Obama is speaking at Cooper Union, in the heart of
the New York financial district, which AP describes as follows (emphasis mine):
Ramping up pressure for a financial overhaul, President Barack Obama is heading to the place where the economic meltdown began to argue for stronger government oversight of the industry and to urge Congress to finish a regulatory bill quickly. Otherwise, he says, we are doomed to repeat the past.
This is the narrative the administration wants, it all was Wall Street’s fault.
The economic meltdown, however, did not start on Wall Street any more than high health care costs were the result of evil pharmaceutical companies which sold you the expensive red pill rather than the less expensive blue pill; or the greedy doctors who performed unnecessary surgeries to make more money.
All these false Obama administration narratives have a commonality; they demonize an identifiable enemy and they avoid blame being placed on government policies.
The reality is that the economic meltdown began with federal government policies which kept interest rates artificially low and forced banks to abandon traditional lending practices in the name of home ownership for all. These policies started under the Clinton administration, and continued under the Bush administration.
Democrats, including people like Barney Frank and Chris Dodd, fought hard to avoid Bush administration attempts to reign in Fannie Mae and Freddie Mac.
I have spent most of my professional life suing Wall Street firms, so I have no sympathy for the many bad practices which have ripped off investors. But just because Wall Street has engaged in some bad practices does not mean Wall Street is responsible for everything that goes wrong in the economy.
Wall Street was an accomplice in the housing bubble in the sense that the securitization of the mortgages provided a cash flow which allowed the bubble to grow. But honesty requires the acknowledgement that Wall Street did not create the housing bubble or cause it to burst.
No bad mortgage lending practices, no housing bubble. No bad mortgage lending practices, no economic meltdown. No bad mortgage lending practices, no bad bets on the housing markets. It was the bad mortgage lending practices, stupid.
The economic meltdown started with the people in government — including many of the Democrats who now are pushing for “reform” — who corrupted the credit practices of banks and other lenders in the name of progressive policies. The same policies which will cause our heath care system to collapse.
And that is a narrative this administration will do anything to avoid, hence the demonization of Goldman Sachs and others. Hence Obama taking the fight “to the place where the economic meltdown began.”
Except that it didn’t. The place where the economic meltdown began was in the offices of Fannie Mae and Freddie Mac, the Federal Reserve, the White House, and the halls of Congress.
If Obama wanted to visit the place where the economic meltdown began, he could have walked there in just a few minutes.
Update: The Wall Street Journal has a good article about the bad mortgages behind the Goldman Sachs deal, The Busted Homes Behind a Big Bet:
The government’s civil-fraud allegation against Goldman Sachs Group Inc. centers on a deal the firm crafted so that hedge-fund king John Paulson could bet on a collapse in U.S. housing prices.
It was a dizzyingly complex transaction, involving 90 bonds and a 65-page deal sheet. But it all boiled down to whether people like Stella Onyeukwu, Gheorghe Bledea and Jack Booket could pay their mortgages.
They couldn’t, and Mr. Paulson made $1 billion as a result.
Here is the description of one of the soured mortgages from the WSJ article:
One mortgage in the Abacus pool was held by Ms. Onyeukwu, a 43-year-old nursing-home assistant in Pittsburg, Calif. Ms. Onyeukwu already was under financial strain in 2006, when she applied to Fremont Investment & Loan for a new mortgage on her two-story, six-bedroom house in a subdivision called Highlands Ranch. With pre-tax income of about $9,000 a month from a child-care business, she says she was having a hard time making the $5,000 monthly payments on her existing $688,000 mortgage, which carried an initial interest rate of 9.05%.
Nonetheless, she took out an even bigger loan from Fremont, which lent her $786,250 at an initial interest rate of 7.55%—but that would begin to float as high as 13.55% two years later. She says the monthly payment on the new loan came to a bit more than $5,000.
She defaulted in early 2008 and was evicted from the house in early 2009.
Next headline circa 2015? “Wall Street Caused The Collapse Of The Health Care System.”