Sorry USA Today, Wall Street Didn't Force Millions Into Foreclosure
Somewhere in the proverbial bin of witty quotes there's one about how a myth repeated enough times eventually becomes fact. The idea that Wall Street "caused" a "financial crisis," and that greedy Wall Streeters pushed millions of Americans out of their houses is one of those myths that's taken on a false reality. USA Today's editorial board is the latest to promote this falsehood. It won't be the last.
In an unsigned editorial addressing Hillary Clinton's rhetorical forked tongue when it comes to Wall Street and finance, the editorial board for America's newspaper took issue with Clinton having accepted huge speaking fees "from an industry that helped force millions of Americans into foreclosure." Without defending Clinton's habitual dishonesty for even a second, USA Today's pot shot at American finance begs rebuttal. It is quite simply a myth that the symbol of U.S. finance that we call "Wall Street" literally or figuratively forced "millions of American into foreclosure." The newspaper should do the honorable thing and retract what is so plainly false.
The real truth is that Americans, and global savers more broadly, have a great deal of wealth. That's long been the case. Americans have for the longest time invested that wealth (or had that wealth invested for them) in all manner of ways, including exposing it to mortgages that have made the purchase of housing (by individuals not in possession of the full amount of cash necessary to purchase a home) possible.
About this, the exposure of American and global savings to housing has always and everywhere represented the opposite of risk. While it's been popular since 2008 to mythologize savers and banks swinging for the fences by virtue of providing easy access to mortgages, the investing reality was actually quite dull. Exposing one's savings to mortgages is the antonym of risky. Figure that if a borrower "walks" a mortgage or is late on payments, there's still a tangible house that can be repossessed. Mortgages, even zero down liar mortgages, are very much on the safe side of the risk spectrum for those with savings.
What's important for the purposes of this piece is that the symbol that is "Wall Street" surely had a role in creating a way for individuals and institutions to save that made it possible for more and more Americans to attain the dream of homeownership. Savers wanted exposure to nominally safe income streams over long stretches of time, and eager homebuyers wanted home financing that would stretch over long periods too. Thank goodness for "Wall Street." It did and does what it's forever been paid to do: bring together savers in search of a return with those eager to pay for the right to access the savings of others.
Of course for Wall Street to expand access to mortgages like those described, it needed to be able sell those income streams (mortgages) on the open market. That there's long been a liquid market for the income streams that savers desire called mortgages has meant that more and more Americans have been able to attain the financing necessary to purchase housing despite not having the house's market value in the bank. It's all fairly basic, but American finance made home ownership even more attainable with the creation of liquid markets for mortgages. With financial institutions having created a market for mortgages populated by eager buyers of same, it could create many more mortgages in order to fulfill the needs of many eager homeowners. Wall Street's other main function has to do with it bringing together buyers and sellers.
At this point, and after having left out the federal government's role in mortgages with brevity in mind, we can see that American finance or Wall Street helped design ways for savers to attain stable income streams that made it much more possible for buyers to attain home ownership. And then liquid mortgage markets once again expanded opportunities for savers and buyers even more. What's important is that without a liquid market for mortgages, home ownership in the U.S. wouldn't have been nearly as broad then, nor would it be now.
Ok, and without once again getting into the federal government's long-time meddling in housing and mortgages, not to mention the U.S. Treasury's devaluation of the dollar in the 2000s that made housing an even more attractive hedge against devaluation, the simple truth is that in the 2000s a small number of borrowers proceeded to borrow more money than they could afford to pay back in order to buy more house than they could afford. Let's once again forget the government's role in all this, and most notably Treasury's unsung but very large role, and just accept that what happened actually happened. Once we do we see that Wall Street didn't "force millions of Americans into foreclosure."
What we see firstly is that the savers whose savings made it possible for so many to borrow were stiffed by borrowers who failed to stay current on their mortgage payments. "Wall Street" decidedly did not force a small percentage of nominal homeowners to bilk borrowers out of their hard-earned savings. Yet with the latter happening, the same market forces that made broad homeownership possible similarly set about shrinking it. With good reason. Wall Street didn't "force millions of Americans into foreclosure" as much as the market it helped create to bring savers and borrowers together began to reflect skepticism about the ability of some borrowers to pay monies borrowed back. About this, and as evidenced by the failure of some banks and investment banks (those bailed out shouldn't have been), "Wall Street" didn't force foreclosure as much as its own belief in the creditworthiness of the American homeowner victimized it every bit as much as the individual savers and borrowers who made home ownership possible in the first place.
The main thing is that Wall Street had nothing to do with forcing "millions of Americans into foreclosure" unless the Street's critics believe that the symbol of finance was the driving force behind borrowers looting the savers who believed in their creditworthiness. Importantly, and as evidenced once again by the fragile health of Wall Street back in '08, this allegedly greedy whipping boy was plainly one of the creditors brought to its knees by the irresponsibility of certain borrowers. Wall Street didn't "force millions of Americans into foreclosure" as much as millions of Americans who walked their mortgages nearly forced several of Wall Street's most prominent banks and investment banks into bankruptcy. USA Today gets it backwards. If Wall Street could have dictated who went into foreclosure, certain firms wouldn't have needed the bailouts that they shouldn't have received back in '08.
So while Wall Street decidedly did not force the wave of foreclosures that nearly erased some of its best and brightest firms not too long ago, its financial innovations no doubt did make home ownership more of a possibility for millions of striving Americans. Absent Wall Street, "millions of Americans" don't own houses as is. Why, it's worth asking, do editorial boards like USA Today's never mention this? Such an admission would be correct, and also a step in the right direction. For now, USA Today should at least admit that it promoted a fib when it said "Wall Street" forced "millions of Americans into foreclosure." It did no such thing.
