Who's Behind the Financial Meltdown? The Top 25 Subprime Lenders and Their Wall Street Backers is a mammoth study on the financial meltdown, why it happened, and who is responsible.
We're not saying any one person should be singled out for blame, necessarily. However, we are providing a few candidates based on the facts. Think of this as a tripod of blame - a three-legged stool of responsibility, or better yet, irresponsibility:
First, there are the subprime lenders - the worst of which saturated the airwaves with commercials, bombarded e-mail inboxes with spam, and happily made loans to virtually anyone who could sign their name.
Second, there are the giant Wall Street and European investment banks that backed all that subprime lending. They put up hundreds of billions of dollars so they could create securities from these risky mortgages to sell to investors.
And lastly, there is the government that stood by and did nothing. Bottom line: We have witnessed a massive regulatory failure of catastrophic proportions.
In this project we identify the top "Subprime 25" lenders. We report that at least 21 of them were either owned or financed by a financial institution that has received government bailout money, and that four of these have paid big settlements for lending abuses.
This is a point that's been made before, but never so forcefully, and with such solid documentation behind it-the subprime crisis was created by the very banking institutions that are now being bailed out. They quite literally did it to themselves. Just to get things started, here's the list of the top 10 lenders:
WILLIAM K. BLACK: Well, certainly in the financial sphere, I am. I think, first, the policies are substantively bad. Second, I think they completely lack integrity. Third, they violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutions. And they're refusing to obey the law.
BILL MOYERS: In other words, they could have closed these banks without nationalizing them?
WILLIAM K. BLACK: Well, you do a receivership. No one -- Ronald Reagan did receiverships. Nobody called it nationalization.
BILL MOYERS: And that's a law?
WILLIAM K. BLACK: That's the law.
BILL MOYERS: So, Paulson could have done this? Geithner could do this?
In comments to my earlier diary, "It's the Criminality, Stupid! Bill Moyers/William Black On The Wall Street Meltdown", the issue was raised whether Black was misrepresenting the scope of the Prompt Corrective Action Law, as alleged in a recommended DKos diary, "Please be smarter than the Freepers". While the accusation in the diary is over the top, the question of whether Black is misrepresenting the law (and if so, intentionally or not, clearly or not, etc.) is certainly germane to his arguments based on it. My initial response was that that was not my main concern, as there was a broader thrust to Black's argument that doesn't depend on legal specifics, and that broader thrust was my main concern. This contrasts with what's happening over at DKos, where the diary linked to above was responding to another more narrow and sensationalist diary.
But if the guy's lying about even one minor part of his argument, probably best to make an argument without relying on him personally.
(Though maybe he's not lying. I'm gonna poke around and see if I can figure that out to my own satisfaction.)
While I can certainly appreciate this approach in terms of gladiatorial argumentation--and want to hear what Joel turns up--it's somewhat different from a reporter's point of view, where even very unreliable sources sometimes provide invaluable information that turns out to be crucial as well as boringly true. Or sometimes they simply point you in the right direction by posing questions you hadn't thought of before. Questions, after all, aren't right or wrong. They're fruitful or not. Insightful or not. Misleading or not. Etc., etc., etc.
So, on the flip I want to look back at a set of suggestions that Black and James Galbraith made last fall, which I referred to in my previous diary. I believe they stand up very well, and are not undermined in any way by questions about whether Black was right or wrong about the Prompt Corrective Action Law, either wittingly or not. Others may not agree. But, hey, what's a comment thread for?
BILL MOYERS: I was taken with your candor at the conference here in New York to hear you say that this crisis we're going through, this economic and financial meltdown is driven by fraud. What's your definition of fraud?
WILLIAM K. BLACK: Fraud is deceit. And the essence of fraud is, "I create trust in you, and then I betray that trust, and get you to give me something of value." And as a result, there's no more effective acid against trust than fraud, especially fraud by top elites, and that's what we have.
BILL MOYERS: In your book, you make it clear that calculated dishonesty by people in charge is at the heart of most large corporate failures and scandals, including, of course, the S&L, but is that true? Is that what you're saying here, that it was in the boardrooms and the CEO offices where this fraud began?
WILLIAM K. BLACK: Absolutely.
This is the great truth that cannot be spoken: what we're seeing here is massive elite criminality. And it, of course, the natural result of 30+ years of virtualy unfettered elite rule. This is what the Democrats ought to be standing militantly against. If they were, the GOP would dissolve within a few election cycles, as the Federalists did during the Monroe Presidency. But, of course, the Democrats are almost as deeply aligned with the criminals are the Republicans are--and Giethner, Summers and Rubin are the proof of the pudding. This is not a question of right vs. left. It's a question of left vs. wrong. Because calling a banker a criminal makes you a Commie, right? Even if it's true.
Apparently the SEC was busy in December going after some operators that tried to steal $68000 by manipulating the stock of the National Lampoon. Yup. Sixty eight thousand versus Bernie Madoff and the mortgage collapse and on and on and on. You can't make this up.
I'm having trouble wrapping my head around the politics of the current bailout and transition. The government is now going to lay out $7.2 trillion in lending to the financial system, which Congress ratified with the bailout vote. And that TARP program is rumored to be enlarged to $1.2 trillion from its current $700 billion amount. Citigroup is being bailed out with a remarkably awful deal for taxpayers, where the government takes a small percentage of the company in return for hundreds of billions of dollars. Robert Rubin, who should be living in disgrace, is going to be an important force in the White House, Larry Summers, who helped cause a lot of the policy problems, will run the Fed in 2010, and Tim Geithner, a Rubin disciple, is going to be the Treasury Secretary.
All of this is in the name of 'stability.' Of course, the automakers are on the brink of devastation, Blanche Lincoln is 'undecided' on the Employee Free Choice Act (so much for that 60 votes in the Senate threshold), and that promise to revise Bankruptcy Laws is far in the distance. This would be mindblowing if I hadn't watched the runup to the war in Iraq, the impeachment of Clinton, and the elite self-protection games that have gone on for years. I never expected Obama to be a progressive (since he kept saying he didn't believe in ideology and wasn't part of the left), and took a lot of heat here for saying that repeatedly. And he's obviously not. But more than that, I'm just kind of floored by the automatic pilot this political system is on, even after ten years of obviously horrible and embarrassing public policies.
It's just simply awful. The law? Pff, whatever. The WTO? No, the rich people want subsidies, that's cool. Congressional authority? Nah, it's obvious that the executive branch is going to be dominant for the foreseeable future, and that the public has very little input into, well, anything. The Very Serious People are still as powerful as they've ever been; we might have helped shuffle around the Village a little bit, but that is it.
Man I hope there is an Obama movement, distinct from Obama himself and with leaders who can create oppositional and proactive stances. This is really really bad.
Hank Paulson is an idiot. People on Wall Street quietly think he's one of the worst cabinet picks of Bush's entire term, and while there are no standards for whether the bailout is working, there's no way that you're going to hear honest opinions about his performance because Very Serious People believe that saying what everyone knows is obvious will rattle confidence in the market.
The new Treasury Secretary, Tim Geithner, is embroiled in the last twenty years of monetary mismanagement without the tarnish of being in the private sector (and thus profiting from it). He helped construct the bailout and he was part of the decision to let Lehman fail, Paulson and/or Bernanke's single worst decision so far. I'm slightly more positive towards Geithner since he's younger and more technocratic than ideologically oriented, but not that much.
The appointment of Larry Summers as senior advisor in the White House, despite his ridiculous work in the 1990s pushing through financial deregulation and his utter failure to even admit Enron's manipulation of California's energy market, is evidence that the same people who got us into this mess are in charge of getting us out. But you're not going to hear honest evaluations from anyone, even the very kickass AFL-CIO lawyer Damon Silvers who should be screaming bloody murder as part of the newly appointed oversight board, because they are all being quiet.
Lest they spook the markets. So get ready for more awesome confidence.
Victoria McGrane and Lisa Lerer from the Politico are reporting that Larry Summers is on the outs with the transition team.
The incident would likely make Summers' Senate confirmation a rocky proposition, especially since women's groups and liberal bloggers have already unleashed fierce opposition to him.
For Treasury secretary, Gandy said she suggested Federal Deposit Insurance Corp. Chairwoman Shelia Bair; Alice Rivlin, the first director of the Congressional Budget Office and expert on urban issues as well as fiscal, monetary and social policy; former Commodity Futures Trading Commission chairwoman Brooksley Born, who tried to regulate credit default swaps but was blocked by Summers, former Clinton Treasury Secretary Robert Rubin and former Fed Chairman Alan Greenspan.
I don't know Rivlin, but Bair and Born would seem like excellent choices. Dean Baker likes Bair, who is a Republican and has done a good job at the Federal Deposit Insurance Corporation. Brooksley Born is another one who fought aggressively in the 1990s to regulate the derivatives market, only to be undermined by the good old boys of Rubin, Summers, and Greenspan and their industry allies. Any of these candidates would send a strong message that business as usual is over.
.... Adding that Summers has a background that is just ripe for embarrassing Obama during confirmation hearings, not just in terms of his role deregulating financial markets in the 1990s or associating with people like Ken Lay of Enron, and disparaging women. Larry Summers before Republican Senators for a hearing would be like letting cats into a catnip factory.
Via Barry Ritholtz, here's Richard Whitney, President of the New York Stock Exchange, advocating against regulation of the markets in 1934. Ah, conservatives. Whitney was put in jail a few years later for theft.
The IMF and the G8 met this weekend, and Neel Kashkari, Hank Paulson's henchman, is speaking at 8am ET to discuss what he's going to do with the $700B bailout. The Europeans are announcing their plans, and it sounds like coordinated global leadership is actually happening (according to Soros). The market is extremely oversold and traders are talking about a bounce, so we won't know if this works for awhile (unless the markets continue to crash).
Anyway, I'm going to be following Mr. Kashkari. Supposedly, he's a very quiet man, so when he speaks the words will be well-considered.
Ben Bernanke's Fed today announced it's going to start buying short term commercial paper. The commercial paper market is normally used to fund solid corporate activity, but in the last few years it has become rife with questionable financing operations.
One tiny problem is that it's not legal for the Fed to do this (read Secrets of the Temple for a great book on how secretive and powerful the Fed really is). Another tiny problem is that this plan by the Fed is probably larger than the $700 billion bailout, and there's no Congressional authorization for any of this. Yet another tiny problem is that it's not going to restore confidence to the market.
A really nasty negative tone in the race, a sour and frustrated public, and an economic crisis is all leading to massive rises in the polls for Democrats. There's a debate today between McCain and Obama, and Chris will be live-blogging it. I'm pretty much interested in what these guys are going to say about the bailout. What I can't figure out is why they keep bragging that they were more effective than their opponent at getting this really unpopular piece of legislation passed.
Anyway, the recriminations are starting, because the bailout didn't seem to solve market confidence problems.
In an article by insider publication The Hill titled 'Doubts grow over rescue', every excuse for the failure of the bailout is given by various financial and think tank pundits, from 'Congress didn't pass it fast enough' to 'Congress didn't 'inspire confidence' in the way it passed the bill to an urging that Congress move beyond partisanship and encourage the Fed to act. My favorite is this one, from former IMF official and current Peterson Foundation fellow Morris Goldstein.
Goldstein said that Congress might have to return to Washington in the next several weeks to pass an emergency economic stimulus package, increase the federal insurance limit on bank deposits or enlarge the financial authority of Paulson to buy distressed assets.
Ah, so the bailout isn't big enough. Peter Peterson, the guy who funds this fellow, is a private equity billionaire Republican who tried to privatize Social Security, so of course, you know, there's always that.
You know what reason ISN'T given as a possible explanation? That the bailout was a stupid fucking idea put out there by the lying criminal incompetents who got us into this mess.
Seven polls from the DCCC are showing Democratic rematches looking good, all of them in the northeast, mid-atlantic, or industrial midwest. That tracks with the recessionary areas of the country.
There will be Senate vacancies, no matter who is elected President. Frankly, this is the only circumstance I would support a bipartisan cabinet, if you could get a Republican Senator to leave his seat to take a department.
The Sierra Club is greenwashing more nice front groups, not just that of T. Boone Pickens. And it's helping Clorox sell more crap! Way to go Carl Pope!
Women's Voices Women's Vote registered 1 million people this cycle, almost all of which were unmarried women. Check out the states.
That million includes 166,411 from Florida; 104,230 from Ohio; 76,799 from Pennsylvania; 63,133 in Illinois; 57,282 in Michigan; and 46,523 in Missouri, the six states where WVWV generated the most registrations. In addition, WVWV generated 34,170 in Colorado; 43,518 in North Carolina; 40,154 in Virginia; and 13,509 in Nevada. Over 7,000 people were registered online, including more than 4,000 through Facebook.
Chris Hayes has a piece out on Free Trade called Free Traitors.
The WTO and free trade is going to be a major fight next cycle. Obama's health care and climate change proposals are going to be subject to WTO rules, which means that corporations can sue the US government and dismantle his carbon reduction laws or health care reforms as 'trade barriers'. Lieberman-Warner had a carbon tariff in it, but the bill never went anyway, so nothing came of it. But there's no question the Chamber of Commerce is going to use this legal avenue through American subsidiaries of foreign companies to gut any attempt by Obama to engage in social safety or environmental protection.
Back in March, Elizabeth Warren blogged about a hearing by the Subcommittee on Financial Institutions and Consumer Credit on credit card tricks and traps for consumers. The consumers who showed up to testify were told "they couldn't talk unless they would sign a waiver that would permit the credit card companies to make public anything they wanted to tell about their financial records, their credit histories, their purchases, and so on." This was a deal by the Republicans and Democrats on the committee "to be fair to the credit card lenders."
This was back in March. I blogged about it as follows.
For some time going forward, there's going to be lots of econo-speak about bail-outs and Federal Reserve tools to manage insolvent banks, but remember one basic fact. You can't run a political system and an economy based on loan-sharking, intimidation, and socialism for the rich and powerful. Now, that might sound like a screed, but it's not. I'm not just saying that the rich stealing from the public is a bad thing, I'm saying that it no longer works because there isn't enough left to steal such that the theft can be hidden. Our policy apparatus is falling apart when it has to resort to bribery and threats.
It's almost as if there's a double standard at work.
... There seems to be a little misunderstanding here. I'm not saying the bailout succeeded or failed or was or wasn't necessary, only that last Monday's stories made it sound like the markets would crash without a bailout! And now they are crashing anyway, but you don't hear that the bailout didn't work. If the story is that the Dow is your metric, be consistent about it. And yes, I heard from members that their constituents were afraid they'd lose their 401k and retirement savings and so flipped on the bailout precisely because of the reporting that connected the two stories.
Last Monday, no bailout, we're DOOMED! One week later, there was a bailout, nothing to see here, we're DOOMED!
So Paulson puts 35 year old tech investment banker from Goldman Sachs, Neel Kashkar, in charge of the $700 billion fund. I'm trying to find out more, this guy was a donor to George Bush and a tech banker in San Francisco that worked on 'advising public and private companies on mergers, acquisitions and financial transactions.' He's a senior advisor to Paulson at Treasury and he's also in charge of Treasury's website.
In general, I'm not a huge fan of 2004 Bush max out donors. Goldman people are extremely tight, and it looks like Kashkari is one of Paulson's key lieutenants, and he negotiated the bailout deal itself.
And a new Villager arrives.
... Watching his confirmation hearings, his responsibilities at Treasury were to increase free trade, reduce our dependence on oil through conservation and alternative energy deployment, and respond to the Housing crisis by working to ensure a flow of capital through the private sector to the housing sector while minimizing the spillover of the housing deflation to the rest of the economy.
The Dow has now dropped below 10,000 for the first time since 2004. Last week, when I was trying to convince members to vote against the bailout, I had a conversation and the question was posed 'well what would you tell a small business owner who can't get a loan?' I said that the bailout probably wouldn't help them, not for any economic reason but because it seemed obvious that the people planning the bailout don't actually care about a random small business somewhere. Then last night, a few economists told me that a credit tightening is normal right before or during the initial stages of a recession as banks become more conservative. So what I said was correct on the economics. It's not a difficult concept, but what's interesting is how the press conflated the credit tightening prior to a recession with a run on hedge funds and investment banks. Anyway, there you go.
The Palin-Biden debate attracted nearly 70 million viewers, far more than the Obama-McCain debate. Here's Palin in 30 seconds.
She's being mentioned as a 2012 contender. I doubt it, she'll be impeached in Alaska first. Astroturf group Team Sarah has launched.
The US Chamber of Commerce and the NFIB are going to put $400,000 against Darcy Burner, and the NRCC is already outspending the DCCC in that district.
Palin's in Omaha, fighting for that one electoral vote carved out by Nebraska's unique electoral system.
Ari Berman has a good piece on Rick Davis's lobbying ties to Russia. At what point does this become an issue of overt disloyalty to the American public?
Gordon Smith and Jeff Merkley are going at it. Smith is attacking Merkley for running up the debt after Smith himself just voted for $700 billion.
Republicans are whining they can't suppress the vote and intimidate in Ohio.
There are plenty of bloggers who unthinkingly endorse Klein's work. That is a stain both on their critical thinking skills, and their reputations for honesty as pundits.
The Democratic and Republican Strategist Assocation is going to begin license renewals soon.
Campaign Money Watch broke out the Keating last week.
Hillary Clinton has raised $8M for Obama. That's a lot of money.
Joe Lieberman on Palin: "She's so strong, she's so capable, she's so competent," Lieberman told the cheering crowd. Emphasizing her "faith," he added that she is someone who "with your help--and God's help--will be the next vice president of the United States." More big cheers.
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