John Carney of CNBC along with the Wall Street Journal editorial page are awfully eager to blame consumers for the foreclosure crisis, but doesn’t it remain obvious who’s really responsible for the current phase of the housing meltdown? It was the bankers in the beginning, back in 2008, and it’s the bankers today; the only difference now is that we’re discussing the screwups on the dimmer side of the financial service industry. The biggest lesson of Michael Lewis’ The Big Short was that nearly everyone working on Wall Street was dumb enough to overestimate their own intelligence. And the investment banking business was where all the smart kids in finance went to work, because that was where all the money was being made! The dumb kids ended up working in retail banking, pitching mortgages to consumers.
What happens when the dumb kid side of the business overestimates its brainpower and fails on the same grand scale as the investment bankers? The nature of the failures become dumber. too. As does the outright fraud: in the arcane smart kids’ world of CDOs and CDSs, an almost elegant sleight of hand was needed to bilk Japanese and German investors on insurance against the failure of mortgage-backed securities. Compare that to the dumb kids mired in the mundane realm of county clerk filings and title company documents, who were hiring hairdressers to make crude forgeries of notary stamps.
We’ll soon see the other difference between the smart kids and the dumb kids in banking. The ones who ended up on Wall Street and then fucked up – like the monumental failure Howie Hubler at Morgan Stanley, whose bond trading desk lost a record $9 billion on its subprime market bets – walked away with millions. The dumb kids are much more likely to end up in jail when the attorneys general come knocking.