Felix Salmon and William D. Cohan pound on the Clayton Holdings story, which popped up again last month at a Financial Crisis Inquiry Commission hearing. Clayton is the due-diligence firm hired by Wall Street for reports on how bad its securities were—reports it didn’t disclose to investors.
Salmon explains well why this is an “enormous mortgage-bond scandal”—one that’s in addition to that other enormous mortgage scandal going on these days.
In fact, the banks had an incentive to buy loans they knew were bad. Because when the loans proved to be bad, the banks could go back to the originator and get a discount on the amount of money they were paying for the pool. And the less money they paid for the pool, the more profit they could make when they turned it into mortgage bonds and sold it off to investors.
Now here’s the scandal: the investors were never informed of the results of Clayton’s test. The investment banks were perfectly happy to ask for a discount on the loans when they found out how badly-underwritten the loan pool was. But they didn’t pass that discount on to investors, who were kept in the dark about that fact.
Cohan:
So far, not a soul on Wall Street has been found to be criminally liable for the practices that led to the financial crisis. But thanks, in part, to the Financial Crisis Inquiry Commission, we are getting closer than ever to the day when the culprits will pay for what they did.
I’m not going to hold my breath. As I wrote last month:
It’s worth noting that the Clayton angle has been out there for two-and-a-half years—it’s no new story. Andrew Cuomo zeroed in on Clayton back then. But it’s taken this long for this information to come out.
Salmon finds a Reuters story on the Clayton angle from July 2007.
— I’ve not been a fan of the press swarm on the Chilean mine story. A thousand journalists covering a news story, remarkable as it is, when twenty or thirty would have been fine, thanks.
When there are that many people on a story, the pressure to push your angle increases, and as Tom Scocca points out, The New York Times went way over the line with its skin-crawling cynicism in this story. The Times:
The decision by [president Sebastián] Piñera, Chile’s first right-wing leader in 20 years, to make such an unbridled push to rescue the miners was an extraordinary political calculation. But it has paid big dividends, bolstering his popularity at home and propelling him onto an international stage often dominated by other large personalities in the region.
Scocca holds up the mirror, if you’re willing to look:
Doesn’t that make the Times look savvy and detached and analytical? The decision not to leave thirty-odd people to die slowly underground was a “political calculation.” Maybe it was.
In addition to being Chile’s top-ranked politician, though, the president of Chile does have another role: he serves as the country’s president. So beyond the very important tasks of maintaining his popularity and raising his international profile, is it possible that Piñera was trying to—how to say this?—lead his country?
It’s a foreign concept, sure. Here in the United States, everyone agrees that the job of an elected official is to “spend political capital” to “control the narrative” that will determine whether that official is regarded by the media and the public as a success or a failure, which will determine the result of the next election. This is why, 21 months into the Obama administration, we still have mass understaffing on the federal bench and nobody cares. It’s why we can’t even go through with digging a lousy railroad tunnel—who will absorb the political damage if there are cost overruns?
So when our horse-race-obsessed, broke, self-pitying nation sees Chile get something difficult done, obviously it must be because the Chilean narrative demanded it. Not because the thing needed to get done.
Read it and reread it, press folks.
(h/t Jay Rosen)
In April 1936, just an hour's drive up the road, the Moose River Gold Mine disaster unfolded in a way very much like the Chilean situation. Local radio coverage was linked to the US, Europe and around the world in one of the first demonstrations of the power of real time mass media. TV was reliving their glory days over the last couple of months.
On the topic that actually brought me to this post, over at Housing Doom blog Debi and I have been watching foreclosuregate with mounting concern. What really has my heart in the pit of my stomach is the article from early today "Mortgage Damage Spreads: Big Bank Stocks Hit Again as Modern Finance Collides With the Legal System," where WSJ real estate market ace Nick Timiraos et al make a pretty good case that if Wall Street isn't allowed to trample over nearly a millennium's worth of English heritage property title law the MBS bondholders will suffer a haircut big enough to destroy Western civilization. Sort of like the hostage taking scene in "Blazing Saddles," which would be funny if there weren't so much at stake.
Cheers, John McLeod, Halifax, Canada
#1 Posted by John M, CJR on Sat 16 Oct 2010 at 10:34 AM
1) The man and his wife stood there for the duration, both of them in hard-hats and safety jackets, fondly greeting each miner as he emerged with a few words, a handshake, and a hearty, back-slapping hug, personally greeting each family as they were escorted out to meet their miner, sang the national anthem with gusto and chanted fist-pumping Chi! Chi! Chi! Le! Le! Le! along with all of the rescue team, remaining in place until the last rescue worker again walked upon the surface of the earth, leaving his post only to provide updates and inspiration to the rest of the world at intermittent press conferences on the rescue site. That's some "political calculation."
2) I think that gut-twisting, noxious nihilism is a tic that affects most of the New York Times political writers. Peter Baker and David Herszenhorn are particularly prone to that kind of glib and cynical characterization of everything a politician does as "political calculation." Baker didn't normally write that way when he was with Washington Post. Maybe a top editor? Something in the coffee machine? A cultural tic? Dunno. It's awful.
3) A thousand journalists covering a news story, remarkable as it is, when twenty or thirty would have been fine, thanks.
As another journo once noted to me, that's like complaining that there's too many pizza joints. Each news outfit made their own decision on how to cover this event: how many journos, how many cameras, where to allocate the resources.
I can just imagine @Ryan and CJR rising up with jowls a-flapping in outrage if Chile had decided to limit the coverage and allow only twenty or thirty journos to cover this.
Or, if New York Times and CNN had decided, "Oh, well, AP and AFP will be there, why bother? Sure, it's a big international story, billions of people are watching, but we might get in the way."
#2 Posted by James, CJR on Sat 16 Oct 2010 at 04:39 PM