Where No Mortgage News Is Fit to Print

When Joe Nocera was given a regular op-ed column in the New York Times, there was kind of a collective “uh-oh” among people who have watched the gradual slide of that page into Krugmanism and ideological irrelevance. I was one of them, but thought there might be some hope. Some of his columns in the Times business section had suggested a glimmering of a willingness to consider other points of view and even facts.

At first, I was disappointed. As he said in today’s column, he called my dissent from the majority report of the Financial Crisis Inquiry Commission “lonely” and “loony.” That was fairly nasty, but I have been called much worse by the hard Left. We had a few more skirmishes, and then he made a truly serious error, blindly following his lefty views in calling the Tea Party “terrorists.” At that point, I wrote him:

Joe: Weren’t you one of the ones on the left who blamed Gabby Giffords’ shooting on right-wing rhetoric? As the victim of some very vicious and threatening e-mails from the left, I find it somewhat peculiar that you and your colleagues would be stirring up the dogs of war by calling your opposition terrorists at war on America. This sounds a bit hypocritical (or worse) to me. Wouldn’t it be better for someone in your position—writing for a newspaper that (given your recent attack on the WSJ) must stand for sober non-ideological discussion—to call for civility, rather than stirring up hatred? Would I be wrong to consider you no better than those who send me equally unbalanced e-mail? Peter

His response, I agreed, would be confidential; but a little while later, he publicly retracted the charge, and I wrote him again to note the praise he then received from the New York Times ombudsman.

Nocera’s column is full of errors that show he has not—as he claimed—read the complaints.

I thought, at this point, that he would avoid following his colleague Paul Krugman over the ideological cliff. It was Krugman who famously wrote—when Fannie and Freddie were coming apart—that all the right-wing talk about those two firms acquiring subprime loans were lies. They weren’t even allowed by law to do so, said Krugman, once again following ideas he’d heard in the left-wing echo-chamber rather than doing even the most basic research into the facts. Krugman has disgraced himself as a scholar, but I still had some hope for Nocera.

During the past summer, I pointed out to him that another of his colleagues, Gretchen Morgenson, along with Josh Rosner, had written a book, Reckless Endangerment, that blamed the financial crisis largely on Fannie Mae and Freddie Mac. That certainly didn’t penetrate; he’s now back in full-blinder mode refusing to look at facts—indeed, not even reading the things he cites as facts—in order to make an ideological point that will keep him in tune with the editorial position of his employer.

Nocera’s column today follows the SEC’s suit against Fannie and Freddie executives for “materially false” disclosures about the exposure of each firm to subprime loans. News articles over the weekend make clear what the SEC is arguing, so I won’t do it in this piece. Suffice it to say that in order to claim that Fannie, Freddie, and their executives misstated their exposure to subprime loans, the SEC had to decide what a subprime loan was. Reasonably, as is clear from the complaints, they concluded that a subprime loan was one that had a higher rate of serious delinquency (more than 90 days overdue) than a prime loan. It turns out that the standards used by the SEC are more inclusive than those my American Enterprise Institute colleague Ed Pinto and I have been using, and more inclusive than those I used in my dissent from the majority report of the Financial Crisis Inquiry Commission. Fannie and Freddie had even more low quality loans than we’d thought.

Krugman has disgraced himself as a scholar, but I still had some hope for Nocera.

But Nocera’s column is full of errors that show he has not—as he claimed—read the complaints. For example, he states that there are “no damning e-mails in the complaint, with executives contradicting their public statements.” No. No e-mails, but the complaint against Freddie has something worse—that, over many years, the firm coded hundreds of billions of dollars in mortgages it was acquiring as “subprime” or “subprime-like,” even though its executives were reporting to the public and investors that their exposure to subprime loans was “less than 1 percent.” As to e-mails, those have already been published in an article by Charles Calomiris in the Wall Street Journal several weeks ago. He quoted from the chief risk officer of Freddie telling the chairman that the loans they were buying were poor quality and would cause losses. But the risk officer was ignored.

Even more seriously, he notes that the complaints didn’t have any “default data.” Leaving aside the question of whether that was necessary to show material misstatements about their subprime exposures, the complaints cite high rates of “serious delinquency,” which is of course a mortgage that is virtually in default, but not yet foreclosed. Since Fannie and Freddie are now insolvent, and have already cost the taxpayers about $150 billion, one would think there would be little argument about whether the loans they held were in fact subprime. But Nocera manages to do so, largely by following the absurd argument—another product of the left-wing echo-chamber—that Fannie and Freddie’s loans were not subprime because others were worse.

Now, in Noceraworld, even the SEC is part of the Wallison/Pinto cabal. Nocera writes: “The [SEC’s] complaint is extraordinarily weak. Taking cues from the Wallison/Pinto school of inflated data, it claims that Fannie and Freddie failed to reveal to investors the true extent of their subprime portfolios.” Ah, the power! I hope we can exercise it responsibly.

Peter J. Wallison is the Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute.