After nearly three decades in
The details show how compelling these findings should have been. During the period covered in Johnson’s testimony, his firm reviewed 911,000 loans for 23 investment or commercial banks. Fully 46 percent failed to meet the lenders’ own underwriting standards, and 28 percent were “outright failures”—loans that had no positive factors that might conceivably have been judged to compensate for their shortcomings. And yet 39 percent of these loans went into mortgage pools sold to investors.
According to Morgenson, “The results of the ... analysis were not disclosed to investors buying the loan pools. Instead, Wall Street firms used the information to pressure the lenders issuing the most troubled loans to accept a lower price for them.” These firms could have passed on the savings to their customers, reducing investors’ risks. Guess what? They didn’t. Instead, they pocketed the difference.
Sober policymakers insist that that the emergency programs they launched were absolutely necessary to pull our financial system back from the brink. For the most part, I agree with them. It’s not what they did, but rather what they didn’t do (and for the most part still haven’t done) that has proved so damaging to public trust. Allowing the people most responsible for getting us into this mess to get off scot-free offends our basic moral sensibilities.
If Noam Scheiber’s piece on David Axelrod in the current issue of TNR is accurate, the tone-deafness starts at the top. President Obama received—but rejected—advice to limit executive pay at firms receiving federal bailouts, and he refused to stop $165 million in “performance bonuses” to executives at AIG’s notorious financial products division. In each case the president followed the counsel of his Treasury Secretary, for whom his high regard seems increasingly inexplicable. No doubt he thought—and still thinks—he had compelling reasons to do what he did. But it was those decisions, and others that followed them, that helped redirect populist ire away from Wall Street and toward