WSJ Video: The End of Wall Street – Part One
Here’s a credit-crisis video retrospective from the Wall Street Journal. It is chapter one of a three part series. Notice the Wall Street meme that subprime borrowers caused the crisis which is patently false. It’s all about dodgy credits and Fannie and Freddie? Total rubbish.
But, of course, if you say it enough, people might believe you. Read this post "Ten Myths about the Subprime Crisis" on Economist’s View to see the real story.
Easy money, as the clip says, is the culprit. And this money went into credit cards, leveraged buy outs, residential housing, student loans, commercial property and on down the line. It’s not about subprime, my friends I like the rest of it, but remember the Wall Street Journal has a certain bias and it is reflected here.
Chapter One: In the first of this three-part series, WSJ reporters explain how the housing bubble inflated and burst, and why easy money led to the collapse of Wall Street’s biggest financial institutions.
This WSJ video feels very dishonest. They seem to think that the source of the melt-down was a misguided altruistic effort to get more Americans owning their homes. They start with a discussion of government policy and very early on make the point that Fannie Mae and Freddie Mac were driving the market into lower interest rates relative to higher risk (the bogus Market Leader argument). Fannie Mae and Freddie Mac were not even engaged in sub-prime loans until Wells Fargo demanded of then CEO Dan Mudd in 2005 that Fannie Mae should be buying sup-prime mortgages from them or Wells Fargo was going to do business elsewhere. It was pressure from the free market side that drove Fannie Mae into the subprime business, not the government. In fact Fannie Mae had not been nearly as profitable as the numerous mortgages companies drunk on easy credit who had preceded them into this market by several years. They ended up playing catch-up, which ended up hurting them even more.
The notion that capitalists need a nudge of some sort to go after loan business with the credit-challenged is nothing short of goofy naive. They go after subprime business in many sectors of the economy as a matter of course because statistics show that it’s profitable. And they’ve been doing it for years with often very damaging effects for certain communities. Speaking of communities, the CRA didn’t cause the problem either. CRA doesn’t promote sub-prime lending at all. It’s purpose is to counter “red-lining.” Records show that CRA governed lending did not have foreclosure rates any higher than the averages.
That entire “government program” thread of thinking is completely bogus. It is true that the Fed was culpable. A Libertarian Fed Chief and a neocon President, both misguided by supply side theories they didn’t even understand made sure that the world was awash in money. That was their post dot-com, post-911 strategy. They ignored the fact that there was a growing middle class in many developing nations and that baby boomers were still fairly well heeled and looking for the next post-dot-com opportunity. Capital was flowing fine. The stock market needed to cool off and we needed to get back to real growth, not financial growth. The Libertarian and the Neocon stoked the fires ridiculously with easy credit and the wrong kind of tax breaks. The capital found its way to the seemingly tangible assets of real estate and started a new bubble. Meanwhile real incomes were being driven down by globalism and companies were wringing out every drop of productivity by laying off older and/or higher paid workers. In other words there were people with capital playing a frenetic game and people with working jobs who were borrowing to keep up.
None of this even dabbles in Wall Street’s actual misdeeds, but I had to offer this accurate counter-narrative since Wall Street’s own paper started the video out in the way they did. The rest of the video is then simplistic and certainly sheds no new light on the matter at all. There was better reporting from numerous sources. And what we know now makes this video even laughable.