Here’s my statistic of the day from the book Fools Gold by Gillian Tett. In 2005, Americans extracted no less than $750 billion of funds against the value of their homes compared to $106 billion a decade earlier. Of this total, 2/3 was spent on personal consumption, home improvements and credit card debt. Ironically, the book goes on to extol the prudence exercised by one Jaime Diamond who, it argues, was more weary than were many of his investment banking counterparts of the runup in prices.
NCUA deserves credit for being one of the first government agencies to aggressively go after the securitizers who aided and abetted the mortgage crisis. The $1.4 billion it extracted as part of the Justice Department’s settlement with the bank is that much less that credit unions will have to spend repaying the treasuring department for the cost of failed residential mortgage securities that destroyed the corporate system. But, whenever I criticize J.P. Morgan and investment banks, I also feel like the guy who goes after the bartender for giving drinks to the alcoholic. Let’s hold the bartender responsible, but let’s not forget that everyone shares a bit of the blame. For instance, while it is true that the corporates were not given accurate information about the quality of the mortgages they were buying, it is equally true that no one forced the corporate boards or NCUA regulators to overlook portfolios overloaded with what turned out to be toxic investments.
Also, let’s keep in mind that the extent of banker malfeasance means that the U.S. economy is in even worse shape than anyone wants to acknowledge. Well, almost anyone. Fresh from being rejected for consideration as the FED’s next Chairman, Larry Summers is telling anyone who will listen that the economy is in a period of structural stagnation and it’s about time policy makers start realizing just how serious the problem is (http://krugman.blogs.nytimes.com/2013/11/16/secular-stagnation-coalmines-bubbles-and-larry-summers/?_r=1&). To me it is this simple, If only 10% of that $750 billion was money that should not have been lent out or spent in the first place, then we’ve lost an annual stimulus of $75 billion a year. In addition, we’ve lost that stimulus precisely at a time when government is cutting back its spending. Summers’ point is that right now, budget deficits are the least of our worries. The excesses of the 2000s may have been fueled by bad behavior but they also propped up an economy with serious structural problems. It’s time for our government to get serious.