Wednesday, April 15, 2009
The New McCarthyists, Part II: Where the Culprits Are
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Everyone wants to blame somebody else for the financial crisis.
Rick Santelli wants to blame the homebuyers. Jon Stewart wants to blame Rick Santelli and Jim Cramer. Jim Cramer wants to blame short-sellers. Short-sellers want to point out that they never loaned a dime to anybody, subprime or not—and, besides, it was bulls like Jim Cramer encouraging innocent investors to stick with stocks like Bear Stearns, not short-sellers.
But nobody listens to short-sellers, because, as one letter-writer reflected the common wisdom in Barron’s this weekend,
“Shorting caused the demise of financial companies that were intentionally targeted by short players.”
That this statement is false doesn’t particularly matter to Jim Cramer—or even Barney Frank or Chris Dodd.
Nor does it matter to the New McCarthyists that thus far nobody has put forth any name of any financial company that was “intentionally targeted” by any short-seller.
Ironic it is, then, that the same weekend Barron’s was reprinting this most comforting New McCarthyism, its sister publication, the Wall Street Journal, was about to publish a detailed look at the where the real culprits behind the “demise of financial companies” are: the mortgage brokers.
In April 14th's “Older Borrowers, Out in the Cold,” reporter Ellen Schultz lays out in cold, hard facts—as opposed to the vague, nameless short-selling conspiracy theories—how mortgage brokers destroyed the banking system along with peoples’ lives:
YUBA CITY, Calif. -- In 2006, Carol Couts, a 66-year-old widow in Yuba City, Calif., was living in her home, payment-free, when a mortgage broker persuaded her to refinance her no-cost mortgage for one that exceeded her monthly income by more than $400.
She can't afford the payments, and unless her lender modifies the loan to make it affordable, she'll lose her home of 25 years. She's given away most of her furniture and her cat, and packed her belongings in cardboard boxes. "We've got nowhere to go," she says, referring to herself and her dachshund, Ollie….
In 2007, she received numerous phone calls from a mortgage broker named Daniel Lewis. According to Mrs. Couts, he told her he was contacting seniors to warn them that banks were canceling reverse mortgages because they were unprofitable. She would have to refinance her home, he told her, or lose it. (This wasn't true; reverse mortgages generally aren't repayable until death.)
Mrs. Couts's first statement showed she had an adjustable-rate mortgage with an initial interest-only monthly payment of $1,333. She soon defaulted, and Wachovia Corp. -- which had acquired World Savings & Loan, the firm Mr. Lewis worked with -- started foreclosure proceedings….
Mr. Lewis couldn't be reached for comment.
—The Wall Street Journal, April 14, 2009
Mrs. Couts, unfortunately, is not the only victim whose loss at the hands of unscrupulous mortgage brokers the article details.
But her experience—and you should read the entire article, from start to finish—is, in microcosm, the true story of where the blame for the financial crisis lies.
Looking for culprits?
Go where the mortgage brokers are.
I Am Not Making This Up
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Posted by Jeff Matthews at 11:04 AM