer mortgages during the bubble, while Wall-Street controlled private companies took away over half the business?

Fannie Mae and Freddie Mac did NOT guarantee subprime MBS.

Not opinion, fact.

3)  All those subprime loans were being made to people who didn’t even have to show their income.

Those “no-doc” loans were part of another large non-Agency sector called “alt-A” for the fact that the loans were made to “A” quality credits with alternative documentation.  The definition of subprime is based on low credit scores, typically averaging FICO scores 640 or lower.  Alt-A deals featured high credit scores, typicallly averaging 700 FICO or higher.  That’s a world of difference.

Subprime mortgages were NOT “no-doc” loans as so many want to believe.

Not opinion, fact.

4)  The Community Reinvestment Act (CRA) created the problem by forcing banks to lend to bad credit borrowers.

This is probably the most absurd of all the outright lies the alleged reporters repeat.  First and foremost, those CRA loans weren’t even part of the pools of loans in subprime deals, since banks that made them needed to keep them on their books to suit their bank examiners.  A securitization involves selling the loans, which would defeat the purpose for a bank subject to CRA.  In case we forgot, over 90% of subprime mortgage loans were made by non-bank finance companies that weren’t subject to the CRA.

From the 1970’s until 2008 when literally everything went bad, those CRA loans were among the better-performing segments of the market, albeit a microscopic segment totaling a few billion dollars in a $7 trillion market.

Not opinion, fact.

I can’t recall the name of the politician who came up with the timeless bon mot “You are entitled to your own opinions, but not to your own facts.”

This certainly applies in spades when dishonest opinions based on bias morph into facts.  It should apply doubly to reporters, who should, in my opinion, at least insist on facts from themselves.


6 Responses to I Made a Mistake

  1. LB says:

    As a real estate appraiser for the past 20+ years, I’ve lived this story. Until reading this post point by point, I really had clear idea of who, what, when or where the responsibility laid for the mess we are in today. I heard yesterday at the Congressional committee hearings that one banker said that mortgage broker originated loans blew up twice as often as bank originated loans. I concur with that finding. Mortgage brokers were completely un-regulated, un-licensed and un-ethical and they became the scum of the Earth. LB

  2. duckedape says:

    I don’t see lie number 5. Please either add it or edit your promise to “the four top lies” to not appear as inaccurate as those you criticize.

    • hhill51 says:

      Thanks for catching me in my foolishness (and thanks for the morning chuckle)! I combined/eliminated one while editing into the silly typing box. The required change is coming right up!
      (PS I know a couple of red cabbage dishes; don’t care for it myself, so I’ll make a cabbage dish and then not partake. First round of modification suggests that ribs are the better cut for braising in that cider/celery/onion sauce.)

  3. CDrucker says:

    It was “The late Senator Daniel Patrick Moynihan, Democrat from New York, [who] said you are entitled to your own opinions, but not to your own facts.”


    “Alas, the first decade of the new millennium became a place where rhetoric is uncontaminated with facts.”

  4. Mark says:

    A close read of the fine print of the regulatory filings by Freddie and Fannie will uncover holdings of about $1 trillion Alt-A & sub-prime mortgages (I think they refer to them as non-conforming.). These loans were held on their books as investments. They were not wrapped and sold as agency MBS. It is these “portfolio investments” that caused Freddie and Fannie to need a massive bailout. When they got their first bailout in 2008, defaults on prime mortgages was in the 1% range for all prime mortgages, a manageable number.

    What is interesting to me is that these investments violate their charter, but nobody goes to jail.

    • hhill51 says:

      You are mistaken about the direct holding of subprime loans. They held AAA MBS backed by those mortgages, issued by others (mostly Wall Street subsidiaries).
      They did purchase alt-A whole loans and wrap them as MBS in portfolio under a couple of programs. Most alt-A exposure was also held in the form of senior securities with others taking the subordinated credit exposure, as wit the subprimes.
      The giveaway that you misread the filing is the size you quote. NO WAY there was $1 trillion of first-dollar credit exposure held at FNMA and FHLMC in two market sectors that peaked at $2 trillion total outstandings.
      That first bailout was based on projected future losses in the “prime” portfolio, not on the subprime or alt-A.
      Another example of re-writing history to suit an ideological bias.

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