Integrity

Integrity is not a word we see all that often these days, and when we read it in a newspaper article, we find almost invariably that the writer is talking about someone's lack of integrity. Unfortunately, I think the junk mortgage crisis is due almost completely to a lack of integrity.

There are lots of honest, dedicate mortgage professionals but the sub-prime companies attracted skuzzy people who knew zilch about the business. They learned how to lie about their toxic loans and how to appeal to their customers' basest instincts. The scumbags found could make easy money through duplicity. Those guys didn’t know how to spell integrity.

In the case of the junk lenders, I believe that top management and middle management and low management knew what was going on. Maybe they didn't know the details but it was because they didn't want to know all the details. Better to have plausible deniability. Remember Capt. Renault in Casablanca ? "I'm shocked, shocked to find that gambling is going on in here!" No integrity there.

The Wall Street guys they were selling loans to couldn't have been much better. Those people are sophisticated. They are paid to ask hard, penetrating questions, and to keep asking until they know the answers. I think those guys knew they were peddling junk but as long as the gravy was flowing, no problem. Integrity? That's something to laugh about at parties when you talk about the chumps.

All of those mortgage-backed securities were rated by Standard & Poor's, Moody's, or Fitch. Strangely, the bonds all got high ratings even though the rest of the mortgage world not making money on sub-prime loans knew it was ludicrous. Figures were already available that showed high default rates on loans done in the late 1990s. Nothing changed so why would anyone think that junk loans morphed into A-rated securities? The rating services are supposed to be intelligent, scrupulous, and independent. They are supposed to embody the concept of integrity. Obviously, they lost their objectivity and integrity along the way too.

What about the investors? According to Congress-watchers they are going to be included in liability by Rep. Barney Frank's Committee. They are supposed to be knowledgeable too, as they are handling billions of dollars of other peoples' money. Yet they all seem to be wailing, "I don’t know nothing about the risks of junk mortgages, Miss Scarlett."

Back in the 1980s I first heard the expression, "Buyers are liars." I thought that was a pretty cynical judgment at the time, and I thought it wasn't as widespread as others told me. But it's obvious that a lot of borrowers told a lot of lies to their lenders over the last few years. They did so because they were told, "Tell the truth and you won’t get your loan. Lie and we’ll give you the money."

The borrowers' Moms and Dads had surely brought up their kids properly and told them to tell the truth. But was it the lure of easy money that led them astray? Is it true that everyone has a price? I sure hope not.

Forget the economic damage and the foreclosures for a minute. Just look at the pervasive web of deceit. It says something pretty unflattering about our Country and about our people. I am also deeply sorry that it was a bunch of yahoos in my industry who contributed so much to revealing this aspect of our flawed character.

There is plenty of blame to go around but what is clear to me is that if the millions of borrowers had only told the truth, we wouldn't be in this mess. It's as simple as that.