We would like to comment on today’s lead article in the Opinion Section of the Wall Street Journal. Rather than reproduce it here, we’ll ask you to google Barack’s Last Bank Bash – WSJ and read it at length, if you care to. It is effectively another attempt to exonerate big banks from having caused the Great Recession.
In the third paragraph we read: The government’s lawsuit accuses Barclays of defrauding investors who bought its mortgage-backed securities in the years leading up to the financial crisis. The allegation is that the bank didn’t disclose how bad the underlying loans were. But the government acknowledges in its complaint that Barclays was also an investor in most of the securities at issue, and that it was often buying some of the riskiest slices of the deal. Was Barclays defrauding itself?
Yes, of course, that is exactly what it was doing. Don’t we all remember that hilarious scene in the movie, The Big Short, based on Michael Lewis’s book of the same name, when Christian Bale, the actor, playing Mike Burry, the stock market investor, who has just discovered the fraud being perpetrated by the big banks with subprime mortgages on themselves, is grinning with triumph. Of course, these big banks were quickly passing the bundles of subprime mortgages on to other investors, not to get caught themselves. But, yes, they were defrauding themselves in the process and this is what Mike Burry caught and used to make himself millions in betting against them.
Mike Burry in exultation, upon discovering the cupidity and stupidity of the big banks in the movie The Big Short
Later on we read: In announcing that deal, then Attorney General Eric Holder called Citi’s conduct “egregious.” Mr. Holder said the bank had “contributed mightily to the financial crisis that devastated our economy” and spoke of shattered lives allegedly caused by the villainous firm. But that was so 2014.
Now we are asked to believe that this mastermind of an international plot to defraud investors was simultaneously taken in by a nearly identical plot cooked up by a rival rogue organization. Amazing. Will Citi now get some of its $7 billion back to reflect its new victim status?
The point, brought up in both the movie and the book, is how stupid and blind these banks were in their cupidity to realize a profit from these bad mortgages and how easily caught out they were by a quartet of keen young investors—not how villainous.
And, yes, the actions of these banks, whether villainous or merely stupid, was mostly responsible for the Great Recession and for shattering the lives of thousands of would-be home owners sucked into these untenable mortgage deals. May we remind you of another film 99 Homes which documented the devastation these subprime mortgages brought into the lives of the true victims of this deplorable housing scam. Sometimes the cold cruelty of these editorials that pit giant financial institutions against vulnerable flesh and bone, always to side with the former, is too much to bear and needs pointing out.
Young dispossessed couple from film 99 Homes