In an October 9 New York Times article, Elisabeth Bumiller reported that during an October 8 speech, Sen. John McCain “placed” Sen. Barack Obama “in a prominent role in the narrative of bad mortgages that had been backed by Fannie Mae and Freddie Mac.” Bumiller then uncritically quoted McCain saying of Obama: "[A]s recently as September of last year he said that subprime loans had been, quote, a good idea. Well, Senator Obama, that good idea has now plunged this country into the worst financial crisis since the Great Depression." Bumiller did not mention that McCain was, in fact, distorting Obama's comments from September 2007, as several media outlets -- including the Times -- noted when McCain made the same accusation against Obama in an October 6 speech. Indeed, in an October 6 post on the Times blog The Caucus, Bumiller's colleague Larry Rohter wrote of McCain's comment that day: "[T]hat quote is taken out of context and reverses the intent of Mr. Obama's remarks, which were clearly meant primarily as a criticism of practices on Wall Street."

In the September 17, 2007, speech to which McCain referred, Obama did say that “Subprime lending started off as a good idea -- helping Americans buy homes who couldn't previously afford to.” But Obama prefaced that remark by comparing the “subprime mortgage fiasco today” to “conflicts of interest” during the “dotcom boom of the 90s” and the “Enron and WorldCom scandals,” each as examples of how "[w]e all suffer when we do not ensure that markets are transparent, open and honest." Following the comment McCain cited, Obama went on to state: “But as certain lenders and brokers began to see how much money could be made, they began to lower their standards. Some appraisers began inflating their estimates to get the deals done. Some borrowers started claiming income they didn't have just to qualify for the loans, and some were engaging in irresponsible speculation. But many borrowers were tricked into glossing over the fine print. And ratings agencies began rating bundles of different kinds of these loans as low-risk even though they were very high-risk. Most everyone knew that some of these deals were just too good to be true, but all that money flowing in made it tempting to look the other way and ignore the unscrupulous practice of some bad actors.” Obama also said that “the impact on the housing market and wider economy has been so great that some economists are now predicting a possible recession.” From Obama's speech:

In fact, the danger with this mentality isn't just that it offends our morals, it's that it endangers our markets. Markets can't thrive without the trust of investors and the public. At a most basic level, capital markets work by steering capital to the place where it is most productive. Without transparency, that cannot happen. If the information is flawed, if there is fraud, or if the risks facing financial institutions are not fully disclosed, people stop investing because they fear they're being had. When the public trust is abused badly enough, it can bring financial markets to their knees. We all suffer when we do not ensure that markets are transparent, open and honest.

We saw this during the dotcom boom of the 90s when conflicts of interest between securities analysts, whose research was supposed to guide investors, and the banks they worked for led investors to doubt the markets in general.

We saw it during the Enron and WorldCom scandals when major public companies artificially pumped up their earnings, disguised their losses and otherwise engaged in accounting fraud to make their profits look better -- a practice that ultimately led investors to question the balance sheets of all companies.

And we cannot help but see some reflections of these practices when we look at the subprime mortgage fiasco today.

Subprime lending started off as a good idea -- helping Americans buy homes who couldn't previously afford to. Financial institutions created new financial instruments that could securitize these loans, slice them into finer and finer risk categories and spread them out among investors around the country and around the world.

In theory, this should have allowed mortgage lending to be less risky and more diversified. But as certain lenders and brokers began to see how much money could be made, they began to lower their standards. Some appraisers began inflating their estimates to get the deals done. Some borrowers started claiming income they didn't have just to qualify for the loans, and some were engaging in irresponsible speculation. But many borrowers were tricked into glossing over the fine print. And ratings agencies began rating bundles of different kinds of these loans as low-risk even though they were very high-risk.

Most everyone knew that some of these deals were just too good to be true, but all that money flowing in made it tempting to look the other way and ignore the unscrupulous practice of some bad actors

And yet, time and again we were warned this could happen. Ned Gramlich, the former Fed governor who sadly passed away two weeks ago, wrote an entire book predicting this very situation. Repeated calls for better disclosure and stronger oversight were met with millions in mortgage industry lobbying. Far too many continued to put their own short-term gain ahead of what they knew the long-term consequences would be when those rates exploded.

Those consequences are now clear: nearly 2.5 million homeowners could lose their homes. Millions more who had nothing to do with this could see the value of their own home decline - with some estimates projecting a cost of nearly $164 billion, primarily in lost home equity. The projected cost to investors is nearly $150 billion worldwide. And the impact on the housing market and wider economy has been so great that some economists are now predicting a possible recession - a prediction all of us hope does not come to pass.

In addition to Rohter's Caucus post, several other media outlets reported that McCain's October 6 statement “distort[ed]” Obama's comments or took them “out of context,” including:

• An October 6 McClatchy Newspapers article -- headlined “Out of Bounds! McCain distorts Obama's words on subprime loans” -- reported that “McCain's criticism in this case ignored the context and essence of Obama's remarks.” The article also assessed the following "[p]enalty": “Knock McCain's credibility back 15 yards for distorting his opponent's words.”

• An October 6 “Fact Check” on the CNN.com blog Political Ticker reported of McCain's October 6 statement, “While the words he quotes are technically accurate, McCain is taking them out of context from a statement that actually was criticizing abuses in the subprime sector.” The CNN.com Fact Check gave McCain's assertion a "[v]erdict" of "[m]isleading."

• An October 6 post on the Washington Post blog The Trail reported that McCain's comment “mischaracterized the essence of what Obama was saying in a speech to NASDAQ last September.”

Further, in contrast to Bumiller's report, in an October 9 article on McCain's speech, The Los Angeles Times reported that the “context of Obama's quote suggests a different meaning” than McCain suggested:

[McCain] said that Obama had once called the subprime loans that have fueled the housing foreclosure crisis “a good idea.”

“Well, Sen. Obama,” McCain said, “that 'good idea' has now plunged this country into the worst financial crisis since the Great Depression.”

The context of Obama's quote suggests a different meaning. According to a transcript of a speech Obama gave in September 2007, he said subprime loans “started off as a good idea” -- helping make home ownership more affordable. But lenders, mortgage brokers and appraisers then abused the system in search of higher profits, he went on to say.

From Bumiller's Times article:

Much of Mr. McCain's addresses on the economy are delivered to voters through the prism of his attacks on Mr. Obama. On Wednesday, Mr. McCain got into a relatively lengthy discourse on how the housing crisis started, but soon enough had placed Mr. Obama in a prominent role in the narrative of bad mortgages that had been backed by Fannie Mae and Freddie Mac.

“This corruption was encouraged by Democrats in Congress, and abetted by Senator Obama,” Mr. McCain said, adding that “as recently as September of last year he said that subprime loans had been, quote, a good idea. Well, Senator Obama, that good idea has now plunged this country into the worst financial crisis since the Great Depression.”

Mr. McCain also vowed to “confront the $10-trillion-dollar debt that the federal government has run up and balance the federal budget by the end of my term in office,” but in a slip of the tongue in Pennsylvania he then added, “this is the agenda I have set before my fellow prisoners.”

The prepared text of his remarks had called for him to say “fellow citizens.”