Gregg Easterbrook Provides Refershing Honesty On the Credit Crunch

I’ve been a loyal reader of Gregg Esterbrook (Tuesday Morning Quaterback) on ESPN Page 2.  TMQ has always offered smart, meaningful and thoughtful football commentary.  Oftentimes I find his socio-political insights even more interesting.  TMQ is packed with football analysis but is also rich in bunny trails.

Today his bunny trail is the mortgage mess. He covers the whole gambit from bad legislation to the rigged bond rating system at the highest levels of the American financial system. He says it like it is and that is why I like his writing so much. Below are some highlights:

On the credit crisis:

The sense that tighter credit and falling housing prices create some kind of “crisis” — George W. Bush and Hillary Clinton have both said that of mortgage economics in recent weeks — is an example of the modern urge to declare everything an emergency.

Will people really be affected by the real estate “cooldown”?

Commentary on the real estate cooldown is rich in nonsense. Editorialists and politicians are saying that declining home prices mean millions of Americans are “losing” money. Those who don’t plan to sell in the near future — that is, the majority of homeowners — are not affected by changing housing prices, since the paper value of their homes does not affect their wallets.

How about the corporate fallout?

Blue-blooded Merrill Lynch is reeling from bad mortgage loans — it’ll need to cut back on caviar in the executive dining room! Pinstriped, made-of-money Citicorp is reeling from bad mortgage loans — the executives will need to share company-paid private jets to Aruba instead of each taking their own!

What about those “respected” Bond rating agencies?

Former Labor Secretary Robert Reich, whose new book “Supercapitalism” is quite good, explains how the bond-rating agencies essentially operate on commission to investment banking houses, in an arrangement as shady as Enron’s deal with its accountants.

Surely, there are victims in this drama?

There’s no doubt many were snowed by mumbo jumbo from mortgage brokers, and no doubt many never read what they signed. But reading before you sign is, after all, your responsibility — not a responsibility that should be passed along to fellow taxpayers who did read before they signed.

On those whose ARM’s are resetting:

Last week on a local newscast, I heard a woman who had signed a gimmick loan, and now was in danger of losing her house, say, “The broker told me it was no problem because if interest rates went up, I could just refinance.” We would not take seriously someone who said, “The broker told me it was no problem because if interest rates went up, I could find a bar of gold on the sidewalk.”

Surely Congress will fix the problem, right?

Wherever bailout demands go, bad legislation follows, and last month Rep. Barney Frank of Massachusetts proposed one of the most wrong-headed pieces of legislation in United States history: quite a bar to vault, obviously.

You’re saying Barney Frank’s bill won’t fix the problem?

Frank’s bill — an obvious valentine to trial lawyers, who want new openings to sue banks and firms such as Merrill Lynch — would make it the lender’s legal responsibility to determine whether borrowers can repay, not the borrower’s responsibility to be honest to the lender. Your Honor, the mortgage company is to blame for not stopping me from lying on my loan application.

So, what is the reality?

In this new paper, Anthony Downs of the Brookings Institution gives chapter and verse on why the housing price and credit “crises” are mostly hot air. His summary: “The facts hardly indicate a credit crisis. As of mid-2007, data show that prices of existing homes are not collapsing.

Happy reading. A side note, TMQis very long, so scroll down until you arrive at this heading: Housing Problems Genuine, Sense of Crisis Phony.

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