Paul Krugman, the New York Times columnist who won the 2008 Nobel Memorial Prize in Economic Sciences, is back to pedaling his Big Lie that Wall Street banks were not responsible for the financial crash of 2008 or the ensuing housing crash. This time he’s told such a doozie of a lie that there is no longer any doubt that he’s on a mission to restore Wall Street’s credibility, even if he has to rewrite the history of the financial crash and every official report that’s been published on it.
The latest Big Lie from Krugman appeared in yesterday’s print edition but first appeared in the digital edition on Monday under a different headline, “Have Zombies Eaten Bloomberg’s and Buttigieg’s Brains?” In a very clever sleight of hand, Krugman is complaining, correctly so, about the fact that presidential candidate Michael Bloomberg has adopted a right-wing mantra in attempting to place the blame for the housing bust, that accompanied the Wall Street collapse, on liberals who “caused the crisis by forcing poor innocent bankers to lend money to people of color….” (Krugman’s complaint about Buttigieg is that he’s too obsessed with the $23 trillion national debt – a significant part of which, of course, resulted from attempting to recover from the Wall Street collapse.)
As Krugman asserts his superiority on facts versus Bloomberg, he throws out this whopper of a lie about the 2008 financial crash:
“The surge in bad loans came neither from government-sponsored agencies nor from regulated banks, but from unregulated mortgage originators.”
Every official report on the Wall Street collapse has revealed the following: that Wall Street banks were fueling the subprime mortgage loans because they wanted the fat underwriting fees to bundle the loans and securitize them. Some Wall Street banks, like Goldman Sachs and Citigroup, even used their insider knowledge of just how bad the loans were to bet against them (make short bets). The crisis was further deepened by the fact that these same Wall Street banks were paying for rating agencies like Standard & Poor’s and Moody’s to give triple-A ratings to securitizations that the banks knew were likely to collapse.
The official government report on the financial crisis, the Financial Crisis Inquiry Commission Report, writes this about who was issuing all of this subprime debt:
“Subprime was dominated by a narrowing field of ever-larger firms; the marginal players from the past decade had merged or vanished. By 2003, the top 25 subprime lenders made 93% of all subprime loans, up from 47% in 1996. There were now three main kinds of companies in the subprime origination and securitization business: commercial banks and thrifts, Wall Street investment banks, and independent mortgage lenders. Some of the biggest banks and thrifts—Citigroup, National City Bank, HSBC, and Washington Mutual [all regulated, federally-insured banks] —spent billions on boosting subprime lending by creating new units, acquiring firms, or offering financing to other mortgage originators….”
Why does Krugman think the U.S. Department of Justice and other regulators fined JPMorgan Chase, the largest regulated bank in the country, $13 billion for its sales of toxic subprime mortgages? On November 19, 2013, the U.S. Department of Justice announced the $13 billion fine and wrote this:
“Without a doubt, the conduct uncovered in this investigation helped sow the seeds of the mortgage meltdown…The conduct JPMorgan has acknowledged – packaging risky home loans into securities, then selling them without disclosing their low quality to investors – contributed to the wreckage of the financial crisis. By requiring JPMorgan both to pay the largest FIRREA penalty in history and provide needed consumer relief to areas hardest hit by the financial crisis, we rectify some of that harm today.”
To understand Paul Krugman’s agenda, you need some background on how he has pedaled this Big Lie for years in his past columns about Wall Street’s innocence in creating the greatest financial and economic collapse since the Great Depression.
In August 2014 Krugman wrote a propaganda piece pushing the idea that no further regulation of Wall Street was necessary because the Dodd-Frank financial reform legislation that was passed in 2010 “is a success story.” Krugman must have missed the year-long series of articles in the business press between 2012 and 2013 about how JPMorgan Chase had used hundreds of billions of dollars of its deposits to gamble in high-risk derivatives in London and lose $6.2 billion of its depositors’ money in the process. It appears Krugman also missed the Senate Permanent Subcommittee on Investigations’ in-depth investigation of the matter and its 300-page report.
After writing about what a success Dodd-Frank had been in August of 2014, Krugman had to deal with the hugely embarrassing fact that with a stroke of a pen in December of that same year, Citigroup’s pals in Congress overturned one of the most important provisions of Dodd-Frank. The repeal was attached to the must-pass spending bill to keep the government running and allowed hundreds of trillions of dollars in risky derivatives to remain in the federally-insured banks owned by Wall Street’s bank holding companies, rather than being pushed out to a non-federally-insured unit as dictated under Dodd-Frank.
Krugman wrote this at the time: “Now, this isn’t the death of financial reform. In fact, I’d argue that regulating insured banks is something of a sideshow, since the 2008 crisis was brought on mainly by uninsured institutions like Lehman Brothers and A.I.G.” This is the same Big Lie being pedaled by another New York Times writer, Andrew Ross Sorkin, since 2012.
Lehman Brothers went belly up and filed for bankruptcy on September 15, 2008. These are the headlines about one of the largest federally-insured banks in the country, Citigroup’s Citibank, that were running in the business press for months before the collapse of Lehman Brothers:
January 10, 2008, Wall Street Journal: “Citigroup, Merrill Seek More Foreign Capital,” noting: “Two of the biggest names on Wall Street are going hat in hand, again, to foreign investors.”
January 17, 2008, Los Angeles Times: “Citigroup Loses Nearly $10 Billion”
March 5, 2008, MarketWatch: “Citigroup CEO Says Firm ‘Financially Sound’ ” with the opening sentence explaining that “The chief executive of Citigroup sought to ally investor fears Wednesday, a day after the stock hit a multiyear low…”
April 20, 2008, New York Times: “Citigroup Records a Loss and Plans 9000 Layoffs,” explaining that the bank reported a $5.1 billion loss and would have to slash jobs.
June 26, 2008, Wall Street Journal: “Citigroup: Worth Less and Less Every Day,” sharing the scary news that the stock was worth one-third of where it had been at its 52-week high.
On July 14, 2008, Bloomberg News reported that in addition to holding $2.2 trillion in assets on its balance sheet, Citigroup has $1.1 trillion of “mysterious” assets off its balance sheet, including “trusts to sell mortgage-backed securities, financing vehicles to issue short-term debt and collateralized debt obligations, or CDOs, to repackage bonds.”
July 23, 2008, Bloomberg News: “Citigroup Unravels as Reed Regrets Universal Model.”
Citigroup ended up receiving the largest banking bailout in U.S. history, which included the following: a government guarantee on over $300 billion of its assets; a $45 billion government equity capital infusion; the Federal Deposit Insurance Corporation guaranteeing $5.75 billion of Citigroup’s senior unsecured debt and $26 billion of its commercial paper and interbank deposits; and a secret $2.5 trillion cumulative in revolving loans from the Federal Reserve that lasted from December 2007 through at least July 2010.
Isn’t it time for Paul Krugman and Andrew Ross Sorkin to come clean with the American people — especially at a time when the Fed has reopened its bailout money spigot to Wall Street. (See Fed Repos Have Plowed $6.6 Trillion to Wall Street in Four Months; That’s 34% of Its Feeding Tube During Epic Financial Crash.)