Monday, February 16, 2009

To Catch a Predator

There are three great programs you need to watch to understand why, as I and others have been arguing, this economic crisis was born out of the bowels of white-collar crime. And why, as Reiman has put it, there isn't a lot of difference between white-collar crime and pedophilia.

First, from the NYT, a review of two documentaries well-worth your time.

“Everybody does it,” is what high school students say when caught committing an offense. And now that the economy has plummeted, it’s the defense offered by lenders, borrowers, brokers, investors, credit agencies, government regulators and elected officials alike.

Everybody was doing it, and nobody wanted to stop it. As Michael Francis, a former Wall Street investment banker puts it in “House of Cards,” a documentary on CNBC on Monday, “No, there was never a time where somebody said: ‘Hey, hold on. Let’s not do this.’ ”

Collateralized debt obligations are so complicated that even the former Federal Reserve chairman Alan Greenspan says he finds them bewildering. But now, in hindsight, it’s just as difficult to fathom the individual gambles and collective folly that brought down Wall Street and cost millions of Americans their homes, jobs and retirement savings. And that’s why “House of Cards” and “Inside the Meltdown,” a “Frontline” documentary on most PBS stations on Tuesday, are so gripping.
The Frontline airs tomorrow, but I saw "House of Cards" on CNBC over the weekend and was stunned by the overt criminal conduct on display in the mortgage, banking, investment and housing industries. It was like the perfect storm of criminal opportunity, and that's exactly what took place.
CNBC’s David Faber, the reporter behind “House of Cards,” takes his camera onto a helicopter with a Southern California public health inspector to look down at a patchwork of slimy green backyard swimming pools left to fester after the houses were foreclosed...Daniel Sadek, the founder of Quick Loan Funding, which is now defunct, was pocketing $5 million a month and spending it on mansions, antique sports cars, Las Vegas junkets and a car race movie, “Redline.”
And the dude had a third grade education. Equally gripping was this 60 Minutes clip last night on the mortgage industry and the lax hiring practices of their "loan officers", who it turned out were the banking equivalent of used car salesmen (one guy went from delivering pizzas to making $20,000 a month hocking sub-prime garbage).
Lenders were in a ruinous competition for customers. "There are people inside of every institution that have been screaming for years about these terrible loans. Don't fund these. These are horrible loans. And they were routinely ignored inside of their own institutions."

Asked why they were ignored, Simpson said, "Because there's no money in common sense. There's no money in stopping a loan. There's only a payday when that loan closes."

"What went wrong?" Pelley asked [one loan officer].

"Well we ran out of borrowers," he replied. "Everybody that could qualify, anybody that could fog a mirror, anybody that could just breathe, you know, and qualify at any level had basically been refinanced once, twice, three, sometimes four times."
When you watch this clip and the other documentaries you come away with a firm conclusion: from Wall Street to the banks to the mortgage industry, it was white-collar crime run amok. These weren't "bad loans" or "risky investments." It was fraud, predatory lending, false advertising, bait and switch, embezzlement, bamboozlement and scores of other crimes. It gives new meaning to the term "organized crime."

More importantly, as I've also been arguing, it's the working class folks who end up paying the most for the crimes of elite. I'm not sure I've ever read a more concise assessment than yesterday's "The Blow the Working Class Saw Coming" by Iain Levinson in the Washington Post.
They saw it coming. The working poor always see it coming, well before the Wall Street analysts and the Federal Reserve wonks. From the bottom rung of the ladder, you get a more immediate view of the economy and the direction it's taking.

"This crisis is urgent," the people on television keep saying, and when the cameras are turned off, they probably go home to plush apartments in Washington and New York. The people for whom it really is urgent have stopped listening, and not just because the cable is getting cut off. The problems are simply too immediate for them to pay attention to people who talk about economic theories, about bailouts and tariffs and gross domestic product. In this world, there are actual sheriffs with actual eviction notices. Something needs to be done now, today.

It won't be. For a lot of people, it is already too late. People have moved back in with their parents, started living out of RVs, moved into trailer parks that are mushrooming around cities such as Las Vegas the way developments with real houses used to. Even pricey Santa Barbara, Calif., recently made several gated parking lots available to people living in their cars.

But of course, nobody really asked the working poor for their opinion of the economic situation. What do they know?
Exactly. In fact, if they apply for TANF or any other kind of welfare or unemployment, they'll have to abide by and jump through scores of hoops and restrictions on what they can and can't do with their bail out, including the amount they can actually collect.

But if you're a Wall Street exec, and you apply for TARP or any of kind of welfare or "stimulus" for you company, you can do with and get paid whatever compensation or bonuses you'd like, especially since the Obama administration announced they would fight the compensation provision in the latest bail out.

Should the working classes be cynical? Says Levinson:
They have a right to be cynical. It turns out, the people who understand money the best are the ones who don't have it.
Which means we'll have plenty of "financial experts," real ones, when this is all said and done.

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