Journalists like simple stories with clear-cut villains who are easy for readers (and journalists themselves) to recognize. And so, as the financial crisis has brought Wall Street to its knees in recent weeks, it\u2019s become so much easier for journalists to cope. Time Magazine, for instance, tells us in its current issue that Wall Street \u201csold out\u201d\u009d America, while the New York Times decries \u201cWall Street\u2019s \u201d\u00a6.real estate bender.\u201d\u009d John McCain has helped out the scribes by attributing the problems we now face to greed on Wall Street.<\/p>\n
Listening to this sort of chatter, it\u2019s easy to forget that this mess began with a heap of bad mortgages made by American consumers who never came within a hundred miles of the card sharps on Wall Street. The inability (and in a good deal of cases, the unwillingness) of these same ordinary Americans to pay back these loans, many of which are sitting in mortgage backed-securities held by institutions around the world, helped tilt us toward this systemic threat to our financial system. And even as we focus on bad bets and lousy leverage ratios on Wall Street, these toxic mortgages continue to unwind, and as they do, we are getting a better look at how they were made\u201d\u201dand it\u2019s not pretty. If it wasn\u2019t clear before, it should be now, that speculation and fraud\u201d\u201dmuch of it on the part of borrowers\u201d\u201dwere rampant.<\/p>\n
As I have observed before, mortgage fraud soared in the run-up to this mess, and believe it or not, it\u2019s continuing to rise. The FBI says that reports of suspicious mortgage activity increased by 10-fold from 2001 through 2007, and rose another 42 percent in the first quarter of 2008.<\/p>\n