New York magazine's daily online chats about the election are usually just mildly interesting, since the journalists involved tend to be overly polite to one another, because who knows who you're going to be sending a job application to someday? Even Gawker Media veterans and that Daily Kos maniac act all pleasant. But Rolling Stone's Matt Taibbi has never been one for such fraternal niceties, and when nymag.com threw him a sparring partner from National Review, the predictably caustic lefty went to work with his fangs, at one point typing, "tell me you're not ashamed." It was awesome and just really uncomfortable at the same time. Highlights:
It started out pleasantly enough:
M.T.: So how are you feeling about McCain's chances today?
B.Y.: I've just finished an article for National Review... about the headwinds McCain faces. I was going to look at three, and then I started to list them. I stopped at ten...
M.T.: Yeah, that's a damned shame, too. I feel really badly for the guy.
Feigning sympathy for the other side — very civil, Matt. Let's start to smack the guy around a little bit in the next question though, OK?
M.T.: ...There is absolute justice in his facing a "headwind" from the financial meltdown, from the unpopularity of the Iraq war, and so on. How is that a "headwind"? That's just self-created unpopularity...
B.Y.: Did I suggest that headwinds are unfair?
The vicious part of the debate then followed, consisting of Taibbi and the National Review guy, Byron York, trading partisan, grossly oversimplified accounts of the Wall Street meltdown.
Taibbi argued the Wall Street meltdown didn't arise because of homeowner mortgage defaults but "because of... myriad derivatives trades" like credit default swaps, financial instruments investment banks and others used to hedge risky mortgage holdings and keep potential mortgage losses off their books, and which speculators used to effectively short-sell certain bonds, thus amplifying the woes of banks.
In fact, buying the swaps was just one way financial firms threw caution to the wind risk.They also recklessly rated and bought dodgy mortgages, which are in fact defaulting to a disastrous extent, which is why many swaps were exercised and discovered to be worthless.
York, though more balanced, tries to pin some blame on "Democrats' desire to give mortgages to people, particularly minorities, who could not afford them," which is also a nasty distortion. In fact, the private sector was eager to issue and securitize subprime mortgages by lending to people of all income levels on terms they really couldn't afford — no money down, no documentation, teaser rates, etc. The returns were just to good. This is why many subprime loans were pushed on people who could qualify for regular loans.
Anyway, reality need not intrude on a nice ideological catfight! Emphasis added:
M.T.: You don't think the unregulated CDS market was a major factor in the current crisis?
B.Y.: ...I believe that many of the problems in the mortgage area can be attributed to the confluence of Democratic and Republican priorities: the Democrats' desire to give mortgages to people, particularly minorities, who could not afford them, and the Republicans' desire to achieve an "ownership society," in part by giving mortgages to people who could not afford them...
M.T.: Oh, come on. Tell me you're not ashamed to put this gigantic international financial Krakatoa at the feet of a bunch of poor black people who missed their mortgage payments... The effort of people like you to pin this whole thing on minorities, when in fact this whole thing has been caused by greedy traders dealing in unregulated markets, is despicable.
B.Y.: ... Fannie became more reckless in 2006 and 2007 than they had been in the scandal-ridden tenure of Franklin Raines (who departed in 2004)... [Decent point!]
M.T.: What a surprise that you mention Franklin Raines [really??]. Do you even know how a CDS works? Can you explain your conception of how these derivatives work? Because I get the feeling you don't understand.
B.Y.: ...When you refer to "Phil Gramm's Commodities Future Modernization Act," are you referring to S.3283, co-sponsored by Gramm, along with Senators Tom Harkin and Tim Johnson?
M.T.: In point of fact I'm talking about the 262-page amendment Gramm tacked on to that bill that deregulated the trade of credit default swaps.
Tick tick tick. Hilarious sitting here while you frantically search the Internet to learn about the cause of the financial crisis — in the middle of a live chat interview.
B.Y.: ...We've gone on for fifteen minutes longer than scheduled, and that's enough. Thanks.
M.T.: Thanks. Note, folks, that the esteemed representative of the New Republic has no idea what the hell a credit default swap is. But he sure knows what a minority homeowner looks like.
B.Y.: It's National Review.