Rosenberg Takes On Obama's Hypocrisy Next
Even as the "banker meeting" is presumably underway (with several bankers bitchslapping the president and joining telephonically), following up on yesterday's thoughts on Obama's most recent rhetorical force majeure, in which he bashed "fat cat" bankers after pandering to their every whim for the entire duration of his presidency courtesy of Larry Summer and Robert Robin, today David Rosenberg shares his thoughts on the so-called Blame Game.
Below we highlight President Obama’s weekly address, in which he blames the big bad banks for luring borrowers into the myriad of products during the credit bubble, a bubble that in our view was promulgated by the nation’s policymakers.
When things go awry, however, it is very easy for those in Washington to point the fingers at somebody else. What did Congress, the SEC, the Fed, and the White House think in that 2002-07 bubble period except that excess credit was creating jobs; in turn, those jobs were creating prosperity and that prosperity led to votes. Now the borrowers, who signed contracts, and as adults should also be held accountable, are being treated as “victims” by politicians and the media.
“Over the past two years, more than seven million Americans have lost their jobs, and factories and businesses across our country have been shuttered. In one way or another, we’ve all been touched by the worst economic downturn since the Great Depression.
The difficult steps we’ve taken since January have helped to break our fall, and begin to get us back on our feet. Our economy is growing again. The flood of job loss we saw at the beginning of this year slowed to a relative trickle last month. These are good signs for the future, but little comfort to all of our neighbors who remain out of a job. And my solemn commitment is to work every day, in every way I can, to push this recovery forward and build a new foundation for our lasting growth and prosperity.
That’s why I announced some additional steps this week to spur private sector hiring. We’ll give an added boost to small businesses across our nation through additional tax cuts and access to lending they desperately need to grow. We’ll rebuild more of our vital infrastructure and promote advanced manufacturing in clean energy to put Americans to work doing the work we need done.
And I have called for the extension of unemployment insurance and health benefits to help those who have lost their jobs weather these storms until we reach that brighter day.
But even as we dig our way out of this deep hole, it’s important that we address the irresponsibility and recklessness that got us into this mess in the first place. Some of it was the result of an era of easy credit, when millions of Americans borrowed beyond their means, bought homes they couldn’t afford, and assumed that housing prices would always rise and the day of reckoning would never come.
But much of it was due to the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products, seeking short-term profits and big bonuses with little regard for long-term consequences [emphasis added]. It was, as some have put it, risk management without the management. And their actions, in the absence of strong oversight, intensified the cycle of bubble-and-bust and led to a financial crisis that threatened to bring down the entire economy.It was a disaster that could have been avoided if we’d had clearer rules of the road for Wall Street and actually enforced them.
We can’t change that history. But we have an absolute responsibility to learn from it, and take steps to prevent a repeat of the crisis from which we are still recovering.
That’s why I’ve proposed a series of financial reforms that would target the abuses [emphasis added] we have seen and leave us less exposed to the kind of breakdown we just experienced.
They would bring new transparency and accountability to the financial markets, so that the kind of risky dealings that sparked the crisis [emphasis added] would be fully disclosed and properly regulated.They would give us the tools to ensure that the failure of one large bank or financial institution won’t spread like a virus through the entire financial system. Because we should never again find ourselves in the position in which our only choices are bailing out banks or letting our economy collapse.
And they would consolidate the consumer protection functions currently spread across half a dozen agencies and vest them in a new Consumer Financial Protection Agency. This agency would have the authority to put an end to misleading and dishonest practices of banks and institutions that market financial products like credit and debit cards; mortgage, auto and payday loans [emphasis added].
These are commonsense reforms that respond to the obvious problems exposed by the financial crisis. But, as we’ve learned so many times before, common sense doesn’t always prevail in Washington. Just last week, Republican leaders in the House summoned more than 100 key lobbyists for the financial industry to a “pep rally,” and urged them to redouble their efforts to block meaningful financial reform. Not that they needed the encouragement. These industry lobbyists have already spent more than $300 million on lobbying the debate this year.
The special interests and their agents in Congress claim that reforms like the Consumer Financial Protection Agency will stifle consumer choice and that updated rules and oversight will frustrate innovation in the financial markets. But Americans don’t choose to be victimized by mysterious fees, changing terms, and pages and pages of fine print. And while innovation should be encouraged, risky schemes that threaten our entire economy should not [emphasis added].
We can’t afford to let the same phony arguments and bad habits of Washington kill financial reform and leave American consumers and our economy vulnerable to another meltdown.
Yesterday, the House passed comprehensive reform legislation that incorporates some of the essential changes we need, and the Senate Banking Committee is working on its own package of reforms. I urge both houses to act as quickly as possible to pass real reform that restores free and fair markets in which recklessness and greed are thwarted [emphasis added]; and hard work, responsibility, and competition are rewarded — reform that works for businesses, investors, and consumers alike. That’s how we’ll keep our economy and our institutions strong. That’s how we’ll restore a sense of responsibility and accountability to both Wall Street and Washington [emphasis added]. And that’s how we’ll safeguard everything the American people are working so hard to build – a broad-based recovery; lasting prosperity; and a renewed American Dream. Thank you.”
As a long-time reader of our research and valued friend told us over the weekend, “he [Obama] finally threw the banks under the bus”. While not suggesting the adjectives are undeserved, I am afraid that the U.S. President has invited all consumer borrowers, creditworthy or not, to abdicate their financial responsibility. We now have borrowers as victims.” Ain’t it the truth. And the consequences will be profound. Our friend reminded us that in regard to our theme of “frugality”, the current reality is that “frugal” represents just the first wave in a fundamental change in behaviour towards complete self-interest and risks morphing into something a little more troubling, such as abdication of individual responsibility.
Meanwhile, the adjective used to describe the banks and their actions, were, in a word, scary (and if you want more on ‘scary’, read the WSJ assessment on Obama’s appearance on the television show 60 Minutes yesterday — talk about being completely out of control and inciting divisiveness — see Obama’s Slams ‘Fat Cat’ Bankers). This backlash against the banks, whose behaviour was condoned by the government when the credit and housing bubble was in full swing, is surreal.
As we said, the media has no problem in running articles that complain about the lack of credit being extended by the evil banks, even though it was excess debt taken on by a profligate consumer that got us into this mess to begin with. The front page of the Sunday NYT runs with Rates Are Low, But Banks Balk at Refinancing. Basically, 60% of mortgage borrowers carry interest rates that are above the current market cost, but refinancings are still down 57% from year-ago levels because the banks have battened down the hatches on their lending guidelines; “The plight of homeowners has become a volatile political issue”, according to the NYT. Well, that’s probably not the case for the 30 million Americans who own a home with no debt or the countless others who have a mortgage but also know how to live within their means. The article says “the banks that once handed out home loans freely are imposing such restrictions that many homeowners who might want to refinance are effectively locked out.” So, because the banks lent freely in the recent past, and this excess was at the root of today’s problems, then the banks should go back to those days of reckless lending behaviour.
The media has no problem in running articles that complain about the lack of credit being extended by the evil banks
Come again? Nowhere in the article is there any reason provided as to why the banks are “stricter” — maybe it has something to do with the amount of equity the borrower has in his/her house, or what his/her credit-rating has been cut to, among others. The way the media and politicians are portraying the situation is that it is every citizen’s god-given right to have credit. This is amazing. We aren’t exactly recommending a return to Calvin or Kant puritanical behaviour, but what we are seeing unfold right now is very disturbing.
We continue to stress that everyone read that front page article from Thursday’s WSJ, which was absolutely disgusting — titled American Dream 2: Default on Mortgage, Then Rent. The word “and Spend” should have been in the title too — consumers are no longer paying their mortgage and using the funds for other things like trips to amusement parks. This is now seen as being a totally cool and appropriate thing to do — stop paying your mortgage and go have fun.
It’s the lender who will end up being screwed, but nobody cares about that faceless bank, right? The tone of the article, and this is the Wall Street Journal we’re talking about, sent chills down my spine — no concern at all about the growing ability and willingness of consumers to walk away from their financial obligations. And certainly no remorse by those quoted in the article who have defaulted and left somebody else holding the bag. It may very well be this “tacit approval” of such irresponsible behaviour that will end up crippling banks’ ability and willingness to extend credit in the future, because we have news for the President: being public companies, the lenders’ fiduciary responsibility first and foremost is to their shareholders, not deadbeat debtors.