I happened to see a replay of CNBC's 2009 documentary House of Cards which aired last night. I first wrote posts about it last February, here and here. For fun, before writing the rest of this post, with my impressions from the program, post-Goldman Senate lynching, I am rereading my year-ago reactions to the excellent program.
After the re-read of the two prior posts, I can't say that I feel differently from last winter concerning House of Cards.
However, with the recent Senate star chamber event involving Goldman Sachs fresh in my mind, there are additional insights from viewing the CNBC documentary of the housing finance-led financial sector meltdown.
The first involves the obvious absence of regulators from the scene, as David Faber discovered in his on camera interviews. No federal watchdogs attempted to shut down Alt-A, a/k/a "liar loans," from being originated in the first place. No federal banking supervisors nor SEC personnel attempted to stop the firm which David Francis, a now self-employed mortgage banking consultant, back then a mid-level executive in the mortgage-backed security business, and his ilk from churning out CDOs backed by low-quality mortgages.
With so much hoopla over the FINREG bill, it's instructive to see, in the far-from-perfect, but fairly broad documentary, that the same agencies and people to whom sweeping new powers will be given failed miserably in the past decade to exercise their already considerable authority over the nation's financial system.
The CNBC documentary never went near the sins of Congress for mandating Fannie Mae and Freddie Mac to buy and securitize low-quality mortgages. Current NY AG, and odds-on favorite for the state's next governor, Andrew Cuomo, was culpable in this regard, during the Clinton years, as are several members of Congress- Barney Frank, Chris Dodd and Kent Conrad. The CNBC program, ever mindful of the parent network's need to remain on a friendly basis with these politicians, not to mention the parent company, GE's, being a convenient bedfellow of the administration, never dared to explore those governmental and quasi-governmental institutions which got the ball rolling.
The closest they came was in unedited footage of Alan Greenspan musing on what would have occurred, had he tried to pop the growing real estate bubble. I wrote of this in one of the two earlier posts, so I won't repeat it in this one.
What I found myself wondering aloud as I watched the bulk of the program was why, with all this on-air footage as evidence, the SEC and/or other governmental entities didn't pursue any of these other companies, as they have Goldman Sachs.
Specifically, many of the practices highlighted in the program occurred in dealing with mortgage borrowers, not professional investors. Why didn't the Senate choose to expose these people and institutions? Why not subpoena the CNBC documentary's producer, writers, researchers, etc.?
Another major reaction, different than last year's, was to Alan Greenspan's program-ending interview. In those closing moments, Greenspan responded to Faber's question regarding the need for new regulations and laws to prevent a repeat of the crisis.
Greenspan smiles and manages to stifle a laugh. However, he turns deadly serious when he utters words to the effect of either, 'good luck trying,' or 'don't bet on it,' when Faber asks, incredulously, again, if Greenspan really thinks better regulation wouldn't prevent a repeat?
Greenspan then assures Faber that, no matter what governmental actions are taken, a similar event will recur. Not in 10 years, but sometime in the future. Greenspan opines, quite serenely, that it's a function of greed, and is simply unstoppable when it gets going. See, again, my comments in one of last year's posts describing Greenspan explaining that, as Fed chairman, he would have been, actually was, intimidated by Congress into holding the regulatory reins loose during the housing bubble. This has largely been forgotten as Greenspan has been pilloried by Congress. But, back then, he confides, he knew the limits of his ability to intervene, lest Congress, with its populist bent, threaten him with a loss of Fed independence, should he attempt to stop the stampede to finance houses for lower-income Americans.
The House of Cards documentary billed itself as "the definitive" account of the mortgage-related economic crisis. But that's not at all true. It completely omitted any treatment of Clinton's HUD Secretary, Andrew Cuomo, Fannie Mae and its then-head, Franklin Raines, or Freddie Mac. All played key parts in starting the mess. And Congress urged them on.
Finally, the documentary showcased Kyle Bass as a sort of hero for doing his own homework in discovering the unbelievable bases on which rating agencies were classifying CDOs as AAA. Bass shared his concerns with the agencies and at least one investment bank, the now-defunct Bear Stearns.
Ironically, having aired in February of 2009, the now-famous hedge fund manager, John Paulson, wasn't even mentioned. Nobody knew who he was.
So much for the SEC's and Senate's focus on Abacus, ACA and Paulson. He wasn't even a public figure 15 months ago.
As for Kyle Bass, he was portrayed as diligent, honest and ethical for betting against fraud. His fund's 600% return wasn't met with horror or charges of unethical practices or poor sportsmanship for betting against the American dream or the economy.
Now, John Paulson is so reviled.
Where's the fairness in that?
If anything, viewing House of Cards now shows both how much it exposed, and how much it kept hidden, about the housing finance mess that exploded into a global financial crisis.
Today, over two years after Bear Stearns' demise, and nearly three years after the collapse of its two mortgage-backed securities-related hedge funds, we still have no complete, honest and objective account of how and where the housing finance-related financial debacle actually originated, grew and unfolded.
Only its end seems to be obvious, and that still isn't really well-understood.
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