American Ingenuity On Display

You may have missed this little gem in NRO's The Corner the other day. A group of community activists (hey, know any of them?) has filed a federal civil rights complaint against two Wall Street ratings firms, Moody’s Investors Service and Fitch Ratings, charging that the firms essentially profited from the stupidity of low income mortgage holders.

OK, maybe that’s not what the complaint actually says…its more like the companies profited by assigning high ratings to bonds backed by mortgages “that were designed to fail” because of “unfair payment terms and insufficient borrower income levels.”

Further, the National Community Reinvestment Coalition (NCRC) charges that Moody’s and Fitch “knew or should have known” the subprime mortgages were being disproportionately marketed to minority consumers. A 2006 study is reported to have shown that an estimated 45% of mortgages extended to Latinos and 55% of African-Americans were subprime – a rate reportedly three to four times higher than non-Hispanic whites.

But isn’t that the point? Isn’t this whole “ownership society” notion that everyone is entitled to own a home, regardless of financial status, part of the equation that led to this current financial mess? Groups like the NCRC (and Obama) were most likely at the forefront of battles with major lending institutions during the 1990’s pressuring them to open the aperture of lending to minorities, knowing full well many if not most of these folks wouldn’t qualify for conventional mortgages. And guess what…they were right!

The story doesn’t directly say on whose behalf the NCRC has filed the complaint; yet I have a feeling it is not the holders of the junk bonds, but rather the constituents comprising the “community” of the NCRC.

I don’t absolve Wall Street of its sins any more than I do the stupidity and shortsightedness of the holders of these subprime mortgages. They have both made their respective bed, but neither party appears accountable enough to lie in it.