Monday, December 05, 2011

banker culpability for foreclosure crisis...,

NYTimes | If you want to understand why the Occupy movement has found such traction, it helps to listen to a former banker like James Theckston. He fully acknowledges that he and other bankers are mostly responsible for the country’s housing mess.

As a regional vice president for Chase Home Finance in southern Florida, Theckston shoveled money at home borrowers. In 2007, his team wrote $2 billion in mortgages, he says. Sometimes those were “no documentation” mortgages.

“On the application, you don’t put down a job; you don’t show income; you don’t show assets,” he said. “But you still got a nod.”

“If you had some old bag lady walking down the street and she had a decent credit score, she got a loan,” he added.

Theckston says that borrowers made harebrained decisions and exaggerated their resources but that bankers were far more culpable — and that all this was driven by pressure from the top.

“You’ve got somebody making $20,000 buying a $500,000 home, thinking that she’d flip it,” he said. “That was crazy, but the banks put programs together to make those kinds of loans.”

Especially when mortgages were securitized and sold off to investors, he said, senior bankers turned a blind eye to shortcuts.

“The bigwigs of the corporations knew this, but they figured we’re going to make billions out of it, so who cares? The government is going to bail us out. And the problem loans will be out of here, maybe even overseas.”

One memory particularly troubles Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. So they looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans.

These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended up paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up.

Theckston, who has a shelf full of awards that he won from Chase, such as “sales manager of the year,” showed me his 2006 performance review. It indicates that 60 percent of his evaluation depended on him increasing high-risk loans.

In late 2008, when the mortgage market collapsed, Theckston and most of his colleagues were laid off. He says he bears no animus toward Chase, but he does think it is profoundly unfair that troubled banks have been rescued while troubled homeowners have been evicted. Fist tap Big Don.


Dale Asberry said...

Say it ain't so... Donnie thinks it's the bankers and not poor black folk that are responsible for this now???!

CNu said...

Big Don is a man of principles and a principled man. He keeps it peer-reviewed, consequently, there were certain evidential inevitabilities he was bound to acknowledge...,

nanakwame said...

No suckers No hucksterism

Because many continue to deny that income
inequality has been growing, it’s useful to start with a brief review of how
income growth patterns have changed since World War II. The three decades after
the war saw incomes grow at an almost uniform 3 percent annual rate for
families up and down the income ladder. Since the early 1970s, however,
virtually all income gains have accrued to those whose incomes were highest to
begin with.It’s a striking fractal pattern. Most of the
gains have gone to the top 20 percent of earners, but the lion’s share of the
gains within that group have gone to the top 5 percent. And within the top 5
percent, most of the gains have gone to the top 1 percent, and so on.

It’s done that
through a process that I’ve elsewhere called “expenditure cascades.” The
process begins with the completely unremarkable fact that top earners have been
spending at a substantially higher rate than before. They’ve been building bigger
mansions, staging more elaborate weddings and coming-of-age parties for their
kids, buying more and better of everything.

Many social
critics wag their fingers at what they perceive to be frivolous luxury
spending. But that misses the point that all consumption norms are local. It’s
not just the rich who spend more when they get more money. Everyone else does,
too. The mansions of the rich may seem over the top to people in the middle,
but the same could be said of American middle-class houses as seen by most of
the planet’s 7 billion people…

In short, the
growing income inequality that OWS protesters are calling to our attention is
not the nonissue that many of the movement’s critics say it is. Growing income
disparities have imposed enormous costs on almost everyone. OWS protesters have
performed an important public service by urging the government to take
inequality more seriously.

Does Inequality

“expenditure cascades” are squeezing the American middle class.

This essay is
adapted from Robert H. Frank’s recently published book, The Darwin Economy. 

umbrarchist said...

Keep people ignorant so you can rip them of when the opportunity presents itself.

The White folks don't make accounting mandatory for the White kids.  What do you mean it is SEVEN HUNDRED YEARS OLD?

So where were the Black Leaders talking about that in the 60s?  But we hear about EDUCATION all of the damn time.  What education is is defined by the White folks.  And the majority of accounting books are crap.  The educational system is designed to make money doing what they define as education.

 I have these two books:
Glencoe Accounting: First Year Course, Student Edition 4th Edition

The Accounting Game : Basic Accounting Fresh from the Lemonade Stand

The first book says it is the first year of accounting and it costs from $75 to $128 depending on where you buy it or around 5 to 8 times as much as the second. It is 800 pages, has a hard cover. weighs at least 4 times as much as the second book which is only 180 pages. It also has LOTS of color glossy pictures including ones of Bill Gates and Steven Spielberg. There are only two photographs in the other book and they are greyscale not color. They are pictures of the authors in the back of the book. The color drawings and diagrams throughout the book look much like the cover, as if a 7th grader could have done them. The Glencoe book looks much more classy and professional.

But there is what is called the Basic Accounting Equation which comes in two slightly different forms.

Assets - Liabilities = Net Worth

Assets = Liabilities + Owner's Equity

They are the same equation with a little algebraic and semantic differences. The Glencoe book does not have that equation until page 48. The second book has it on page 8.

The Glencoe book does not mention depreciation until page 624. The Accounting Game has it on page 114. So the more expensive book does not put as much information in as small amount of space so the student can learn a great deal in a short time. It helps schools and book publishers make a lot of money by dribbling out information slowly.

Students have to spend a lot of time and money to get watered down information and they pay for expensive books and expensive campuses, but what is supposed to matter in the long run is what ends up between their ears. Double-entry accounting is SEVEN HUNDRED YEARS OLD!!! HOW HARD CAN IT BE? HOW HARD CAN THEY MAKE IT? Making a big deal out of it is ridiculous. But how can accountants charge a lot of money and pay off their student loans if they don't pretend it is difficult? So these costs have to be passed on.

So if lots of people get that second book and don't hire accountants...Oops!

So what does this have to do with the state of the economy and Occupy Wall Street? If double-entry accounting is actually easy to understand and had been mandatory in our schools for the last 50 years then what state would the economy be in today? No one can truly say. It is just speculation. But if 33% of the borrowers had been able to figure out those loans that helped create the housing bubble and knew there was no way they could pay them back then would the bubble have been created to burst in the first place?

Big Don said...

As BD has always maintained, responsibility lies with the liberals who pressured for change in the mortgage rules in a now-failed attempt to equalize the outcomes, i.e., minorities owning homes.  Also note in the article the IQ-deficit description, "less savvy borrowers were disproportionately blacks and Latinos" who fell for it...

CNu said...

so now you wanna try to play all hard huh? wasn't talking all that jibber jabber backchannel chilito!