Star Parker, Still Writing, Still Lying

 

         Star Parker, Still Writing, Still Lying

 

        Our local newspaper runs a column periodically which they call “A View From the Right.” It is, too frequently, an op-ed piece from Star Parker who is, if nothing else, a mouthpiece for all things conservative. Ms. Parker is also a master of the big lie. In today's column her intent as always is to slam all things government as “interference” and “excessive regulation.” A second aim would seem to be to absolve corporate greed, corruption, and ignorance of any responsibility when the economy goes awry, while scathingly criticizing any subsequent efforts to mitigate underlying causes.

        She begins today's series of lies by harking back to the housing bubble and financial collapse of 2008. It is noteworthy that she blames no one, especially conservatives, for their part in creating what is commonly known as the Great Recession. What she has actually done is to provide a litany of false-flag reasons for the collapse and then use that to criticize Dodd-Frank and all other Congressional attempts to regulate the market players truly responsible for the housing bubble collapse.

        As others have, she attempts to pin the blame for all the woes of the housing market in 2008 on the 1992 Affordable Housing Goals act passed during the Clinton administration. The objective of this legislation was to override what is known as “redlining” or reflexive rejection of mortgage applications based on race or ethnicity. Interestingly enough, no one, not even Republicans, has ever denied that these practices were rampant in the banking and mortgage broker communities. In short, these policies involved requiring Fannie Mae and Freddie Mac to ensure that 30% of all mortgages they acquired for mortgage originators were targeted for low- and moderate-income borrowers. The big lie is that “moderate income” as defined in the legislation applied to middle class families in many cases. Additionally, this didn’t apply to other lenders.

        Ms. Parker, while blaming all the ills of the collapse on the 1992 law, overlooks the real bad guys in all this and denies the fact that the markets and the mortgage brokers and the corporate banking interests are the real reason for the collapse.

        So, what really happened? In the first place, mortgage brokers are not banks and are not subject to the same restrictions on reserve requirements or stringent review of mortgagees. Some mortgage brokers saw the federal effort to create fair lending as a license to steal by originating mortgages to people who they knew didn't even meet the standards or the goals of the legislation and the brokers simply didn't care. Why? Because they knew they were going to sell the mortgages to banks who would buy them, assuming they were legitimately entered into.

        Ms. Parker’s second lie is the assertion that the majority of people who went belly up on their mortgages when the market collapsed were lower income people, and that's simply not true. Sadly, some mortgage brokers also simply ignored the guidelines and financed individuals who were naïve enough to enter into lending agreements they could not satisfy when the bubble collapse cost them their job. However, in fact, some of the largest losses involved in the housing bubble collapse were for upper income people who were engaged in what had become the “fad” of buying and flipping homes in the hope of making a profit on the future sales of said homes. In just one example, a young middle-class woman in California was persuaded (and allowed) by a mortgage broker to serially purchase a number of condos (5!) , using the value of previous (mortgaged) ones as collateral for subsequent ones, on the premise that they would all continually appreciate in value, enabling her to pay them off and take the profit. Of course, once the mortgage broker sells a mortgage to the bank, they're off the hook, having no financial liability, but having banked the “loan origination fee,” most of which is a secretarial function.

        Ms. Parker uses her column to rail against government oversight and supervision of financial markets, but she blows right past the real reason for the bubble collapse which triggered unemployment, which then caused some working-class families who could have afforded a mortgage while working, to be unable to continue meeting their financial commitment to the mortgage lender. In a wild and wooly (and grossly under regulated) commercial banking market, someone who was and will remain unidentified, decided that it could be profitable to take individual mortgages and bundle them in groups or “tranches” and sell them as financial investment instruments. The assumption of course was that housing values would continue to increase, the mortgages would continue to pay the interest, and that the people buying these bundled mortgages would reap the benefits of the mortgage interest.

        As this practice gained footing in the commercial banking world, the less scrupulous of the people who are actually simply salespersons who work for these huge Wall Street organizations, decided to bundle mortgages of various quality, and sell the whole bundle as a single financial instrument. To do so requires that some creditable evaluation of the value of the whole bundle be made. In the American commercial financial world three principal companies do this rating - Standard and Poor, Moody's, and Fitch. What they are supposed to do is to evaluate an individual security with regards to credit worthiness and investment value. They assign ratings ranging from “AAA” to “D.” AAA, AA, A, and BBB are considered “investment grade” while the rest are classified as “junk” bonds. History reminds us (or should) that unscrupulous individuals (Michael Milken?) have been jailed for fraudulently misrepresenting junk bonds as reasonable and secure investment opportunities.

        In efforts to outsell the competition, some commercial banks began to bundle groups of highly rated mortgages with questionable or even high-risk mortgages. When submitted to Moody's or Standard and Poor for rating, each organization understood that if they didn't provide the rating desired, the bank might take their business elsewhere. This resulted in bundles of mortgages with good ones on top but the majority much poorer in grade being sold as safe (and high yield) investments to retirement funds, mutual funds, and pension funds as good investments. Sadly, CEOs, in some cases, of these investment banks only knew their salesperson we're selling a lot of product and they themselves did not understand exactly what the product was and that in too many cases the product was not what it seemed.

        To exacerbate matters, some large commercial insurers looking for a share of the action decided to sell what were called credit default swaps. In as simple a definition as I can give, this means that although “A” has no risk in the bundled mortgage game, I am willing to bet that your stake in it will fail, so I buy insurance which basically says if you default on your obligation payment the insurance company will pay me. What this meant in the market as it was at the time was that if those bundled mortgages proved to be bad investments and the people that had bought them were unable to receive the promised return on investment, then the issuer of those bundles would be responsible. This also meant that companies like Bear Stearns and other big Wall Street commercial banks would be on the hook for massive amounts of money they may not have had. But it also meant that the insurance companies who sold the credit default swaps and may have taken $100,000 premium payments were now liable for millions of dollars when bundled mortgages proved to be worthless. in this simplest analogy it’s rather like betting against the shooter at a crap table. When Wall Street woke up and realized the relative worthlessness of far too many of these bundled mortgage packages and the insurers understood that they were liable for huge payouts to the holders of the credit default swaps, the economy tanked. Republican President Bush used the term “Too big to fail” and asked for and got a large Federal bailout package for the commercial banking and insurance industries. Of course, there was no bailout for the newly unemployed mortgage holders, well off or low income, who lost their homes.

        Ms. Parker should, but like her idol Donald Trump, probably doesn’t, understand all the above, so she blames Barack Obama and Congress for trying to fix the holes and insure we don’t have a repeat. Trump, himself, a world class debtor, was a loud voice for trying to repeal the resultant Dodd-Frank financial markets and consumer credit regulation initiatives, some of which he accomplished. Isn’t it odd how those who can benefit financially from loose regulation and limited oversight want the government to close a blind eye to their nefarious dealings until after they cause economic collapse?