Americans listen when Michael Bloomberg speaks, not only because he is the mayor of New York City but because he is a self-made billionaire and a smart guy. People think Bloomberg knows a lot about business and investment, which he surely does. But he nevertheless sounds terribly misinformed sometimes, as he did the other day — when he complained that “Occupy Wall Street” is unfairly blaming the nation’s big bankers for the crash and recession, when the real culprits are Congress and the government-sponsored housing lenders, Fannie Mae and Freddie Mac.
“It was not the banks that created the mortgage crisis,” said the mayor. “It was, plain and simple, Congress, who forced everybody to go and give mortgages to people who were on the cusp. … But they were the ones who pushed Fannie and Freddie to make a bunch of loans that were imprudent, if you will. They were the ones that pushed the banks to loan to everybody.”
It was Bloomberg’s misfortune to blurt those remarks a day before the United States Attorney in Manhattan, whose offices are only blocks away from City Hall, announced that the Justice Department is suing Allied Home Mortgage Corp. for perpetrating a gigantic, decade-long fraud, in violation of federal regulations and statutes, that cost the government at least a billion dollars and forced thousands of American families out of their homes.
Indeed, if the mayor only read the fine news service that carries his name, he would know that such massive frauds in the private sector were behind the financial crisis — and that his friends on Wall Street made billions by “securitizing” those bad loans — and then brought down the world economy when their game could no longer be sustained.
Nobody in Congress and nobody at Fannie or Freddie forced them to do that.
The most authoritative studies, notably the final report of the Financial Crisis Inquiry Commission — which examined many other academic and think-tank works — have demonstrated that whatever their other problems, Fannie and Freddie were not the most significant contributors to the subprime disaster. More than 84 percent of the subprime mortgages in 2006, for instance, were issued by private lending institutions, including 82 percent of the subprime loans to low- and moderate-income borrowers.
Nor were Fan and Fred — or Congress, for that matter — culpable in the enormous crime wave of mortgage fraud that engulfed states like Florida, Arizona, and California, which would keep a special prosecutor busy for the next five years if only somebody appointed one. The institutions that originated the great bulk of the riskiest mortgages weren’t even covered by CR.
Bloomberg may also have meant to allude to the Community Reinvestment Act, an even more favored target of Republicans (since many of them have partaken of Fannie and Freddie’s largesse, just like their Democratic brethren in Washington). But again, there is simply no evidence that CRA played a major role in the mortgage meltdown — or the slicing and dicing of mortgage derivatives that spread the contagion to every major bank here and many across the world. Nothing in the act, designed to encourage lending in poor communities, required the excessively leveraged, insufficiently overseen “creative financing” that caused the crisis. The institutions that originated the great majority of the riskiest mortgages, as economist Robert Gordon showed conclusively, weren’t even covered by CRA.
So much for the mayor’s cheap shot against the “Occupy” protesters, whose encampment in lower Manhattan he considers inconvenient. He may want them to leave; he may eventually force them to leave. But their message — that Wall Street’s perpetrators of the crisis have escaped accountability and profited obscenely instead — is undeniable no matter what he says or does.