Wrong Questions, Wrong Answers

Big Crisis! Big Debt! And the cry goes up: Fix The Economy! So, how to do it? And why do we end up with a huge Keystone Kops situation?

“If they can get you asking the wrong questions, they won’t have to worry about answers.”


This little slice of insight appears in Thomas Pynchon’s 1973 novel, “Gravity’s Rainbow”; I’ve unfortunately had many occasions to reflect on it recently.


Now that our country has experienced the terrible recession of 2008, a financial catastrophe far worse than anything most of us have seen in our lifetimes, we are naturally looking around for The Fix.  How do we get our economy back?  Everybody’s got an idea: Spend on infrastructure.  Cut government spending.  Lower Taxes.  Raise taxes!  Slash those “entitlements”!  Tackle the national debt!


These are real issues, and important ones.  But in leaping right to them, some real questions, ones that go to the heart of what happened, are being ignored.  Here are two good ones:  Who were the main players that punched a seven- or eight-trillion-dollar hole in our economy?  And have they been required to dig us out of the hole?  Hint: answer number one is “Our largest financial institutions”, and answer number two is “Not at all.” 


The terrible irony of our lives now is that the major perpetrators of this disastrous situation have actually seen their crimes rewarded, while many of those who were victims of those crimes are being required to make the economy whole.  Not asked, but required.  And these less-affluent people are at the same time being lectured about their shortcomings, e.g., How could you be so irresponsible?  How could you allow this situation to arise?


It is possible to appreciate the depth of this irony only when you carefully observe the look of (possibly) genuine confusion on the face of someone like Jamie Dimon, CEO of JP Morgan Chase, when he is asked to explain the contempt with which much of the American public regards him.  Breathtaking to realize that the engineers of the debacle are so removed from its reality that they can’t fully acknowledge its severity, nor their role in it.  They are giants, demi-gods of the private sector, after all—to whom we should be grateful.  Who else has the talent and expertise to borrow money from the Federal Reserve at 0.5% interest, and then lend it to homeowners at 4%?  This must be genius.


Truly the most astounding headline in all of this, however, is the fact that most Americans seem willing to give the financial sector a pass.  We’ve been virtually mute.  Almost nothing was said about it by either candidate in the recent presidential election campaign, though Wall Street has paid essentially no price for its fraudulent behavior, and now represents an even greater danger to our society than before 2008.


The only possible explanation for this is that average citizens are now feeling so disempowered, so cynical, and so stressed by the demands of everyday survival, that they cannot or will not take a breath, look around, and demand that their elected representatives do something about the situation.  What to do?  Demand of your representatives that the big banks be broken up so they are not “too-big-to-fail.” Period. The government let them merge, so they have the power to take them apart again.  It takes ten minutes to e-mail a representative, a senator, and the president.  And with another five minutes, log onto the website “United Re:public”, a group that is seriously moving to get the dirty money not just out of elections, but out of lobbying, too. 


If we do not do this, no one will.  And it will be just a matter of time before the next, even more severe recession.  This is not about Republicans or Democrats, by the way.  It’s about Americans.

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Belle (Orchid Lady) December 27, 2012 at 12:49 AM
Thanks for the common sense. Too many people fail to use it.
Gary Orton December 30, 2012 at 11:19 PM
Excellent points, Paul, especially on the need to break up the big banks; however, corporations are run by individuals. Just look at a recent HUD lawsuit: “[A]lthough WELLS FARGO certified to HUD that its [over 100,000] retail FHA loans met HUD’s requirements for proper origination and underwriting, and were therefore eligible for FHA insurance, the bank knew that a very substantial percentage of those loans – nearly half in certain months – had not been properly underwritten, contained unacceptable risk, did not meet HUD’s requirements, and were ineligible for FHA insurance. In fact, WELLS FARGO knew that its underwriters routinely failed to perform basic due diligence, failed to verify information in the loan file that bore directly on the borrower’s ability to make payments on the mortgage, and repeatedly certified mortgage loans that contained serious defects and departures from HUD’s underwriting standards.” http://v.gd/PeEdaX "The bank knew" means some execs at Wells Fargo knew what was going on. Yet, Wells recorded high profits with inadequate reserves to cover the liar’s loans that were sure to fail, which justified on paper extraordinary bonuses and stock profits to Wells execs. One thousand execs went to jail for this type of scam during the S&L debacle of the 1980s, which was one-seventieth the size of the current crisis. Instead we see zero investigations, zero indictments, and of course, zero convictions. Shame on all involved.
Kevin January 02, 2013 at 06:50 PM
Paul, do a little bit of research first. It's well documented that the fault for the mortgage meltdown lay with our OWN GOVERNMENT; they are the ones that shoved the Community Re-investment Act down the throats of the mortgage lenders. They are the ones that forced banks to make loans to people that couldn't pay them back. Once the government GUARANTEED those bad loans through Fanny Mae and Freddy Mac, you can't really blame the banks for expanding the boondoggle to making even more bad loans. And THAT is exactly why no one at the mortgage companies or the banks has been (or will be) prosecuted! No politician on either side wants that dirty laundry to be publicized...
Paddy January 02, 2013 at 07:55 PM
Blaming others is the cornerstone of the Obamanation. For once I'd like to see you take personal responsibility for your own actions. I don't intend to hold all financail corporations free of some resposnsibility. Countrywide basically accepted the word of anyone and everyone that they were who they purported to be and then dumped their mess on BofA. I am sick of people like Paul who refuse to confront those who paid $500,000 for a dump of a house expecting to make a killing when it hit $650,000 then walked away from all responsibility when their portfolio of greed, overpayed for homes, equity ATMs all tanked as most of us knew it would. Most financial institutions paid back their government loans with interest to the taxpayer. The same can't be said for the individuals who milked the system and have dumped their debt on our shoulders. I know too many people like Paul who refuse to look in the mirror and say, "I screwed up; I need to take responsibility."
Scott Yeager January 02, 2013 at 08:01 PM
Yes, Kevin, please do some research. This is from 2008 so it's not like you haven't had time to research the facts that clearly show your ideological talking points to be exposed for what they are - pure nonsense. Private sector loans, not Fannie or Freddie, triggered crisis "The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets reported Friday." "Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble." Read more here: http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html#storylink=cpy
Gary Orton January 02, 2013 at 09:52 PM
Paddy, When regulators haven’t been completely captured by those they are supposed to supervise and regulate, they have actually been able to obtain indictments and convictions. In the Reagan Administration, a thousand top level S&L execs were sent to prison for frauds similar to those that caused the housing bubble that led to the inevitable global financial collapse in 2008. (This was despite the fact that the Reagan Administration understaffed DOJ prosecutors.) The S&L crisis was one-seventieth the size of the GFC, yet no top exec has been investigated, let alone gone to jail, for recent frauds. In any case, you set up a repugnant false equivalency between borrowers and lenders. First, lenders instigated and drove the mortgage fraud epidemic. By 2006 at least a third of U.S. mortgage loans were liar’s loans, a deliberate policy of lenders and not required by any regulator. The lenders’ senior executives designed perverse incentives, had economic and political power, and the financial expertise to carry it off. They did it because such fraud was a sure thing--executives recorded short-term income, received exceptional bonuses, and gave catastrophic losses to the lenders they worked for. Borrowers, exposed by the lenders to certain financial ruin, were less morally culpable because of less power--unsophisticated, often below the poverty line, and induced by lenders to pay a premium yield for loans that were grotesquely inappropriate. For more see http://v.gd/dljrrW
Milton Bosch, M.D. January 02, 2013 at 09:55 PM
Oh, those poor banks! I had no idea that the government held a gun to their head when the enormous 1998 Citibank (illegal) merger occurred, in complete violation of the Glass-Steagall Act, which was enacted after the 1929 crash in 1933 to prevent banks from becoming too-big-to-fail, and kept banks from playing the Stock Market with investor's deposits with a whopping over-leveraged ratio of 40:1. Then Phil Graham pushed Congress to revoke Glass-Steagall in 1999, making the illegal Citibank-Saloman Smith Barney merger retroactively legal. Further huge mergers followed, with these giant banks gambling with depositor's money on toxic, opaque and confusing derivatives in a cannot-lose strategy: selling junk mortgage derivatives as AAA rated securities to pensions, large foreign investors, and other banks. When over-leveraged at 40:1, the slightest decline in the value of the 2.5% capital this 40:1 house-of-cards rested on, caused an immediate collapse in the value of these securities. Over-leveraged in a "up" market means you're over-leveraged in the "down" market. Well guess what? Those same banks are playing the same game again, with the same dangerous 40:1 credit to deposit ratio. Every single financial crash in the last 150 years was preceded by banking deregulation. ALL OF THEM. Not one exception. We are all still greatly at risk for these same TBTF banks to cause a huge financial collapse...and get bailed out yet again by the taxpayers.
Paul Moser January 03, 2013 at 04:54 AM
Paddy-- I have to say that all of what I am seeing makes me pretty sad. All of this crazy, blind-eyed partisanship--using expressions like "Obamanation" and the like--gets us nowhere in trying to deal with these very grave, very real problems that we have involving the financial sector. When does it get serious enough that WE get serious? When do we drop all the petty point-scoring and "gotcha" statements and get to the root of the problem. You want to talk about personal responsibility, which is great. But do you really, truly believe that Obama and the people who support him are just freeloaders? That you, and MItt Romney, are the last bastion of defense of the American Way? Why do you resist researching the Glass-Steagall Act, the Commodity Futures Modernization Act of 2000, in order to find out that this problem implicates Democrats AND Republicans in selling the middle class down the river? Do you not know that most of the losses in the financial crisis of 2008 were brought about not by giving loans to those who couldn't repay them, but by banks who, knowing they were not sound, had them packaged as AAA, and then sold as investments? That these banks even built derivative instruments around them, betting MORE money that the loans would fail? These banks--such as Goldman Sachs, Bank of America, JP Morgan Chase, and Wells Fargo--are the major culprits, if you would just take the time to look. I can only be regretful if your prejudices won't allow you to do so.
Kevin January 04, 2013 at 01:44 AM
That's the point, the banks KNEW that they would not be prosecuted, they were doing exactly what the government WANTED them to do! THAT is the only explanation why they are not being prosecuted!
Alex Shantz January 04, 2013 at 02:04 AM
Great! So you support government intervention, though prosecution, to penalize and prevent the criminal behaviors of these private banks!
Gary Orton January 04, 2013 at 04:13 PM
Kevin, This didn't start with the government, certainly not as official policy, although I would agree that criminal activity was acquiesced in by high government officials. Remember, the crimes we’re talking about are crimes committed by bank officers *against* their own banks. Executives set up a system of making loans to people they knew could not repay them. They made up salary information (they even had a name for it: "liar's loans"); they falsified appraisals and then failed to book reserves for the losses they knew would inevitably take place. The banks then bundled and sold the loans to unsuspecting buyers. All of this made it look like the banks were hugely profitable so the execs could take huge bonuses. After the bailouts, the execs still had their ill-gotten gains, but you, I, bank shareholders, and loan purchasers were left holding the bag. The FBI in 2004 warned that this was massively taking place, but it and other enforcers were starved of funds to pursue the crooks inside the banks. I agree these decisions not to investigate and prosecute bank officers were made, and are still being made, at the highest levels, but that just makes those government officials co-conspirators. Why did they look the other way? Follow the money.This stuff happens. Remember Charles Keating and the Keating Five? In any case, endangering the financial system in such a criminal way is not made legal just because the top cops are corrupt.


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