Com­ment: In FTR #690, we exam­ined indi­ca­tions that the mys­te­ri­ous Roland Arnall–“the Johnny Apple­seed of subprime”–may well have been an oper­a­tive for the Under­ground Reich and the Bor­mann cap­i­tal net­work. The dam­age done to Amer­ica by the finan­cial col­lapse pre­cip­i­tated by the sub­prime cri­sis could not be exaggerated.

How­ever, what­ever harm the Nazis have done and can do to our econ­omy and our soci­ety is pred­i­cated on a will­ful blind­ness on behalf of those over­seers who have  “over­looked” the obvious.

An inci­sive op-ed piece from The New York Times demon­strates that the dev­as­ta­tion could have been prevented.

“I Saw the Cri­sis Com­ing. Why Didn’t the Fed?” by Michael J. Burry; 4/4/2010.

Alan Greenspan, the for­mer chair­man of the Fed­eral Reserve, pro­claimed last month that no one could have pre­dicted the hous­ing bub­ble. “Every­body missed it,” he said, “acad­e­mia, the Fed­eral Reserve, all regulators.”

But that is not how I remem­ber it. Back in 2005 and 2006, I argued as force­fully as I could, in let­ters to clients of my invest­ment firm, Scion Cap­i­tal, that the mort­gage mar­ket would melt down in the sec­ond half of 2007, caus­ing sub­stan­tial dam­age to the econ­omy. My pre­dic­tion was based on my research into the res­i­den­tial mort­gage mar­ket and mortgage-backed secu­ri­ties. After study­ing the reg­u­la­tory fil­ings related to those secu­ri­ties, I waited for the lenders to offer the most risky mort­gages con­ceiv­able to the least qual­i­fied buy­ers. I knew that would mark the begin­ning of the end of the hous­ing bub­ble; it would mean that prices had risen — with the expan­sion of easy mort­gage lend­ing — as high as they could go.

I had begun to worry about the hous­ing mar­ket back in 2003, when lenders first res­ur­rected interest-only mort­gages, loos­en­ing their credit stan­dards to gen­er­ate a greater vol­ume of loans. Through­out 2004, I had watched as these mort­gages were offered to more and more sub­prime bor­row­ers — those with the weak­est credit. The lenders gen­er­ally then sold these risky loans to Wall Street to be pack­aged into mortgage-backed secu­ri­ties, thus pass­ing along most of the risk. Increas­ingly, lenders con­cerned them­selves more with the quan­tity of mort­gages they sold than with their quality.

Mean­while, home buy­ers, con­vinced by recent his­tory that real estate prices would always rise, read­ily signed onto what­ever mort­gage would get them the biggest house. The incen­tive for fraud was great: the F.B.I. reported that its mort­gage fraud case­load increased five­fold from 2001 to 2004.

At the same time, I also watched how rat­ings agen­cies vouched for sub­prime mortgage-backed secu­ri­ties. To me, these agen­cies seemed not to be pay­ing much attention. . . .