Around The Web: Nothing Natural About Financial Disaster

Maybe this is the one that will finally cause people to take to the streets.

The crack investigative journalists at Pro Publica and NPR’s Planet Money have uncovered the latest evidence of how the big bankers schemed to keep their bonuses and fees coming by creating a phony market for their mortgage-backed securities, which were tumbling in value as the housing market tanked in 2006.

The Pro Publica/NPR investigation shows how the bankers from Merrill-Lynch, Citigroup and other “too big to fail” financial institutions undermined a system of independent managers who were supposed to be evaluating the value of the securities. The banks simply browbeat the managers into buying their products rather than face losing the banks’ business.

Meanwhile, the bankers continued to make money off every deal, even though the rest of us paid a high price for their continued trafficking in complicated financial trash.

Then when the entire business unraveled in the financial collapsed, these bankers got a federal rescue and a return to profitability.

Pro Publica acknowledges it’s complex material, so they’ve accompanied their investigation with a cartoon and graphs to make it easier to understand.

My WheresOurMoney colleague Harvey Rosenfield wrote recently about the falseness of the claim that either Hurricane Katrina or the financial collapse were primarily natural disasters. The NPR/ProPublica investigation is yet more evidence that the bankers’ irresponsible self-dealing turned a downturn in the housing market into full-blown catastrophes.

Writing on his blog Rortybomb, Mike Konczai hones in on the stark contrast in the fate of the bankers and many of the rest of us:  “Remember that by keeping the demand artificially high for the housing market in the post-2005, these banks created its own supply of crap mortgages. These mortgages inflated and then crashed local housing prices. Meanwhile the biggest banks got tossed a lifeline and homeowners can’t even short sale their home much less have a bankruptcy judge that can set their mortgage to the market price with a large penalty. And everyone lines up to tell those people what ‘losers’ they are, how `irresponsible’ they’ve been for being pulled into becoming the artificial supply for artificially created demand of housing debt. What sad times we are living in.”

Meanwhile the SEC is supposedly investigating the self-dealing. We’re still waiting for the tougher new SEC that the Obama administration promised. In the latest indication that we may have to wait a while longer, a federal judge has rejected the agency’s proposed $75 million settlement with Citibank over charges that the bank misled its own shareholders about the shrinking value of its mortgage-backed securities. The SEC said the bank misled investors in conference calls by saying its subprime exposure was $13 billion, when it was actually more than $50 billion. Among the pointed questions the judge asked: Why should the shareholders have to pay for the misdeeds of the bank executives, and why didn’t the SEC go after more of the executives?

The judge’s questions about accountability mirror the uneasy questions a lot of us have about this administration’s reluctance to take on the bankers whose behavior led to ruin for the country while they profited.

Around the Web / Derivatives / Executive Pay / Martin Column / Outrage / Securities and Exchange Commission (SEC) / Too Big To Fail / Uncategorized - 08/31/2010

Hurricane Katrina & Wall Street

Hurricane Katrina, once considered the disaster of the decade, is the subject of a new exhibition at the Newseum, a high tech museum devoted to journalism in Washington, D.C., timed to coincide with the fifth anniversary of our national failure in New Orleans.

NewseumFirst you walk down a hall lined with the front pages of newspapers that chronicle the progress of Katrina from a natural disaster when it hit New Orleans with unprecedented force on Monday, August 29, 2005, to a few days later, when, as the world watched, Katrina became a man-made catastrophe, with the levees collapsed, the city underwater and the vaunted United States government unable to come to the aid of its citizens. The September 3 headlines range from “Unbelievable” to “Is This America?” 1800 Americans died, and the entire city evacuated – more than a million U.S. citizens rendered homeless.

The rest of the exhibit focuses on how journalists covered the story, without electricity and often at great risk. Suffice it to say that the blogosphere will never substitute for professional reporters when it comes to these kinds of events.

It is an infuriating and emotional visit. Boxes of Kleenex are strategically placed through the exhibit, and you’ll need them.

Katrina invites comparison to 9/11, when the failure of U.S. intelligence, military planners and airline security personnel combined to render our nation powerless against a throng of determined fanatics. Congressional investigators said, “If 9/11 was a failure of imagination then Katrina was a failure of initiative.”

A court later held the federal Army Corps of Engineers responsible for the collapse of the levees and thus the destruction of New Orleans once Katrina hit. You can read the congressional report chronicling the government’s failure to prepare for and then manage the disaster here.

Conservatives seized on Katrina as more proof that big government is bad, although it’s hard to fathom how “market forces” could fill the shoes of a national government.

After a viciously hot summer throughout the nation, you wonder whether Katrina was the result of yet another failure of political imagination, at the US and global level: the failure to acknowledge and reverse global warming while there was still time.

Meanwhile, Katrina has been superseded by an even more devastating man-made disaster: the economic collapse in 2008. Like Katrina or 9/11, the initial catastrophe was not government’s doing, it was Wall Street greed and speculation. But, like 9/11 and Katrina, government bears responsibility for allowing it to happen. As I noted in the introduction to our report on the crash, Wall Street paid off Congress to let “market forces” run amok, and when the bubble inevitably burst, Washington quickly rescued the financiers.

But like the residents of New Orleans, many Americans are struggling to stay afloat and some have gone under. In terms of lives ruined, families sundered, pensions lost, people made homeless or left without health care, who knows whether the toll from this disaster will exceed that of Katrina or, for that matter, 9/11.

Harvey Column - 08/29/2010