Where Is Justice?
by Mary Pitt
As a small voice from the back of the room, I have one question regarding the discovery of the illiquidity of all the huge corporate conglomerates who have taken over the finances of this ostensibly democratic nation. When is somebody going to jail?
Now, I don’t profess to truly understand the ins and outs of our financial system and I have absolutely no concept of anything over a million of anything. I think I am in good company as you would be safe in assuming that the majority of the Americam people are in the same boat as I. However, those of us with intact brain cells do remember the Enron fiasco when Congressional hearings were held which exposed the various forms of chicanery which had been perpetrated by the corporate moguls and their compliant accountants. It seems that they had engaged in what they termed “creative accounting” in order to induce pigeons, (pardon me, investors), to continue to trust them with trust funds and other forms of financial donations. We watched with a sense of irony as first one and then another of the perpetrators were marched off to the Federal Countty Clubs. (But our money was still gone.)
Now we learn that the same sort of underhanded and blatantly dishonest business practices had brought down many of those companies who had been entrusted with the very lifeblood of our capitalist financial and political system. They had created false balance sheets which listed the packages of home, auto, small business, and miscellaneous loans which had been issued to patently and obviously poor credit risks at their face value rather than discounting them due to the likelihood that a large percentage of them would default. This created the false image of a company in robust health and highly eligible for the consideration by potential investors.
The only reason we have heard advanced as to the reasons for this perfidy have to do with the eligibility of the corporate officers to draw bonuses, raises, and parachutes with a higher carat of gold content. which only further drained the corporate coffers and caused the business foundation to shake still more. It was only when the whole house of cards was preparing to come down around the ears of the entire system was this condition uncovered by the oblivious souls who were in the position of guardians of the public good, who had been blithely watching the stock market go up and up.
We have been told that it is our fault for borrowing or buying things we could not afford. Shame on us that, if we were searching for a new home with a limited budget, that the fast-talking sales person told us that they had access to Acreative financing@ which would allow us to pay the interest only for the first two years to allow us time to Aget pour feet under us@ before having to start paying on the principle. Or shame on us when we went shopping for a used car to replace the old one that had just gasped its last and the slick salesman said that, by the same method, we could afford to drive away in Athis little baby right here@. And shame on us when our bank told us that Adjustable Rate Loan was the newest thing and had many advantages. Double-shame that we fell for the easy credit card approvals that appeared in our mail regularly. Well, now we have to pay for those mistakes, in spades!
Rather than to risk the collapse from spreading to the international market with the dollar sinking into oblivion, we were told that it would be necessary to obligate the American taxpayers for generations to come for buying out those worthless loans and putting right the condition of these companies. Now, I could be wrong and I readily admit to naivete in these matters, but I felt it would have been as productive and more fair to the American people if the government were to take them into Federal receivership, terminate without severance pay all the people involved in the conspiracy to defraud, and set the firms on the right path before releasing them back to the control of the shareholders.
However, we must assume that Congress knows best and chose to take another path and the American people will have the opportunity to judge their actions in the upcoming election. While the Congresspersons are at home campaigning, perhaps we will be able to ask them to further account for their reasoning and explain their actions. There are many questions that the wage slaves and others who feel disconnected from the nuts and bolts of managing our futures would like answered if answers there be. Among them are:
Why, when we lose our jobs or have a medical catastrophe dowe not receive any assistance from the government until our resources are so depleted that we qualify for welfare?
Why was it necessary to make the bankruptcy court so restrictive that relief was all but unavailable through that action?
And, oh, so many more questions why we, the people, are treated so much less generously than the multi-billion dollar corporations. If we make a simple mistake on our income taxes, the vaunted accountants from the Internal Revenue Service fall upon us like so many fire ants and we pay up or go to jail and they will follow us to the ends of the earth to collect every penny, costing us out job or profession and ruining our families forever after. Yet, those who are engaged in such corporate criminality are allowed to float away in their golden parachutes and dwell forever after on the Riviera.
Again, I can only ask, when is somebody going to jail for this?
Hi Mary,
I do pretty well understand the hole we are in and how we got here. Lots of us became part of the problem and those of us willing to take on dept we could not afford are a bigger part of the problem.
But the real cause is a Congress that pressed hard ot give all of us whatever we wanted whether or not we could afford it. Way back when, banks would not give us a mortgage without having some “skin in the game”, at least 20%, and without the earning power from our salary or whatever so that the bank could expect to be paid back.
But this did not satisfy liberals because they wanted poor people to be able to get a mortgage and own their home. So in 1977 Congress passed the Community Reinvestment Act (CRA). This act was an attempt to force banks to lend to the poor. Regulators would review where a bank was lending and if they weren’t lending to enough people in poor neighborhoods, a policy called redlining, they were prevented from being able to merge with another bank or even expand their branches.
But many banks did not respond knowing that they might not get repaid. At the same time, the two government sponsored mortgage brokers, Fannie Mae and Freddie Mac, who bought up many of these mortgages were encouraged to buy more to take them off the books of the banks thus giving banks back the money loaned allowing them to make another loan.
Clinton and Democrats wanted to do more so they revised the CRA in 1994 to increase penalties on bands, provide money to community organizers and create a new class of security called a Mortgage Backed Security (MBS). The MBS was simply a large number of mortgages all bundled together and then sold to investors or to Fannie and Freddie. There were warnings at the time that we were sowing the seeds of our own financial destruction, but Democrats Barney Frank, Chris Dodd and Chuck Schumer downplayed the dangers. These Dems made sure that Fannie and Freddie were not regulated like the banks and I would call it a failure to regulate them at all, just requiring them to do what Democrats wanted them to do.
MBSs turned out to be easily sold to investors worldwide as most were funneled through Fannie and Freddie giving investors the impression that they were insured by the federal government so not to worry, they were safe. With the housing boom, the granting of mortgages to those who could not give a downpayment and would not provide any information on their finances skyrocketed.
Banks who had been sued or threatened with suits by Community Organizers like ACORN for whom Obama served as a lawyer, mostly succumbed. They made loans and bundled them together to be sold to investors. They were a lucrative security so long as the housing market went up and many of our biggest banks had lots of them on their books. The smart ones never touched them, but they weren’t forced to do so because they were not located in areas with lots of poor and thus lots of community organizers.
2 months after Bush came to office in 2001 he warned Congress of impending disaster, but Democrats led by Frank, Dodd and Schumer called these fears false. These same Democrats made sure that when in 2003 Bush submitted legislation to fix the problem, they killed it. The same thing happened again in 2005 when McCain co-sponsored a bill to do the same. The Chairman of the Federal Reserve Board, Greenspan, told Congress that if they failed to pass reform the results on the financial system would be dire. Democrats stonewalled.
Meanwhile, Fannie was staffed with cronies of the Democrats. Franklin Raines was Clinton’s Budget Director and he became CEO of Fannie and took out $90 million home in 5 years before he was thrown out for accounting fraud. Another Democrat crony named Johnson became CEO and he was also kicked out but not before he got rich. Both of these men now work for Senator Obama’s campaign.
Fannie and Freddie have given a lot of money to politicians, Dodd having gotten the most over a period of 30 years while Obama is second even though he was only an Senator for 5 years. Tells me a lot.
So the sub-prime crisis was orchestrated by politicians. Did the financial companies know that they were creating the problem? Some did, but some top bosses of really big banks didn’t know enough about the details to understand what kind of a bomb they were sitting on.
When the housing market boom went bust as all booms do, people walked away from the mortgages they could not afford and the chickens came home to roost. Many people think that they should have whatever they want whether or not they can afford it. Will we learn our lesson? I doubt it so long as those who were the major cause of this fiasco are able to blame Wall Street.
Justice would let the companies that hold these bad loans fail and justice would throw out the Dodd, Frank, Schumer, Obama and others crowd.
Best regards, Ben
Ben, while some of what you say is true, like all attacks from the right, it omits the behavior of the GOP. Trying to tie Obama to these issues is a canard: http://www.snopes.com/politics/obama/fanniemae.asp The real problem is wealthy GOP businessmen taking turns stuffing their pockets with OUR money and astroturfers like you carrying their water by the barrelful. I see that you’re from Tampa, FL, a battleground state – such a huge effort is being waged by the GOP to hold on to these former bastions of power that I have suspicions as to your motives for commenting on my blog. It’s no surprise to me that after years of virtually no comments (I’m not about publicity, I write because I want to and publish friends whose writing I like) suddenly I get a right-wing hack like you showing up in my comments. Go back to Tampa Ben, dream of what was and pray that the Republican Party finds its moral compass again.
Ben, I don’t care a flying fig if it was the Democrats or the Republicans who caused this epic scandal and that was not my point. There are flaming crooks in both parties who are concerned with their own “connections” and wealth, John McCain and GWB among the worst of them. The fact is that they had bled all the rest of the resources of the country and decided that they hd to either lower the cost of the homes they wanted to sell or risk going into the pockets of the poor.
I know for a fact that these unqualified loans were pushed by the banks on the premise that they would get their inflated interest and they would still own the homes once the disappointed owner had been tossed onto the street. However, they reached the point where they owned more abandoned homes than they could find suckers. Then they had to lie in order to “play the market”.
I worked for years as a corporate accountant for small business and Lesson #1 of my education taught me that “inaccurate accounting WILL put you in jail!”
WHEN IS SOMEBODY GOING TO JAIL??????????
Personally, I’m hoping for early in Obama’s first term, would LOVE to see some bigshots in silk suits doing the ‘frogmarch’
http://tinyurl.com/6hbz4f
11 Racist Lies Conservatives Tell to Avoid Blaming Wall Street for the Financial Crisis
By Sara Robinson, Campaign for America’s Future. Posted October 2, 2008.
Conservatives are twisting the facts beyond the breaking point to support their revisionist history. But don’t be fooled.
Conservative pundits and politicians have piled onto the excuse like shipwreck victims clinging to a passing log: The real blame for the current economic crisis, conservatives would have you believe, lies not with anything they did, but rather with the 1977 Community Reinvestment Act — a successful Carter-era program designed to get banks to stop covert discrimination, and encourage them to invest their money in low-income neighborhoods.
It’s always easy to tell when the cons are completely lost at sea. The lies get more absurdly preposterous — and also more transparently self-serving. But when they go so far as to openly and unapologetically latch onto race and class as an excuse for their woes (which this is, at its heart), you know they’re taking on water fast — and scared of going under entirely.
You can hear the conservative commentators burbling this CRA fable from the Wall Street Journal to the National Review; from Rush to YouTube. Neil Cavuto put the essence of the argument right out there on Fox News: “Loaning to minorities and risky folks is a disaster.” See! It’s all the liberals’ fault for insisting on social justice!
Conservatives are twisting the facts beyond the breaking point to support their revisionist history. But don’t be fooled: the financial crisis was caused by conservative financial follies and bankers run amok and nothing more. Here are the basic myths they’re trying to push about the CRA — and the facts that will enable you to fire back.
1. The CRA was a liberal boondoggle designed to con banks into funding housing for undeserving, unqualified minorities.
False. The Community Reinvestment Act of 1977 was the result of decades of disinvestment in poor and working-class neighborhoods. It was designed to put an end to “red-lining” — a widespread practice in which banks refused to write mortgages for houses in certain neighborhoods, no matter who was applying or how creditworthy they were.
The Fair Housing Act of 1968 had made it illegal for real estate agents and banks to discriminate against homeowners on the basis of race. Red-lining soon emerged as a not-so-subtle way to continue this discrimination, by declaring, ahem, certain neighborhoods as unfit to invest in. By 1977, the results of this practice were becoming all too obvious, so Congress stepped and gave lenders a choice: if you want the FDIC to insure your deposits, you need to knock off the redlining.
The CRA didn’t force lenders to make riskier loans than they would have otherwise. It simply required that they take each applicant on his or her own merits, and give people in poorer neighborhoods the same fair chance at a mortgage that everybody else in town was getting. It wasn’t about preferential treatment. It was just about basic equality.
2. The CRA forced banks to lower their standards and make loans to all low-income families and people with poor credit — and find banks that refused to comply.
No. The CRA has encouraged banks to lend fairly and responsibly for over 30 years. It does not impose fines. It does periodically examine FDIC-backed banks, and issues them a CRA compliance rating. A highly-rated bank must meet the financing needs of as many community members as possible, and must not discriminate against racial and ethnic groups or certain neighborhoods. However, a bank will not receive a high rating unless it is also maintains “safe and sound banking practices.”
In other words, the CRA requires banks to lend to working-class families and people of color — but only when those people have been deemed as creditworthy as anyone else.
3. The housing bubble burst when too many people with home loans mandated by the Community Reinvestment Act failed to make their mortgage payments.
False. The CRA only applies to FDIC member banks and thrifts. Back in the 1970s, these institutions were responsible for most of the country’s mortgage lending. But starting in the 80s and on up to the present, we saw a huge boom in lending businesses– such as finance companies like Countrywide — that weren’t banks, and didn’t take deposits that required FDIC insurance. Thus, they didn’t have any obligation to the CRA. And they were free to set their own lending standards, which were often far less cautious than those required of FDIC-insured banks.
4. The bulk of the “junk” loans that have been packaged into mortgage-based securities are CRA loans.
False. An analysis of Home Mortgage Disclosure Act (HMDA) data in the country’s 15 biggest metropolitan areas found that 84.3% of the high-cost loans made in 2006 were originated by non-CRA lenders — including 83% of high-cost loans to low- and moderate-income individuals. The Federal Reserve notes that, across the country, non-CRA lenders were twice as likely as CRA lenders to issue subprime loans to vulnerable borrowers. Furthermore, the Fed also reports that responsible mortgages made by CRA lenders have about the same low rate of foreclosure as other traditional mortgages.
5. If the government had just set the lenders free to do their thing, the market would have prevented this. It’s just another example of how government oversight always leads to market failure.
Wrong again, buckaroo. As explained just above, up to four-fifths of these loans were issued by financial institutions that operated with little or no federal regulatory oversight. In fact, in 2006, only one of the top 25 subprime lenders was a CRA institution. A few others were mortgage/finance company affiliates of CRA-covered lenders; but even these were separate businesses that didn’t operate under CRA rules (including Countrywide, CitiMortgage, and Wells Fargo Home Mortgage). Likewise: the vast majority of the top 20 issuers of risky interest-only and option ARM loans were not CRA-affiliated lenders.
If anything, the CRA example proves — once again — that government oversight not only works; it’s essential to maintain safe and sane capital markets.
6. The CRA is just another failed liberal handout program.
No. The benefits of CRA have been substantial. Robert Rubin recently estimated that the law has channeled upwards of $1 trillion into distressed neighborhoods across the country — including both inner cities and rural areas without much access to investment funds — without putting up any taxpayer money beyond what it takes to operate the CRA itself. In these areas, home ownership is up — and with it, the local tax base, which means more parks, more cops, more street repairs, and so on. There’s more decent rental housing, too, because landlords can get loans for upgrades and improvements.
Small business ownership is also up. Low-income communities have become more attractive to outside investors, and more able to support community redevelopment efforts. And in places where people once cashed their paychecks at the convenience store and depended on payday loans, there are now full-service bank branches offering the same affordable financial services people in better neighborhoods take for granted.
The cons like to talk about the “ownership society.” There is no ownership without access to capital. For 30 years, the CRA has been making private capital available to qualified people who want to bootstrap themselves into home and business ownership, and a secure place in the middle class.
7. OK — if it works so well, why do we still need it? Haven’t the banks finally figured by now out that redlining was a stupid idea?
If only. The very fact that the conservatives are trying to blame the mess on the CRA is, in itself, ample proof that we still need anti-redlining laws on the books. Fifty years into the civil rights era, and they’re still arguing that it should be acceptable to permanently exclude people from the capital markets on the basis of race and class. Different millennium, same ugly story: “See? This is what happens when you give money to minorities and poor people. You end up wrecking the country!”
In other words: no, they haven’t learned their lesson; and yes, they still believe in red-lining as much as they ever did. Racism is alive and well, and there are still plenty of Americans who would bring back housing discrimination in a heartbeat if the law allowed them to. Which is precisely why we can’t allow them to.
8. If we can’t blame the CRA, then who can we blame? How about the federal banking agencies, which outright told banks to go ahead and adopt risky lending practices? In particular, a 1992 Boston Federal Reserve Bank publication, Closing the Credit Gap: A Guide to Equal Opportunity Lending, told the banks that it was OK to adopt unsound lending practices.
Nice try, but still wrong. According to the National Community Reinvestment Association, the document cited above offered three new guidelines to lenders — none of which are applicable to the current subprime crisis.
The first guideline was that the lack of proper credit history shouldn’t be counted as a negative factor for potential homebuyers. Banks could use other evidence to assess the borrower’s payment habits, including the timely payment of rent, utility bills, and other scheduled loans. Borrows still need to prove that they’re reliable; they’re just allowed to use documentation besides a credit report.
The second was to remind bankers that some households with debt ratios above the standard 28/36 criteria might still qualify for home loans. This guideline is very conservative by today’s standards. Many problematic subprime loans were granted to borrowers with debt-to-income ratios above 50 percent, which was in no way sanctioned by the 1992 guidance document.
The third was that lenders could count Social Security, second jobs, and other verifiable income streams as valid sources of income when evaluating loan applications. But most subprime loans failures aren’t related to alternative income sources. The real problem has been with “liars’ loans,” in which the reported income streams are never verified at all.
9. Well, then…it must be Bill Clinton’s fault, right? In 1995, Clinton changed the Community Reinvestment Act to allow the securitization of CRA and subprime mortgages. That’s what started all this.
Talking point regurgitation at its worst. The 1995 revisions to the CRA only changed the way in which a bank’s CRA compliance is evaluated. They made no mention of mortgage securitization at all. Under the 1995 rules, banks are rewarded only for making mortgages in their communities, not for re-selling mortgages as securities.
10. OK, then — it’s the Democratic Congress’s fault! President Bush and Senator McCain tried to stop the subprime mortgage crisis, but Democrats blocked their efforts.
It’s not lying. It’s a gift for fiction. This one’s actually made it into a TV ad. The claim is that Bush and McCain supported the Federal Housing Enterprise Regulatory Reform Act of 2005, which would have created a new government agency to oversee Fannie Mae and Freddie Mac and other federal housing programs.
However, there’s no pony in this manure pile. This bill would have done nothing to stop the rash of subprime lending that preceded the housing bubble. It only provided oversight for Fannie and Freddie — but it said nothing at all about the companies that issued subprime mortgages.
11. No serious conservative economist would have ever approved of the CRA.
False. In March 2007, Federal Board Chairman Bernanke — no liberal he — noted that CRA has helped institutions discover and enter new markets that may have been previously under-served and ignored by insured depositories.
These myths are floating around everywhere this week — a Big Lie that’s being repeated so often that Americans may well start to believe it. The real objective of the “blame the CRA” campaign is to pre-emptively discredit any future progressive proposals that involve using government regulation to make the capital markets behave — and to get the free-market fundamentalist faithful back in the fold.
Time to fire back, and replace the Big Lie with some real truth.
Sara Robinson is a twenty-year veteran of Silicon Valley, and is launching a second career as a strategic foresight analyst. When she’s not studying change theories and reactionary movements, you can find her singing the alto part over at Orcinus. She lives in Vancouver, BC with her husband and two teenagers.
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