An unpopular truth about the news you read

[unixronin]

Orson Scott Card on lies, damned lies, and election campaign reporting

OK, so you think Card is a religious fundamentalist.  In many ways, you may be right.

You may consider Card a homophobe.  I doubt he sees it that way, but you're within your rights to say that too.  If you're gay, I doubt the practical distinction matters to you.

Neither of those change the fact that what he has to say on this particular issue — honesty and objectivity in journalism — is perfectly true.  Judge the message, not the messenger.

Comments

[skellington.livejournal.com]

I won't disagree that the media is biased, and perhaps Obama has received a relatively free ride (although Fox and company would have been pushing anything that is really more serious than the fact he served on a charitable board with Ayers.)

And I won't disagree that there are problems with corruption in Washington and that Fannie & Freddie were weird bastard hybrids of public and private companies that paid an awful lot to lobby various people.

But Freddie and Fannie, and the various home-ownership initiatives, are only peripherally related to the crash. And those initiatives were supported by Bush and the republicans. (One of Bush's agencies blocked Georgia from implementing a law in 2006 cracking down on sub-prime mortgages, for example.)

First, the problem is international. Britain, Spain, and Ireland (among others) had a similar housing bubble. So our policies aren't the driving factor of the housing bubble.

Second, the problem is not just housing. A combination of credit derivitives and fancy financial instruments (CDS's, CDO's, etc.) and "low risk premiums" (i.e. investing money or making loans at stupid low rates for really risky things) were present in all areas of finance. Look up "Covenant Lite" (Cov-Lite) loans for commercial investment. Look up leverage buyouts in the stock market in the last 5 years. Look at the impending crash of commercial real estate as well. Heck, look at Iceland's mess.

Third, Freddie and Fannie committed some serious accounting fraud and were slapped down by the federal regulators in 2002 or so. So during the peak of the bubble years weren't doing nearly as much business as the private companies packaging mortgages. They went from about 50% of the sub-prime business to about 25% of the sub-prime business when the problems really started happening. Blaming Freddie and Fannie when they weren't doing the business is absurd.

Forth, Card mixes up "minority and low income" and "sub-prime". Lots of minorities and low income people are candidates for prime loans. They're not LARGE prime loans, but they're perfectly good credit risks if buying a moderate home. And even the sub-prime loans are perfectly profitable if they are appropriately priced. (i.e. affordable to the home owner, don't have adjustable rates, pre-payment penalties, and a suitably high interest rate to compensate for the extra risk.) (And as you're well aware, you can end up with a crummy credit rating, but then get a good job and have a great income.)

Many (in terms of total loan amounts) of the sub-prime loans issued in California and Florida and other boom states were NOT to low income people. The problem was that moderate and higher income people, including speculators, couldn't afford the houses with "prime" underwriting, so were forced to go to the sub-prime market.

And then non-traditional lenders (i.e. mortgage brokers who are now out of business) pushed loans, with money from private investment banks (Bear Sterns, etc.) and skipped the traditional underwriting (i.e. investigation) guidelines, and, surprise surprise, lots of them defaulted.

(continued)

[skellington.livejournal.com]

If you want to point fingers somewhere, I'd look at some combination of (A) lots of cash from China and the third world pushing down interest rates, (B) the fed lowering interest rates to 1%, so short-term borrowing was really cheap, and (C) various governments letting banks and hedge funds dramatically increase their leverage creating money to chase risky investments. (The SEC allowed the investment banks to go from 12:1 leverage to 30:1 leverage in 2004, right when the boom really took off.)

I'd throw in some blame for the rating agencies, which called these securities "AAA", when they were crap. And some blame for the folks who created opaque complex financial derivities.

You can also blame the government for not listening when the appraisers said fraud was happening, inflating home prices. Or for not putting some restrictions on the "No Documentation" or "Low Documentation" loans (which were absurd and much of the cause of the problem.)

And since the Freddie&Fannie thing is major reason for criticizing the journalists, I'd say that the article is pretty weak. (Some of the other claims, such as that Freddie Raines ever provided advice for Obama's campaign, are also apparently false.)

For more details on Fannie and Freddie and low-income loans, take a look at:

http://www.econbrowser.com/archives/2008/10/cra_fannie_and.html and follow a bunch of their links.