There is nothing obviously wrong with ProPublica’s loong rundown on the CDO implosion. Functional overview — and evidently particularly pleasing to the UPoR crowd as the piece focused on evil-bad Merrill Lynch and Citigroup without mentioning the Uptown white hats at BAC and the former Wachovia — but nothing actually new in it.
What struck me though was the premise that the banks and financial houses should have just taken it on the chin once the housing market started to saturate in 2006-07. Not create CDOs to buy the CDOs which buy mortgages. OK then. So the banks should have stopped lending to dicey risks, housing prices should have been allowed to self-correct, and no massive federal bailout? Really. Because that is what some of us said should have happened as it went down, in real time. Now in 2010 ProPublica rides in to say kicking the can down the road in 2007-08 was wrong, it “super-charged” the pain.
Another question: What to make of the Federal Reserve’s qualitative easing then, ProPub? Isn’t having the Fed buy up every bit of dicey debt the Treasury spits out the ultimate in “self-dealing” which will “super-charge” a future financial crisis? Finally — and sorry to those of you who see this coming:
Faced with increasing difficulty in selling the mortgage-backed securities that had been among their most lucrative products, the banks hit on a solution that preserved their quarterly earnings and huge bonuses:
They created fake demand.
What is Keynesianism but the creation of fake demand? Is the fakery OK if it merely keeps politicians in office rather than cuts bonus checks? Help me out here ProPub. Because otherwise it seems like financial illusion is virtue when practiced by government.
Update: I guess I should spin out the irony of this piece failing to mention Wachovia’s role in the financial implosion as ProPublica is only funded by — Wachovia. Via the Golden West Foundation’s “super-charged” pre-implosion checks of about one billion dollars. Golden West being the $25b. fraud that laid Ken Thompson low, cratered Wachovia, shed tens of thousands of local jobs, sank the net worth of so many local investors etc.
Come to think of it maybe there is something fundamentally wrong — and self-serving — with this account of CDOs. At least for readers in Charlotte.
