CNBC Editor Launches Sloppy, Dishonest Attack on AlterNet in Defense of Wall Street
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A recent column debunking the right's ludicrous claim that hapless Wall Street financial giants were forced by all-powerful regulators, against their will, to make shaky loans to poor people didn't sit well with CNBC senior editor John Carney. In his zeal to shift blame for the Great Recession from Wall Street to the government, Carney penned what may be among the laziest, most ideologically skewed criticisms one is likely to encounter. He can't get my rather simple name right, and ignores most of the substance of my essay, but nonetheless says that I have my facts “all wrong.” Such is the sorry state of our lapdog financial press.
But before digging into what passes for an “argument” on CNBC's blog, let me again restate that it was not home-mortgages that caused the world-wide recession. Even if Carney weren't completely wrong about regulators forcing lenders to adopt ridiculously lax standards, it would still be the case that the global meltdown was caused by an array of “innovative” financial instruments that were cooked up in the by-then-largely-deregulated financial sector. I wrote:
The entire subprime mortgage market was worth only $1.4 trillion in the fall of 2007, and that includes loans that were up-to-date. As former Goldman Sachs trader Nomi Prins noted in her book, It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street, the federal government could have bought up every single residential mortgage in the country – good, bad and in between – and it would have cost a trillion less than the bailouts.
What brought down the global economy was as much as $140 trillion worth of financial gimmickery built on top of the mortgage industry. It was the alphabet soup of the credit meltdown – the CDOs, default swaps and other derivatives that made less than a trillion dollars of foreclosed loans into an economic weapon of mass destruction that would cost the American economy alone $14 trillion in lost wealth.
In other words, it was the massive pile of paper and heavy “leverage” built on top of those home loans that caused the financial crash. Ignoring a central argument that one can't refute is a sure a sign of intellectual dishonesty, and despite the fact that I begin my piece with this simple reality, Carney doesn't touch it at all in his rant.
Instead, he devotes his post to advancing, yet again, the frequently and decisively debunked fable about how the Community Reinvestment Act (CRA) mandated that banks loosen their standards – a narrative disassembled not only by myself and Nomi Prins, but also by Nobel Prize-winning economists Joseph Stiglitz and Paul Krugman, former FDIC Chair Sheila Bair, the Federal Reserve Board of Governors, and many, many others. I called it a “zombie lie” because no matter how frequently it's stabbed by factual reality, there is always someone like Carney ready to dig up its remains and bring it back to life to divert attention for Big Finance.
Carney's central contention is that I'm a liar, and totally wrong, before he concedes that I'm actually entirely right, but only technically. And in reality I'm still wrong because... well, you'll mostly have to trust him.
He begins with a quote, as I explain that the CRA has no real carrots or sticks attached to it. It has no hard targets as far as how many loans a bank must make, and regulators can only “consider” whether a bank is in compliance when reviewing an application for a merger or to open new branches. While Big Finance was building its house of cards, CRA compliance was considered to be largely a pro forma matter – lenders didn't have to jump through hoops to satisfy regulators, as purveyors of the zombie lie claim.