the audit

CNBC Millionaires Don’t Believe in Predatory Lending

March 4, 2010

Barry Ritholtz points to this ludicrous CNBC segment where everyone gangs up on Janet Tavakoli for pointing out the obvious: the housing bubble was inflated in no small part by predatory lending.

Now CNBC isn’t exactly where you go for comfort-the-afflicted journalism, much less afflict-the-comfortable, but it’s still revealing to watch the CNBC talking heads explode as soon as Tavakoli brings up predatory lending (scroll to about 4:20 in):

I have to tell you, here in Illinois, people were preyed upon…

Anchor Melissa Francis can hardly believe her ears, shaking her head and saying:

The phrase “predatory lending” always kills me because how do you trick someone into —how do you force someone to borrow money? Don’t borrow it if you can’t afford it!

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I mean, really. That’s a pretty good summary of what’s wrong with CNBC right there. This stuff is well-documented. You have to willfully ignore it to believe otherwise.

Francis used to be on Little House on the Prairie and I wondered if that moralizing show had any lessons on banking for us. Sure enough, this from Episode 43:

Charles approaches the banker for a loan so he can buy a “new” set of dishes for Caroline. The banker declines because Charles does not have the collateral to back up the loan, so Charles goes to work for the woman who is selling the dishes and trades his labor for the china.

Lesson: Taking on debt for a want is almost never a good idea. The banker asks if this loan is for a need or a want. When Charles is forced to admit that here (sic) merely wants the dishes, the banker tells him that borrowing money for non-necessities is not a good idea and that he’s doing Charles a favor by declining the loan.

Needless to say, this is the antithesis of what lending was like in the bubble (send me an email if you want to read the full text of Dean’s “Boiler Room” piece linked there). Presumably, Francis thinks Angelo Mozilo’s Countrywide settled a predatory-lending lawsuit against it for $8.7 billion because it just wanted to get on with business, not because it actually preyed on consumers.

Francis, isn’t the only CNBC talking head Tavakoli upset. Here’s Larry “Goldilocks” Kudlow, noted man of the people:

Oh, man! We’re all victims. Wait a second? We’re all preyed upon. Did they put a gun to the head of these people?

Tavakoli actually brings up Ameriquest and others—predatory outfits the press all but forgot about.

Of course, Rick “Tea Party” Santelli gets involved, seemingly recommending that the government force everyone to take financial literacy classes (odd for an Ayn Rand fan) rather than force lenders to operate on the up and up:

We cannot look at our citizens as stupid. And if they are stupid and they sign things that they don’t understand, that’s an issue that should be dealt with. But to carte blanche make these rules and to bureaucratize the entire system because of the shortcomings of those that are financially illiterate. Deal with the issue: Financial illiteracy.

It’s all the fault of borrowers—”losers,” as Santelli has called them. That’s “the issue.” Forget about blaming bankers or brokers—their hands are clean!

As a consolation, at least Kudlow hammers away at too big to fail. But needless to say, you’ve got a real problem if you don’t even believe there’s such a thing as predatory lending after one of the biggest such sprees in history.

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.