Audit Notes: The Big Lie of the crisis, Hubbard and Mozilo, institutions

The attempts to muddy the historical record continue

Jesse Eisinger has a good New York Times column skewering Edward Pinto, the American Enterprise Institute economist behind much of the misinformation cited as evidence by those who fallaciously argue that government caused the housing crisis, not Wall Street and the private mortgage lenders.

Now Pinto is arguing that the Federal Housing Administration is a ticking time bomb.

Late last year, the F.H.A. issued its annual report to Congress. According to estimates, over its lifetime the agency will have to pay more out on the mortgages it has insured than it has taken in. The report estimated the potential shortfall at $16 billion, which is a lot in absolute terms, but minuscule in relation to the federal budget and the $1.1 trillion F.H.A. portfolio.

Despite these modest numbers (more on that below), the same crew that assailed the government’s role in the housing bubble is now rending its garments about the F.H.A. Critics, like Edward J. Pinto of the American Enterprise Institute, argue that the agency has not only failed to help low-income communities, but is actually destroying them with reckless loans.

Nonsense, says Eisinger, persuasively, and he points out that without the FHA taking up the slack, the housing bust and recession would have been much, much worse:

Without the agency’s lending, mortgage rates would have doubled and home prices would have dropped another 25 percent, estimates Mark Zandi, chief economist of Moody’s Analytics.

— Speaking of the Big Lie of the crisis, this one’s from before Christmas, but well worth flagging. Matt Taibbi gets a hold of Columbia B-school dean, former Bush administration official, and Romney adviser Glenn Hubbard’s deposition in MBIA’s lawsuit against Countrywide.

Taibbi recalls the infamous scene in the documentary Inside Job where Charles Ferguson asks Hubbard if he consulted for Wall Street:

“This isn’t a deposition, sir,” he hissed. “I was polite enough to give you time, foolishly I now see. Give it your best shot.”

Again, there’s just nothing like karma. If your answer to a perfectly sensible question is going to be, “Screw you, this isn’t a deposition,” exactly how long do you think it’ll be before you end up actually getting deposed? And forced to answer, under oath, just how much your opinions cost?

A couple of years, as it turns out.

Countrywide paid Hubbard $1,200 an hour for his analysis and testimony that it didn’t commit widespread fraud in its mortgage underwriting, instead blaming the poor performance of the company’s loans on the economy and Fannie and Freddie. But MBIA forced him to admit under oath that he didn’t look at Countrywide’s underwriting.


Hubbard must be a very inquisitive thinker. He took $1200 an hour specifically to not learn how subprime loans were created. Moreover, he did this non-learning for Countrywide years after the financial collapse, long after the truth about that company had already become common knowledge pretty much everywhere in the world outside Hubbard’s office, long after Countrywide CEO Angelo Mozilo had been charged by the SEC with deliberately misleading investors (and insider trading, to boot), and long after the Attorney General of California had concluded that Countrywide was essentially a giant scheme to use mass fraud to dump pools of bad loans on unsuspecting marks on the secondary market.

Meantime, also in MBIA deposition reporting from before Christmas, the NYT’s Gretchen Morgenson flags Angelo Mozilo’s astonishing testimony in the suit.

“The cause of the problems of foreclosures is not created by Countrywide, nor M.B.I.A. This is all about an unprecedented, cataclysmic situation, unprecedented in the history of this country. Values in this country dropped 50 percent…
“And for the first time in the history of this country, people decided that they were going to leave their homes because the value of their home was below the mortgage amount,” Mr. Mozilo said. “Never in the history of this country did that ever happen, and that could never have been assessed in the risk profile. These people didn’t lose their jobs. They didn’t lose their health. They didn’t lose their marriage. Those are the three factors that cause foreclosure. They left their home because the values went below the mortgage. That’s what caused the problem.
“So I have no regrets about how I — how Countrywide was run. It was a world-class company,” Mr. Mozilo went on. “So your tirade about foreclosures and lawsuits is nonsensical and insulting. Countrywide did not cause this problem. We made no loans in Greece. We made no loans in Ireland. We made no loans in Portugal. This is a worldwide financial crisis that was totally a shock to the system.”

Hey, Angelo, this is not a chicken-and-egg problem. The financial crisis was caused by the bad lending institutionalized by Countrywide and others.

— It’s nice to see Paul Krugman talk about the importance of the institution he works for, particularly in the wake of some awfully silly talk during the the Nate Silver/Margaret Sullivan dustup that Silver didn’t gain immensely from his association with the NYT.


So first of all, let’s talk frankly about the job I have. The New York Times isn’t just some newspaper somewhere, it’s the nation’s paper of record. As a result, being an op-ed columnist at the Times is a pretty big deal — one I’m immensely grateful to have been granted — and those who hold the position, if they know how to use it effectively, have a lot more influence on national debate than, say, most senators. Does anyone doubt that the White House pays attention to what I write?

Now, officials inside the administration can of course have even more influence — but only if they’re good at a very different kind of game, that of persuading the president and his inner circle in behind-closed-doors discussion. And everything I know about myself says that I’m not very good at that game.

Read Audit Boss Dean Starkman’s “Confidence Game” for more on the importance of institutions in a digital age.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,