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.


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)

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 rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.