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Gandalf Grey
Guest
Ides of March 2008: Will Saving Wall Street Save Us?
By Danny Schechter
Created Mar 26 2008 - 9:17am
It's Not Just Big Banks That Panic In A Financial Crisis
Wall Street has many friends. Its recurring sins and transgressions are
pervasive but tend to get a free pass because of the way our society
worships markets. Somehow the big boys always tend to take care of
themselves. What about the rest of us? In this dramatic economic downturn,
can we be secure about our investments, retirement plans, and even the banks
that hold our money?
Don't think that you, me, or all of us won't be affected by the financial
disaster we keep reading about. For starters, the "experts" expect a 25%
drop in housing value. Beyond that, a fall off in share price can put our
401k retirement packages at risk. Already an economist at the Bank of
America says that the loss from subprime write-offs and declines in share
value add up to $7.9 TRILLION. That estimate is already dated. That's a lot
of money!
I am not a financial advisor. Like most of us, I need advice. But when I
read all the economists saying there won't be a depression, I wonder if they
are the same ones who said a recession was unlikely until it was undeniable.
What about the banks? How safe are they? Let me tell you a story.
Recently I heard a talk by Sheila C. Bair, the Chairman of the Federal
Deposit Insurance Corporation. She spoke to a group of community activists
in a Washington Hotel on the morning of Friday March 14th, on the day before
the Ides of March, the anniversary of the death of Caesar.
Created during the depression, this agency was put in place in response to
the bank runs that deepened the Great Depression of the 1930's. Its role was
to insure confidence in banks and the financial system. Without it, the
economy cannot function. Its chairman is in the confidence business. If that
sounds like a con game, it is.
"Don't Worry Be Happy" could be the FDIC's theme song. It's mission?
"The Federal Deposit Insurance Corporation (FDIC) preserves and promotes
public confidence in the U.S. financial system by insuring deposits in banks
and thrift institutions for at least $100,000; by identifying, monitoring
and addressing risks to the deposit insurance funds; and by limiting the
effect on the economy and the financial system when a bank or thrift
institution fails."
At the time of her appearance, the industry she was overseeing was not doing
too well. Bank profits had plunged 84 percent by the end of 2007, the lowest
in 16 years. The banking system itself was under escalating stress as the
credit crisis brought consumer lending and even bank to bank lending to a
standstill. Last year, there had been a run on England's Northern Rock Bank
which forced the Bank of England to step in to guarantee deposits, a move
that did not stop customers from queuing outside the bank and withdrawing #4
billion. The bank has since been nationalized.
The panic there sent shivers down the spines of regulators the world over.
Ms. Bair acknowledged part of the problem, namely that regulations had been
slipping and had earlier spoken of "weaknesses and holes in our bank
regulation ... at the heart of the current mortgage situation." When she was
with the Treasury Department, back in 2001, she tried to get the companies
making subprime loans to regulate themselves as the NY Times reported:
"In 2001, a senior Treasury official, Sheila C. Bair, tried to persuade
subprime lenders to adopt a code of "best practices" and to let outside
monitors verify their compliance. None of the lenders would agree to the
monitors, and many rejected the code itself. Even those who did adopt those
practices, Ms. Bair recalled recently, soon let them slip."
They told her to get stuffed. And she did!
Now, she was face to face with the National Community Reinvestment Coalition
representing millions of Americans facing foreclosure from their homes,
45,000 every month. Most were not in a good mood.
Ever upbeat, as is her function, she noted that she saw a "silver lining" in
the crisis because more and more people in the industry now recognized the
importance of regulation. She announced her intent to press banks to give
homeowners five years at their current mortgage rates to prevent them from
being forcing out. She later admitted that she had initially favored
restructuring the mortgages over 30 years but "had lost that fight."
Her speech lacked all compassion for the suffering of so many, but in some
way, you sensed she was actually one of the "good people" but powerless to
go up against the power of the White House and its Treasury Department. She
is there to defend bank customers; The Administration is more committed to
defending the banks.
I asked a question, well actually two. One, how many banks did she think
would fail? And secondly, did she support the FBI investigation of mortgage
fraudsters. Would she call for the prosecution of the white-collar criminals
who engineered the subprime scams that defrauded so many borrowers? She was,
I think, startled to hear concerns raised that are usually not part of the
ever so polite discourse in Washington where civility is the currency of
conversation.
To my first, she acknowledged that the FDIC has a list of 76 "troubled"
banks -but, given her professionally positive outlook, she didn't expect any
big disruptions.
How prophetic and how totally wrong!
Later on, on that very same day, we would learn that there was a run on Bear
Stearns in New York.
No one in the room had any idea then of the depth of the crisis to come.
To my second, about criminality, she was silent. That's not her job, she
said. Obviously she hadn't heard the slogan I heard relayed on the AMTRAK
while training down to DC, "If you see something, say something."
But the stench of the scheme behind the subprime scam is so strong that even
the Justice Department has been forced to look into it. The Attorney General
now says he is "gathering evidence to determine if it needs to create a
special task force to investigate POSSIBLE (sic) wrong doing in the mortgage
lending agency."
Bush's Attorney General Michael B. Mukasey announced this last Friday-they
always announce important news late on Friday so it will be buried in the
minimally read Saturday paper. A story about it appeared at the bottom of
page C7 in the New York Times.
Mukasey is the former judge who refused to call water-boarding a torture
technique-he is no doubt "gathering evidence" on that too. He said his
department is trying to figure out "WHETHER THERE IS A LARGER CRIMINAL STORY
TO BE TOLD HERE."
Of course there is, but I doubt they want to figure anything out. So far the
probes are so narrow that the real operators will be spared. They are
looking into mortgage hustlers, not the operators on Wall Street who bought
the toxic mortgages, securitized them, sliced and diced them into structured
investment vehicles and then sold them off to unsuspecting buyers overseas.
These big fish are not under investigation. As a result, we, the small time
depositors and investors, have a lot more to fear than we think.
_______
--
NOTICE: This post contains copyrighted material the use of which has not
always been authorized by the copyright owner. I am making such material
available to advance understanding of
political, human rights, democracy, scientific, and social justice issues. I
believe this constitutes a 'fair use' of such copyrighted material as
provided for in section 107 of the US Copyright
Law. In accordance with Title 17 U.S.C. Section 107
"A little patience and we shall see the reign of witches pass over, their
spells dissolve, and the people recovering their true sight, restore their
government to its true principles. It is true that in the meantime we are
suffering deeply in spirit,
and incurring the horrors of a war and long oppressions of enormous public
debt. But if the game runs sometimes against us at home we must have
patience till luck turns, and then we shall have an opportunity of winning
back the principles we have lost, for this is a game where principles are at
stake."
-Thomas Jefferson
By Danny Schechter
Created Mar 26 2008 - 9:17am
It's Not Just Big Banks That Panic In A Financial Crisis
Wall Street has many friends. Its recurring sins and transgressions are
pervasive but tend to get a free pass because of the way our society
worships markets. Somehow the big boys always tend to take care of
themselves. What about the rest of us? In this dramatic economic downturn,
can we be secure about our investments, retirement plans, and even the banks
that hold our money?
Don't think that you, me, or all of us won't be affected by the financial
disaster we keep reading about. For starters, the "experts" expect a 25%
drop in housing value. Beyond that, a fall off in share price can put our
401k retirement packages at risk. Already an economist at the Bank of
America says that the loss from subprime write-offs and declines in share
value add up to $7.9 TRILLION. That estimate is already dated. That's a lot
of money!
I am not a financial advisor. Like most of us, I need advice. But when I
read all the economists saying there won't be a depression, I wonder if they
are the same ones who said a recession was unlikely until it was undeniable.
What about the banks? How safe are they? Let me tell you a story.
Recently I heard a talk by Sheila C. Bair, the Chairman of the Federal
Deposit Insurance Corporation. She spoke to a group of community activists
in a Washington Hotel on the morning of Friday March 14th, on the day before
the Ides of March, the anniversary of the death of Caesar.
Created during the depression, this agency was put in place in response to
the bank runs that deepened the Great Depression of the 1930's. Its role was
to insure confidence in banks and the financial system. Without it, the
economy cannot function. Its chairman is in the confidence business. If that
sounds like a con game, it is.
"Don't Worry Be Happy" could be the FDIC's theme song. It's mission?
"The Federal Deposit Insurance Corporation (FDIC) preserves and promotes
public confidence in the U.S. financial system by insuring deposits in banks
and thrift institutions for at least $100,000; by identifying, monitoring
and addressing risks to the deposit insurance funds; and by limiting the
effect on the economy and the financial system when a bank or thrift
institution fails."
At the time of her appearance, the industry she was overseeing was not doing
too well. Bank profits had plunged 84 percent by the end of 2007, the lowest
in 16 years. The banking system itself was under escalating stress as the
credit crisis brought consumer lending and even bank to bank lending to a
standstill. Last year, there had been a run on England's Northern Rock Bank
which forced the Bank of England to step in to guarantee deposits, a move
that did not stop customers from queuing outside the bank and withdrawing #4
billion. The bank has since been nationalized.
The panic there sent shivers down the spines of regulators the world over.
Ms. Bair acknowledged part of the problem, namely that regulations had been
slipping and had earlier spoken of "weaknesses and holes in our bank
regulation ... at the heart of the current mortgage situation." When she was
with the Treasury Department, back in 2001, she tried to get the companies
making subprime loans to regulate themselves as the NY Times reported:
"In 2001, a senior Treasury official, Sheila C. Bair, tried to persuade
subprime lenders to adopt a code of "best practices" and to let outside
monitors verify their compliance. None of the lenders would agree to the
monitors, and many rejected the code itself. Even those who did adopt those
practices, Ms. Bair recalled recently, soon let them slip."
They told her to get stuffed. And she did!
Now, she was face to face with the National Community Reinvestment Coalition
representing millions of Americans facing foreclosure from their homes,
45,000 every month. Most were not in a good mood.
Ever upbeat, as is her function, she noted that she saw a "silver lining" in
the crisis because more and more people in the industry now recognized the
importance of regulation. She announced her intent to press banks to give
homeowners five years at their current mortgage rates to prevent them from
being forcing out. She later admitted that she had initially favored
restructuring the mortgages over 30 years but "had lost that fight."
Her speech lacked all compassion for the suffering of so many, but in some
way, you sensed she was actually one of the "good people" but powerless to
go up against the power of the White House and its Treasury Department. She
is there to defend bank customers; The Administration is more committed to
defending the banks.
I asked a question, well actually two. One, how many banks did she think
would fail? And secondly, did she support the FBI investigation of mortgage
fraudsters. Would she call for the prosecution of the white-collar criminals
who engineered the subprime scams that defrauded so many borrowers? She was,
I think, startled to hear concerns raised that are usually not part of the
ever so polite discourse in Washington where civility is the currency of
conversation.
To my first, she acknowledged that the FDIC has a list of 76 "troubled"
banks -but, given her professionally positive outlook, she didn't expect any
big disruptions.
How prophetic and how totally wrong!
Later on, on that very same day, we would learn that there was a run on Bear
Stearns in New York.
No one in the room had any idea then of the depth of the crisis to come.
To my second, about criminality, she was silent. That's not her job, she
said. Obviously she hadn't heard the slogan I heard relayed on the AMTRAK
while training down to DC, "If you see something, say something."
But the stench of the scheme behind the subprime scam is so strong that even
the Justice Department has been forced to look into it. The Attorney General
now says he is "gathering evidence to determine if it needs to create a
special task force to investigate POSSIBLE (sic) wrong doing in the mortgage
lending agency."
Bush's Attorney General Michael B. Mukasey announced this last Friday-they
always announce important news late on Friday so it will be buried in the
minimally read Saturday paper. A story about it appeared at the bottom of
page C7 in the New York Times.
Mukasey is the former judge who refused to call water-boarding a torture
technique-he is no doubt "gathering evidence" on that too. He said his
department is trying to figure out "WHETHER THERE IS A LARGER CRIMINAL STORY
TO BE TOLD HERE."
Of course there is, but I doubt they want to figure anything out. So far the
probes are so narrow that the real operators will be spared. They are
looking into mortgage hustlers, not the operators on Wall Street who bought
the toxic mortgages, securitized them, sliced and diced them into structured
investment vehicles and then sold them off to unsuspecting buyers overseas.
These big fish are not under investigation. As a result, we, the small time
depositors and investors, have a lot more to fear than we think.
_______
--
NOTICE: This post contains copyrighted material the use of which has not
always been authorized by the copyright owner. I am making such material
available to advance understanding of
political, human rights, democracy, scientific, and social justice issues. I
believe this constitutes a 'fair use' of such copyrighted material as
provided for in section 107 of the US Copyright
Law. In accordance with Title 17 U.S.C. Section 107
"A little patience and we shall see the reign of witches pass over, their
spells dissolve, and the people recovering their true sight, restore their
government to its true principles. It is true that in the meantime we are
suffering deeply in spirit,
and incurring the horrors of a war and long oppressions of enormous public
debt. But if the game runs sometimes against us at home we must have
patience till luck turns, and then we shall have an opportunity of winning
back the principles we have lost, for this is a game where principles are at
stake."
-Thomas Jefferson