Animal House, Alan Greenspan and ‘The Monster’: A Tale of the Financial Crisis
The shocking revelations that some of the nation's biggest banks and mortgage companies sped through thousands of foreclosures without properly checking paperwork have raised alarm.
A new report by a congressional watchdog said the disarray could threaten major banks with billions of dollars in losses and deepen the disruption in the housing market.
One author says when we hear about all the reported shenanigans - we should hardly be surprised.
Michael W. Hudson, a staff writer for the Center for Public Integrity and former Wall Street Journal reporter, tells in his new book THE MONSTER: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America – and Spawned a Global Crisisthis behavior is simply an extension of the primary motivation behind America’s mortgage companies – to keep profits flowing – no matter what the cost.
THE MONSTER is a behind-the-scenes look at the out-of-control behavior that fueled the financial collapse... "populated by a gang of brazen mavericks: a shadowy billionaire who created the subprime industry out of the ashes of the 1980s S&L scandal; Wall Street executives with an insatiable desire for product; struggling homeowners ensnared in the most ingenious of traps; lawyers and investigators who tried to expose the fraud; politicians and bureaucrats who turned a blind eye; and, most of all, the drug-snorting, high-living salesmen who tell all about the money they made, the lies they told, the deals they closed."
Hudson has submitted a Guest Author Blog for Bullish in which he says, "the foreclosure scandal is more than a few procedural snafus. It’s a serious problem, driven by the “anything-goes” culture of fraud that’s permeated much of the mortgage industry over the past decade." You can read his post and an excerpt from THE MONSTER by clicking ahead.
"ANIMAL HOUSE AND ALAN GREENSPAN"
Guest Author Blog by Michael W. Hudson author of, THE MONSTER: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America – and Spawned a Global Crisis
As I’ve tried to make sense of the robo-signing, document-backdating “ForeclosureGate” scandal, a couple of things have popped in my head: Animal House and Alan Greenspan.
Stay with me here. Imagine Greenspan as Flounder, the callow freshman trying to pledge Delta House. The Delts persuade Flounder to loan them his father’s car, then take it on a spree, smash it up and return it much worse for wear. The only explanation they have for Flounder (and I’m paraphrasing here): “Hey, you messed up. You trusted us.”
Greenspan was no neophyte back in the 1980s when, between government gigs, he signed on as a consultant to Charles Keating’s Lincoln Savings and Loan. But he did seem to have a sense of innocence about him, that same free-market idealism he’d possessed a few years before when he’d penned an article in Ayn Rand’s journal declaring that no company could afford to risk its “reputation for honest dealings and a quality product” by “letting down its standards for one moment or for one inferior product; nor would it be tempted by any potential ‘quick killing.’ ”
As Lincoln Savings came under fire, Greenspan wrote a letter to regulators pronouncing the management of Keating’s S&L as “seasoned and expert.” The S&L, he said, was “a financially strong institution that presents no foreseeable risk” to the Federal Deposit Insurance Fund. Lincoln eventually perished in a conflagration of recklessness and fraud, costing taxpayers $2.66 billion.
Now imagine Keating, before heading off to jail, taking Greenspan aside and explaining (paraphrasing again): “Hey, you messed up. You trusted me.” In the for-real world, Greenspan told the New York Times: “I don’t want to say I am distressed, but the truth is I really am. I am thoroughly surprised by what has happened to Lincoln.”
The episode didn’t seem to have much of an impact on Greenspan’s thinking, though. As Fed chairman – the Dean Wormer, if you will, of the financial system – he still maintained a certainty that markets and bankers could be trusted to protect consumers and investors from fraud and folly. His inaction during the housing boom, many critics say, allowed predatory lending and wild speculation to cripple the economy.
Greenspan is no longer in the picture. He spends his days as a sort of Professor Emeritus, explaining there was nothing he could have done to prevent what he calls a “once-in-a-century credit tsunami.” It’s hard, though, not to detect a whiff of Greenspanian idealism in the forces that have helped bring about the current controversy over the tactics used to speed the banking industry’s foreclosure machine.
Foreclosure has traditionally been a laissez faire activity. The feds have mostly left it up to the states to oversee foreclosures. Many state courts and administrative agencies, though, aren’t equipped to handle the flood of filings or to assess the propriety of the paperwork submitted by banks and other “loan servicers.”
But why worry about whether brand-name banks will do the right thing when it comes to taking away people’s homes? Don’t they want to maintain “a reputation for honest dealings”? Why would they be tempted by the potential for a “quick killing” via foreclosure – instead of, say, modifying homeowners’ loans and helping to keep the stream of income from the loans coming in?