We’re at a point in US history, brought there by Occupy Wall Street, where even Republican Presidential candidates needing a boost in the polls will vow to throw bankers in jail. I don’t expect that they’d actually do it, but this is what they feel they have to say to get elected. And that makes for interesting times, especially when you consider that the energy around the Occupy movement has just begun.
Nick Kristof turns most of his column today over to a former banker, who offers a mea culpa for his profession, something you don’t see every day. James Theckston, who worked for Chase in Florida (so let’s not go overboard, this wasn’t a Wall Street guy), details the schemes that his office used to sell fraudulent loans – and in a rare move, he takes responsibility for his actions:
As a regional vice president for Chase Home Finance in southern Florida, Theckston shoveled money at home borrowers. In 2007, his team wrote $2 billion in mortgages, he says. Sometimes those were “no documentation” mortgages.
“On the application, you don’t put down a job; you don’t show income; you don’t show assets,” he said. “But you still got a nod.” [...]
Theckston says that borrowers made harebrained decisions and exaggerated their resources but that bankers were far more culpable — and that all this was driven by pressure from the top.
“The bigwigs of the corporations knew this, but they figured we’re going to make billions out of it, so who cares? The government is going to bail us out. And the problem loans will be out of here, maybe even overseas.”
Most of what Theckston describes is familiar – the financial incentive (and pressure from his corporate parent) for lenders to sign up subprime borrowers, even to those who qualified for prime loans; the racial and ethnic biases exposed by preying on the weak or uneducated; the unfairness of bailing out those Wall Street banks and doing nothing for the homeowners whose lives were ravaged.
A Chase spokesman tells Kristof that they don’t write subprime mortgages anymore, which I guess makes it all better. They also say that they have “offered homeowners four times as many mortgage modifications as homes it has foreclosed on.” This is a clever bit of deception. It just says that they “offered” the mortgage mods, not that they secured them. Many of the private mods offered by banks RAISE the monthly payment for borrowers or otherwise provide no help. Kristof isn’t in a position to know that. But he does get it right with his conclusion (and good for him for mentioning cramdown, a great example of the overall unfairness he describes):
The federal government rescued highly paid bankers from their reckless decisions. It protected bank shareholders and creditors. But it mostly turned a cold shoulder to some of the most vulnerable and least sophisticated people in America. Last year alone, banks seized more than one million homes.
Sure, some programs exist to help borrowers in trouble, but not nearly enough. We still haven’t taken such basic steps as allowing bankruptcy judges to modify the terms of a mortgage on a primary home. Legislation to address that has gotten nowhere.
My daughter and I are reading Steinbeck’s “Grapes of Wrath” aloud to each other, and those Depression-era injustices seem so familiar today. That’s why the Occupy movement resonates so deeply: When the federal government goes all-out to rescue errant bankers, and stiffs homeowners, that’s not just bad economics. It’s also wrong.
Or, if you want the shorter version, they got bailed out, we got left out.