The WSJ Edit Page and the Mortgage Industry

Does it really expect us to forget what it wrote?

Being a Wall Street Journal editorial writer means never having to say you’re sorry.

Those literary lions of Liberty Street now take Senator Chris Dodd to task for getting a favorable loan from the execrable Countrywide Financial, then pushing a mortgage relief bill that, while helping borrowers, would also have the effect of helping mortgage lenders like Countywide.

Give Senator Christopher Dodd credit for nerve. On Tuesday, the very day he finally admitted knowing that Countrywide Financial regarded him as a “special” customer, the Connecticut Democrat also announced that he was bringing to the Senate floor a housing bailout sure to help lenders like Countrywide.

Let’s not forget: This is the same edit page that led the fight against effective regulation of the financial services industry back when it could have counted. It’s fine to criticize Dodd, Lord knows. But whatever he did or didn’t do, it’s unseemly for the Journal now to pose as a watchdog of the mortgage industry, rather than its chief attack dog. Talk about nerve. This is nerve.

This was the page, remember, that could never bring itself to use the term “predatory lending” without quote marks, as though the notion itself was preposterous. Now of course we know the practice was not only real, it created the toxic sludge currently crashing the global financial system.

Here’s an edit from February 2007 headlined “Subprime Politics,”(1) that argued against a Senate Banking Committee decision merely to hold hearing on “predatory lending” (yes, the quote marks are theirs):

Banks make money by lending to people who can repay their loans with interest. Lending people money they can’t pay back is a lousy business, as the many recent headlines about subprime lenders going bankrupt demonstrate. If rapacious banks really had a goal of lending people more than they could afford to pay back, they wouldn’t be swimming in red ink.

By now, even the most casual reader knows what the WSJ editorial writers surely knew then: that making loans regardless of a borrower’s ability to pay was very good business indeed for the individual brokers, lending executives, and Wall Street bankers involved, as well as corporate bucketshops—I mean, entities—such as Countrywide, as long as they could pass the garbage onto the global bond market.

And get this:

Related to this is the contention, made by the same populists on the current “predatory lending” rampage, that banks make money by charging them “excessive” interest. But, if anything, the recent spate of bankruptcy among subprime lenders suggests that they were charging too little interest to compensate for the credit risk they were taking by lending to people with bad credit histories.

Yes, that’s the problem. Subprime rates were too low. I wonder what free-market market theory explains that particular failure?

But more broadly, let’s remember, the WSJ edit page was the cheerleader-in-chief as the Bush administration’s office of comptroller of the currency beginning in 2003 fought tooth-and-nail against—not out-of-control lenders—but against state regulators’ attempts to curb those very lending abuses (as I wrote last year).

Here’s what the edit page wrote after Eliot Spitzer lost a round in court:

The real winners here are home buyers. To the extent that the AG would have turned risk-based pricing into an ugly racial fight, he would only have discouraged banks from continuing their lending to less creditworthy home buyers. The irony is that those most affected would be the very minorities Mr. Spitzer was claiming to protect. Given how few organizations have been willing to resist Mr. Spitzer’s bullying methods, the OCC deserves extra credit for stopping this power grab dead in its tracks.

So, opposing discriminatory lending practices is ugly. Steering minorities into higher-priced loans, see, that’s “risk-based pricing.”

As many have noted, it was obvious to all that the Bush administration was trying to block not just state regulation, but any effective regulation of Angelo Mozilo and like-minded sharpies. (Remember the guy from the Office of Thrift Supervision who brought a chainsaw to a press conference on deregulation? That’s on economist Brad Delong’s site.)

And while it’s true Countrywide was chartered in California, it did have a unit regulated by—guess who?—the OTS.

The point, though, is that the Journal’s editorial page has been a leading enabler of the Countrywides and its allies and a leading opponent of precisely the kind of prudent banking regulation that could have prevented the present calamity.

We are all living in a “Review & Outlook” world. The least it could do is say it’s sorry.

Subprime Politics
7 February 2007
The Wall Street Journal

The Discriminating Mr. Spitzer
13 October 2005
The Wall Street Journal

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.