It’s about personal responsibility. No one made people buy these cars

If you’re wondering where these ridiculous, hare-brained comments are coming from, then watch this video and listen to Rick Santelli speak about predatory lending. The only one who acquits herself in this segment is Janet Tavakoli.  Bill Isaac, a former FDIC head – the guy talking about regulation as if commercial banks are already subject to strong regulatory enforcement – must be smoking something (and it’s not Lucky Strikes). This guy was a regulator?

The Taibbi piece “Santelli on Predatory Lending: ‘You can’t cheat an honest man’” gets to the innuendo behind these nonsensical statements by Santelli spoofed in the comic up top. It’s statements like these – and their obvious racial and class overtones – that are ultimately going to be fatal to the Tea Party movement.

I will say this: there is certainly a kernel of truth in what Santelli says. In most cases of mortgage fraud, the borrowers and the lenders acted together. I’m talking about fraud here now – not predatory lending and consumer protection, which is what CNBC was ostensibly discussing. That is because, when it was apparent the financing could not work using full documentation, they cheated and used no docs or a teaser rate. Pain for a borrower came in not reading or understanding that the teaser rate would re-adjust to a level only affordable for someone who qualified for the full documentation loan. Remember, these loans were designed for the self-employed who had the income but not the documentation.

As far as the lender goes, there was certainly enormous pressure internally to do these deals – however fraudulent or uneconomic.  My comments from December go to the mentality:

All of the business is going to Bradford and Bingley and you are getting stuffed. I guarantee you shareholders won’t like that. As an executive, you better find the holy grail of prudent but profitable lending or follow Bradford and Bingley on the road to easy money. Otherwise, you will be out of a job.

Eventually, even the prudent relax their standards too – that’s how risky behaviour drives out good when risk is rewarded.

We see this now in insider accounts from Washington Mutual. See Reckless strategies doomed WaMu from the Seattle Times and A Giant Downfall from Portfolio.com.

So, this is not about personal responsibility at all. It’s about lying aka fraud. And, unlike Bill Isaac, who believes enforcement was never a problem at commercial banks, I am still waiting for the prosecutions of mortgage fraud at banks and non-banks – which is still ongoing.

Update: I now see Felix Salmon has posted on AIG’s mortgage lending arm and how they charged blacks more for broker’s fees. Of course this was settled with a slap on the wrists. And you still think there wasn’t predatory lending?