Welcome Michael Hudson, PublicIntegrity.org, and Host, Dean Baker, CEPR.net.

[As a courtesy to our guests, please keep comments to the book.  Please take other conversations to a previous thread. - bev]

The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America–and Spawned a Global Crisis

Dean Baker, Host:

Monster Madness In Alan Greenspan’s America

In The Monster, Michael Hudson gives us a detailed account of the how Roland Arnall created Ameriquest and made it into the giant of subprime lending. In the process the book implicates the major Wall Street firms, most importantly Lehman, who eagerly packaged junk loans into mortgage backed securities and more complicated instruments. He also notes the corruption of the three major credit rating agencies, who received big fees for giving these assets investment grade stamps. The list of aiders and abettors includes Massachusetts Governor Deval Patrick, California Governors Grey Davis and Arnold Schwarzenegger, and even the community group ACORN.

The few committed regulators who sought to rein in Ameriquest’s predatory practices were hopelessly outgunned. They lacked the resources to compete with Ameriquest’s high-priced lawyers and faced political obstruction at every step in their path.

This is an extraordinary depressing book to read, even the basic outline is already widely known. The big question that readers must have is whether there is any reason to believe that anything has changed in the wake of the crash?

Certainly the main villains in this story never had to face justice. Roland Arnall died from cancer in 2008 with his huge estate largely intact. The other leading villain, Richard Fuld, the CEO of Lehman, remains an incredibly wealthy man, even if he no longer runs a giant investment bank. Other actors who profited enormously from the financial shenanigans of the housing bubble, like Robert Rubin of Citigroup and Angelo Mozillo of Countrywide, also have kept their fortunes. In fact, Rubin continues to be viewed as one of the leading statesman of the Democratic Party.

With all the leading culprits still able to enjoy the benefits of their actions, what possible lesson could people in the financial industry take away from this episode?

In a similar vein, the two Federal Reserve Board chairmen who oversaw this disaster, Alan Greenspan and Ben Bernanke, continue to be respected public figures with Bernanke having been reappointed as Fed chair by President Obama. (It is important to remember that Bernanke was in the middle of this mess from the summer of 2002 when he was appointed as one of the seven governors of the Federal Reserve Board.)

While the specifics of Ameriquest’s operations and those of other subprime lenders may have only come to light after the fact, the basic story was easy to see at the time. There were millions of loans being made to people who did not understand the terms of the mortgage, did not have full documentation of their income/assets, and were borrowing the full value of their home and sometimes more. (A survey by the National Association of Realtors showed that almost half of first-time buyers in 2005 put zero money down.)

There was a sharp and unexplained surge in home prices from a 100-year long trend. This was not matched by an remotely corresponding increase in rents. I was having friends/relatives of mortgage brokers contact me telling me that their friend/relative was being told to fill in numbers on mortgage applications so that they would go through.

In other words, it was easy to recognize that something was very seriously wrong in the housing market from 2002-2006 and that it was likely to have very bad consequences for the economy. Greenspan and Bernanke did nothing, and now we have 25 million people unemployed or under-employed.

Wouldn’t it be appropriate to make these two people pay a price since they, more than anyone, bore responsibility for preventing this sort of disaster? In Bernanke’s case, is there any reason that the public should not demand his removal from office? In Greenspan’s case, perhaps he can be denied his pension. After all, it is hard to imagine more extreme and harmful incompetence that what Greenspan did under his watch. Obviously he can’t be fired, but why should the taxpayers foot the bill for his pension? He will obviously be a rich man regardless, but is there any reason not to try to impose at least some sanction?

193 Responses to “FDL Book Salon Welcomes Michael Hudson, The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America–and Spawned a Global Crisis”

BevW January 29th, 2011 at 1:57 pm

Michael, Welcome to the Lake.

Dean, Thank you for returning and for Hosting today’s Book Salon.

dakine01 January 29th, 2011 at 2:01 pm

Good afternoon Michael and welcome to FDL and welcome back Dean.

Michael, I have not had an opportunity to read your book but am one of the long term un/underemployed (I actually think the number of us is higher than 25M – I rant about the lack of jobs and other things at my own sucky little blog here and usually cross post to MyFDL as well)

Why do so many of the economists and so-called financial experts seem so totally clueless about the effects of the economy and their actions?

Michael W. Hudson January 29th, 2011 at 2:01 pm
In response to BevW @ 1

Thanks to Bev, Dean and all the FDLers for hosting me here.

readerOfTeaLeaves January 29th, 2011 at 2:04 pm

In other words, it was easy to recognize that something was very seriously wrong in the housing market from 2002-2006 and that it was likely to have very bad consequences for the economy. Greenspan and Bernanke did nothing, and now we have 25 million people unemployed or under-employed.

It was easy to see, but honestly I thought that maybe I was just crazy.

Honestly, it never dawned on me that some 20-something was forging signatures on loan docs. Rather, lots of people were forging signatures.

The book is a stunner; I’m only in Chpt 3, however.

bgrothus January 29th, 2011 at 2:05 pm

My bank was taken by the Feds yesterday and sold to another bank overnight. This is a bank that financed a lot of local builders.

Michael W. Hudson January 29th, 2011 at 2:06 pm
In response to dakine01 @ 2

Great question.

I think too many experts — economists, analysts, media pundits etc. — view the world from 50,000 feet. There are notable exceptions to this phenomena — hello Dean Baker! — but it seems all too common.

Of course it’s important to use data to get a sense of the big picture, but it’s also important to spend some time on ground level — asking questions, talking to real people, trying get past the spin and the talking points and conventional wisdom and find out what’s really going on in the real world.

Sebastos January 29th, 2011 at 2:07 pm

Other actors who profited enormously from the financial shenanigans of the housing bubble, like Robert Rubin of Citigroup and Angelo Mozillo of Countrywide, also have kept their fortunes. In fact, Rubin continues to be viewed as one of the leading statesman of the Democratic Party.

Who in the Democratic party is responsible for that? Is it just Obama, the Clintons, and the DLC, or are there still those whose progressive credentials have survived intact even though they support Rubin?

readerOfTeaLeaves January 29th, 2011 at 2:07 pm

The fraud that you describe – the lunch rooms at Ameriquest offices full of scissors, tape, glue to use for altering docs that could then be altered, with the photocopies (which would presumably be faxed) hard to decipher the fraud struck a very true note.

How on earth did you get these jerks to admit to you what they’d actually done…?
It’s really as if a bunch of desperate people just scared to death to remain employed by the likes of Ameriquest would probably have pimped their own mothers; that’s the sense I get in the Intro.

It’s really very compelling.

eCAHNomics January 29th, 2011 at 2:07 pm

Hi Michael,

Can you give us a brief description of Fuld’s personality. I used to work with someone (Jeff Applegate) who went on to work at Lehman, had frequent meetings with Fuld, then got canned over the overlook for the U.S. stock market. (Fuld was optimistic, Jeff wasn’t. That would have been near the end of of the dot-com bubble.) So I’ve heard Jeff’s opinion of Fuld; I’d like another.

readerOfTeaLeaves January 29th, 2011 at 2:09 pm

Well honestly, I think that your anecdotes (very visual, as in that guy who holds two documents against a skyscraper window ‘the better to forge the signature’, so to speak) really is a bracing dose of reality that’s not like anything else I’ve ever read on this whole topic.

(Would have finished this book by 2 PST today, but those darn Egyptians sucked up some of my Thurs-Fri ;-))

eCAHNomics January 29th, 2011 at 2:10 pm

I also asked the CEO of Atlanta Fed why the FRB was being given more responsibility when they f’d up so badly. You might enjoy reading my account at your leisure.

readerOfTeaLeaves January 29th, 2011 at 2:10 pm
In response to eCAHNomics @ 9

Whoever Jeff is, I’d take it as a compliment to be fired by Fuld.
Chilling guy.

dakine01 January 29th, 2011 at 2:10 pm

Yeah, I try to correlate from various perspectives when I write but two things have struck me as fairly consistent, with the economists especially

1) They are seemingly always “surprised” that their predictions are off

2) They try to force humans into mathematical models that do not exist in anything close to reality

sadlyyes January 29th, 2011 at 2:11 pm

im just gonna listen,cause i cant imagine how this monster was allowed to leave its cage,and destroy the world

Dean Baker January 29th, 2011 at 2:12 pm

I think that most of the big names in the Democratic Party are reluctant to make a clean break with Rubin for two reasons. The first is the obvious. Wall Street is a major source of funding for the Dems, it is even more important to them than it is to the Republicans. The republicans get money from lots of industries, this is less the case with the dems.

The other reason is more ideological/political. There is still an effort to claim the Clinton years as golden years rather than the beginning of a path toward the bubble-driven growth that led to disaster. I think this is actually an important reason (many Dems actually believe that the Clinton years were a golden age), albeit a less important one than the money.

eCAHNomics January 29th, 2011 at 2:12 pm
Sebastos January 29th, 2011 at 2:13 pm
In response to dakine01 @ 13

They try to force humans into mathematical models that do not exist in anything close to reality.

Those models always seem to assume that people’s information is, if not complete, at least accurate. Hopefully books like this one will drive home the point that any accurate model must necessarily be in large part a model of fraud and criminal activity. But you’d think the S&L crisis of the 1990s would already have convinced them of that.

Michael W. Hudson January 29th, 2011 at 2:14 pm

The stuff that was going on was, in a sense unbelieveable, but, sadly, all too true.

When I tracked down former employees of places like Ameriquest or BNC Mortgage (Lehman Bros.’ subprime unit), the accounts they gave me of their experiences at these lenders was stunning. But as more and more folks — from different parts of the country — provided accounts of fraud and dirty dealing, it became clear to me this was widespread. And what the ex-employers were claiming was being supported by lawsuits from borrowers and by investigations from state authorities. When you’ve got an elderly borrower in, say, San Francisco claiming that her loan documentation was falsified, and then you have a employee of the lender in Kansas City talking about how he and coworkers were falsifying docs in exactly that way, you start to realize this maybe isn’t a problem a rogue branch or a few rogue employees.

readerOfTeaLeaves January 29th, 2011 at 2:15 pm

I have the iPad version, so my page numbers don’t sink with hard copy numbers, but —

p 78 (iPad): “Developers are always hungry for more financing and bigger deals; pulling back after a stumble is rarely an option.” Honest to God, people do not get this fundamental point. If they did, we would have a different system ASAP.

These guys are competitive, and this is their logic.
You lay it out very simply, but honestly this is the first time that I’ve read anyone who ‘gets’ these relationships among local government, and the … well, I’d call it the psychology of housing developers — AND why they get so very interested in (ahem) ‘banking’ or S&Ls. For them, it’s ‘vertical integration’ so to speak: buy farmland, make it worth more through rezones, build the houses, pay the builders a pittance, then sit back and cream off fortunes from mortgages.

You’ve connected such important dots — I just wish that LOTS of people would read this book (!)

bigbrother January 29th, 2011 at 2:16 pm

The FIRE is structured to provide a favorable trading environment for elite capital period.

readerOfTeaLeaves January 29th, 2011 at 2:16 pm
In response to sadlyyes @ 14

It owned a shitload of politicians.
And it still does.

readerOfTeaLeaves January 29th, 2011 at 2:17 pm
In response to bigbrother @ 20

Agree.
But that is CRONY cap’ism, not ‘real’ – not innovative – IMVHO.

sadlyyes January 29th, 2011 at 2:17 pm

where is HOLDER???enquiring minds want to know?

Dean Baker January 29th, 2011 at 2:17 pm

I think that Michael is too generous to economists in blaming their failure on the belief in their models. Their models should have alerted them to the fact that nationwide house prices were hugely out of line with the fundamentals of the market.

I think it has much more to do with old-fashioned corruption. It would have been inconvenient for Bernanke-Greenspan to tell the Wall Street gang that they couldn’t keep making so much money on junk mortgages. The way the profession works — essentially a feudal-type system where you want to curry the favor of powerful nobles — there was no money in taking issue with the big boys. Hence, everyone went along with Greenspan and Bernanke saying that everything is fine.

eCAHNomics January 29th, 2011 at 2:17 pm

I disagree. I think it’s willful misleading. Only 3% of the econ profession self-identify as neoliberals (h/t Yves Smith’s Econned; I have a copy of the ‘academic’ article she referenced), but they are all in policy roles. And that 3% get paid for misleading, misinforming, etc., by the wealthy & powerful who benefit from the scam.

I might mention that the rest of the profession, as well as most of civil society, has abandoned their roles in U.S. society in general. But that is not unique to economists. Where is ABA on torture, rule of law? Where are psych orgs on torture? etc. etc.

readerOfTeaLeaves January 29th, 2011 at 2:19 pm
In response to eCAHNomics @ 16

Oh, dear. Another guy making a killing off Cisco.
Bleh…

Sebastos January 29th, 2011 at 2:19 pm
In response to Dean Baker @ 15

Thanks Dean, great insights. The Dems no doubt have become associated with high finance in part because it’s located in the same states (e.g. California and the New England states) as their liberal population base.

eCAHNomics January 29th, 2011 at 2:19 pm
In response to Dean Baker @ 24

I think it has much more to do with old-fashioned corruption.

Ding.

See my 24 for a slightly classier version of your answer.

sadlyyes January 29th, 2011 at 2:20 pm
In response to Dean Baker @ 24

lets face it,they didnt care about the consequences,still dont…they were doing gods work remember

Michael W. Hudson January 29th, 2011 at 2:20 pm
In response to bgrothus @ 5

sorry to hear about your bank.

it’s interesting to note that in the middle part of this century, post the banking reforms of the Great Depression, the number of bank failures was tiny. That began to change in the late 70s/early 80s are banking deregulation took hold.

In one study, researchers Carmen Reinhart and Kenneth Rogoff that worldwide there werre a total of NINE banking crises during the tightly regulated 50s, 60s and 70s.

In the loosely regulatied 80s and 90s? 137.
.

readerOfTeaLeaves January 29th, 2011 at 2:21 pm

When I tracked down former employees of places like Ameriquest or BNC Mortgage (Lehman Bros.’ subprime unit), the accounts they gave me of their experiences at these lenders was stunning.

FWIW, I suspect the Coen Bros are the only filmmakers with a dark enough sensibility to ever transform this to screen – not that anyone would get it to the screen, but wow — have you ever got some world class villains, and I’m only in Chpt 3.

Sebastos January 29th, 2011 at 2:22 pm
In response to eCAHNomics @ 28

I agree with you and Dean that flat-out fraud and bribery is the main issue.

The remarks about “feudalism” also remind me of Graef Crystal’s work on executive compensation, where he shows that it is related to the sociological power of executives, and not to their performance.

papau January 29th, 2011 at 2:22 pm
In response to Dean Baker @ 15

LOL – yep some see the lack of specific things done by Clinton that hurt anything – with the GOP controlled Congress and Greenspan and other never regulate folks running things – all pointing to Clinton having rather clean hands – and see those that say otherwise as folks that supported Obama who are searching for a reason to think they were not totally wrong – but that is just my opinion.

Dean Baker January 29th, 2011 at 2:22 pm

Since we are on the topic of movies, for those who have not seen it, I highly recommend Inside Job. (That is an unpaid advertisement.)

bgrothus January 29th, 2011 at 2:24 pm

The reports say that everything goes on as before, we still use our checks, our money is fine.

However, I have been involved in a lot of real estate activities over the years. I have to sign a note this week for a loan my father had when he died. This is with another local bank.

I remain very nervous, not about my abilities to pay, but about the whole house of cards on which everything is built, and the schemes going on in the background. It is unnerving.

Michael W. Hudson January 29th, 2011 at 2:25 pm
In response to dakine01 @ 13

An interesting example of expert opinion gone wrong.

In the ‘80s Alan Greenspan went to work as a hired gun for Charles Keating of the Lincoln Savings and Loan and Keating 5 Fame. He assured regulators that Lincoln’s management was “seasoned and expert” and that it was financially strong and posed no risk to taxpayers.

Not too long after, Lincoln blew up in an orgy of fraud, and the tab for taxpayers was $2.66 billion.

His role in the Lincoln debacle didn’t get much attention until he had already taken over as Fed. He told the NYT he was very surprised by what happened at Lincoln (there were nearly 20 other S&Ls that failed that had also received Greenspan’s stamp of approval as safe and sound institutions.)

papau January 29th, 2011 at 2:25 pm
In response to Dean Baker @ 24

I agree – the income to price ratios were off the chart – no one could assume the prices were not in excess of real value as defined by ability to pay.

eCAHNomics January 29th, 2011 at 2:25 pm
In response to Sebastos @ 32

Or power & knowledge ‘asymmetries’ in slightly more academic jargon.

Or, in my sound bite world, “Because they can…”

Teddy Partridge January 29th, 2011 at 2:26 pm

Thank you both for joining us today for this Book Salon.

Can anyone explain to me why the ratings agencies have emerged completely unscathed from this disaster in which they were more than complicit? It’s very frustrating to see Fitch’s, Moody’s and S&P executives quoted nowadays about the dangers of sovereign default when we know they were criminal masterminds behind the repackaging of junk as top-rated investments.

Why haven’t they been jailed, and why hasn’t this function been federalized?

bigbrother January 29th, 2011 at 2:26 pm

All the top echalon financial executives know that they are running a game on the rest of society for the benefit of their private club. They also play to the greedy investors that play for windfall profits at the expense of masses. They have purchesed enough influence in Judicial, Legislative and executive at every level of government to rule the game.

sadlyyes January 29th, 2011 at 2:26 pm

the story of Merika
Inside jOB…… and 99.9% are on the outside and clueless

Michael W. Hudson January 29th, 2011 at 2:27 pm
In response to Sebastos @ 17

Greenspan’s exact quote to the NYT:

“When I first
met the people from Lincoln, they struck me as reasonable, sensible
people who knew what they were doing. I don’t want to say I am distressed, but the truth is I really am. I am thoroughly surprised by what has happened to Lincoln.”

Sebastos January 29th, 2011 at 2:27 pm
In response to eCAHNomics @ 38

Because they can…

Exactly. That’s it in a nutshell.

readerOfTeaLeaves January 29th, 2011 at 2:28 pm

(iPad p. 71):About Roland Arnall:

“By his late 20s, he’d established himself as a real estate developer…He soon discovered that in [LA], real estate and politics were inseparable. If you wanted to get something done – win a zoning variance, speed up permits, snag a piece of land with untapped potential – you needed friends in positions of power.”

I think that whether people are economists or congress members, they don’t often realize that many of these players know each other for many years — wouldn’t surprise me one bit if the electeds were calling Arnall for ‘advice’ because they viewed him as an ‘employer’ who was ‘creating jobs’.

I have seen this dynamic over, and over.
Creating a job in manufacturing is far, far more complicated than the kinds of ‘jobs’ that Arnall set up.

And I’ve been in a few builder offices in Orange County – those folks never, ever dreamed the sky would fall. I think you captured the vibe quite well.

David Dayen January 29th, 2011 at 2:30 pm

Welcome Michael, and I’m glad you’ve been brought in for this. I’m just at the beginning of the book and can’t wait to get through it.

Question about what happened after Ameriquest got these mortgages. Did anyone describe the securitization process to you and how it worked? My sense is that the originators took no time or care packaging the mortgages, all the work went into the lies to get the mortgages sold, as you describe. Did Ameriquest bother to send on the notes? Obviously this speaks to whether the chain of title was ultimately broken right from the outset, because fly-by-nights like Ameriquest couldn’t give a damn about what happened to the mortgages once they got to the secondary market. What’s your sense of this?

Dean Baker January 29th, 2011 at 2:30 pm
In response to papau @ 37

It is remarkable how Greenspan paid no price for Keating. If anyone reads his book what is most apparent is that Greenspan was an incredible political manipulator. He managed to get reappointed by 4 different presidents. He got Bob Woodward to write his ridiculous hagiography. John McCain suggested that we continue to reappoint him as Fed chair even after he is dead, propping him up on a chair and putting on sunglasses to conceal his death.

Meanwhile, his actual track record is a trail of errors and, in the case of Keating, outright corruption. It says a lot about the political culture in DC that a crooked bumbler like Greenspan can attain near sainthood.

Michael W. Hudson January 29th, 2011 at 2:30 pm
In response to bigbrother @ 40

High level folks have essentially said: We didn’t know. How could we have known? After all, we’re just simple CEOs punching a clock, doing our jobs, how could you expect us to know? etc.

There’s no doubt there was stupidity and self-delusion, typical bubblicious behavior. But the evidence that’s come out suggests that a good portion of the stupidity was of the willful ignorance variety. And that there was also a lot of eyes-wide-open corruption.

It’s clear that many folks at the top either knew or they should have known. They should have known they were taking unacceptable risks. And they should have known that fraud was driving the mortgage boom.

Mortgage professionals were forging borrowers’ signatures on key documents, pasting up phony W-2 forms to qualify people for loans they couldn’t afford. At Ameriquest, which was the biggest subprime lender and a darling of Wall Street, the guys in sales branches would joke: “Oh yeah, send those documents back to The Lab. Send it to the Art Department. They’ll take care of it.”

Well how could the honchos have known what was happening on the ground level? They coulda shoulda known because they had people working for them whose job was to warn them – and these folks did warn them – or tried to warn them.

papau January 29th, 2011 at 2:31 pm

My friends say the investors made them do it – that “demand” for MBS was through the roof – as was demand for derivatives so as to fine tune the risk assumed.

Does not excuse fraud – but even that gets a wink and “1940″ law comments about sophisticated investors.

Michael W. Hudson January 29th, 2011 at 2:32 pm
In response to bigbrother @ 40

Some of the strongest evidence that fraud was condoned and even encouraged by management in many places comes from the internal gatekeepers within the industry: risk managers, fraud investigators, loan underwriters.

I talked with a lot of these folks, and read the testimony of many others, and the story that they tell is consistent:
They did their jobs, they found fraud, they red flagged it. But instead of being rewarded and promoted. . . .
They were ignored, marginalized, harassed, demoted or fired, or some combination of the above.

cherwell January 29th, 2011 at 2:32 pm

michael — your book is a MUST vs. a SHOULD read. many thanks.

Q: what prompted you to write this tome albeit detective, page turning exposé?

bigbrother January 29th, 2011 at 2:32 pm

Including bush at Siverado S&L in Denver CO. The Texas Book (Resolution Trust which Obama is considering reviving) was huge as well costing taxpayers billions a scam conservatives justify in their mind as government is bad therefore OK to rip off.

eCAHNomics January 29th, 2011 at 2:32 pm
In response to Sebastos @ 43

The answer to all the other Qs (the Qs for which the A ISN’T becuz they can), is “because they have to…”

readerOfTeaLeaves January 29th, 2011 at 2:33 pm
In response to Sebastos @ 32

agree with you and Dean that flat-out fraud and bribery is the main issue.

But the bribery doesn’t have to be blatant; money doesn’t actually have to change hands in brown bags. It’s more about who gets a permit to make $7,000,000 on subdivision A, and whose project is not required to file an Environmental Impact Statement – meaning the developer has no accountability but a public ticket to take out wetlands. Or who gets the freeway interchange construction info, and influences that decision so they get a head start on siting their $40,000,000 project. Et cetera.

It’s all about who has breakfast with whom.
It’s all very civilized and has the patina of mostly pretty good manners.
And a staffer who objects is probably going to be ‘reassigned,’ or have a problematic review come up…

Michael W. Hudson January 29th, 2011 at 2:34 pm
In response to bigbrother @ 40

One example is the experience of a woman named Amy Stroupe…

She was a detective who investigated murders and other big crimes for Sherrif’s Dept. in North Carolina. She took at job at BB&T Bank as a corporate fraud investigator and within fairly quick order helped uncover a $120 million real estate Ponzi scheme that BB&T had provided substantial financing for.

Stroupe claimed that, when the FBI came in to talk to the bank about this case, a company attorney told her he didn’t’ want her in on the meeting. She said that when she asked why, and he told her: Because if they ask you a question, you’ll answer it.

An administrative law judge later ruled that the bank had retaliated against her – firing her for doing her job and pushing hard on the Ponzi investigation.

Dean Baker January 29th, 2011 at 2:34 pm

It is incredible that anyone can take Moody’s, S&P, and Fitch seriously after they ranked every piece of crap MBS in sight as investment grade. Again, it is considered rude in polite Washington circles to point out that these agencies have a track record as either proven fools or proven liars.

In terms of the lack of reform in Dodd-Frank, there is a two word answer: Barney Frank. Senator Franken got the Senate to approve a very simple amendment that would have removed the inherent conflict of interest in the current system by having the SEC pick the bondrater. This made too much sense for Frank so he got it killed in conference.

In principle, the SEC is supposed to study the issue for 2 years. At that point, the Franken proposal goes into effect unless the SEC says it has a better solution. Of course the SEC could just say the current system is the better solution.

sadlyyes January 29th, 2011 at 2:34 pm
In response to Dean Baker @ 46

well Greenspin prolly thought McNasty was SENSIBLE too…..the moneyed elite lovefest

cherwell January 29th, 2011 at 2:35 pm
In response to Dean Baker @ 15

spot on!

Teddy Partridge January 29th, 2011 at 2:36 pm

I knew something was wrong when my partner and I would walk into open houses in SF and be told, “You don’t need to delve into those” about the loan-document packages sitting on the kitchen counter. I’d see the five-years-out monthly payment (in very small type) and say, “Well, I’d never be able to pay that, I’m not expecting raises to cover THAT!”

The realtors and mortgage brokers onsite would reply, “Oh, you’ll never be paying that, you’ll refinance before then on the vastly increased value of the home. Plus, our people will help you fill out the application paperwork and you might even qualify for a better loan than this one!”

I knew something was wrong, right on the ground as a retail customer (or “mark” as it’s called on the inside. It’s an absolute lie when anyone says “no one could have anticipated” this crackup with lies and fraud at its very center.

If I could tell, from the very bottom entry point on the pyramid, I refuse to believe the regulators were unaware of it.

Sebastos January 29th, 2011 at 2:37 pm

From the yellowed pages of a paper copy of The Nation from 1990:

Recently Greenspan – that trustworthy fellow who guaranteed the morality of Keating and was one of the chief boosters of junk-bond purchases by S&Ls – guided his Fed colleagues into a disastrous decision. They ruled that J.P. Morgan (Morgan Guaranty Trust) could trade and sell corporate stocks. With this cloven hoof in the door, other banks will follow, and that will be the death of the Glass-Steagall Act, which the Congress passed in 1933 to separate commercial banks from investment banks and thereby control some of the outlawry that had caused thousands of banks to fail.

This is on page 623 of:

Sherrill, Robert. The looting decade: S&Ls, big banks, and other triumphs of capitalism [cover story]. The Nation. 1990 Nov 19;251(17):589-623; editorial comment 585.

So I don’t believe any of them when they say they didn’t know exactly what kind of person Alan Greenspan was.

DWBartoo January 29th, 2011 at 2:37 pm

Michael and Dean, thank you both for being here.

Frankly, the ruling classes have been behaving very badly.

For about five decades, even longer, in the quest for, as someone once said, “an excuse for greed”.

Boesky and Reagan gave the “go-ahead” and the political class, which includes the media, was all too happy to oblige. Both parties, both so-called “legitimate” parties, are neoliberal, careless of the rule of law and complicit as hell in the shenanigans of the monied class (which includes some economists, BTW …).

Americans have been led, somehow, to believe, and that is the operant word, “believe”, that our economic system was, essentially, divinely inspired and watched over, to this very day, by some “unseen hand”.

Economics is but a “game” which people play. A deadly game, to be sure, but a contrivance nonetheless.

When might ecomists suggest that an economic system can be changed to reflect the interests of society?

We live, by virtue of the government’s deliberate inattention, in the age of the Divine Right of Money and it will be no kinder an age than that of the Divine Right of Kings unless and until economics may been seen, in context, as a “system” which must serve the genuine needs of the many, else potential human civilization (if that is not a contradiction in terms) and the capacity of this planet to support human life in decent fashion will be finished.

One wonders, given the wholesale destruction visited upon the many by the few, if ANY consequences may be forthcoming for those who are, beyond question or doubt, responsible?

But then, that would not be polite, (or “politic”) would it?

DW

cherwell January 29th, 2011 at 2:37 pm

same with the market in las vegas.

mzchief January 29th, 2011 at 2:38 pm

{ Welcome author, Michael Hudson, and host, Dean Baker. Hat tip, FDLers. }

I knew individuals, small businesses and church accountants who dumped BB&T for their outright predatory behavior.

sadlyyes January 29th, 2011 at 2:38 pm
In response to Dean Baker @ 55

tell it baby…house of cards

Tammany Tiger January 29th, 2011 at 2:38 pm

If the Democratic Party can’t break its dependence on Wall Street money, why should progressives even attempt to work for change within the party structure? If push comes to shove, the party mandarins will spend millions to put down any kind of intra-party revolt. Look at what happened last year in the Arkansas Senate primary.

cherwell January 29th, 2011 at 2:38 pm
In response to Dean Baker @ 55

barney frank = pink slip — 2012

Teddy Partridge January 29th, 2011 at 2:39 pm
In response to Dean Baker @ 55

Thank you for that explanation.

I suppose we only need to look to Chairman Frank’s Open Secrets page to see why he might be so eager to protect the ratings agencies.

Michael W. Hudson January 29th, 2011 at 2:39 pm
In response to eCAHNomics @ 9

I never met or talked with Fuld (when I tried to get in touch with him, his attorney told me he wasn’t doing interviews).

I can say that he had a reputation for being a demanding boss. “He thought he could intimidate you out of losing money,” one former colleague told New York Magazine. It’s said that he instilled a “pugilistic, almost paranoid view of the world,” telling his leadership team: “Every day is a battle. You’ve got to kill the enemy.”

sadlyyes January 29th, 2011 at 2:41 pm
In response to Sebastos @ 59

i call him Maestro of Merde

seaglass January 29th, 2011 at 2:42 pm

The ultimate Insurance all these thieves and vandals invested in was political Insurance. It’s paid off handsomely if you ask me.

Michael W. Hudson January 29th, 2011 at 2:42 pm
In response to sadlyyes @ 29

And then in the aftermath claimed that the financial meltdown was not a man-made disaster but rather sort of an Act of God/Act of Nature.

bigbrother January 29th, 2011 at 2:42 pm

When the money is flowing who is going to turn off the tap? Bush put Chris Cox in charge of SEC regulations and cut the budget.

readerOfTeaLeaves January 29th, 2011 at 2:44 pm

Mortgage professionals were forging borrowers’ signatures on key documents, pasting up phony W-2 forms to qualify people for loans they couldn’t afford. At Ameriquest, which was the biggest subprime lender and a darling of Wall Street, the guys in sales branches would joke: “Oh yeah, send those documents back to The Lab. Send it to the Art Department. They’ll take care of it.”

It’s this kind of behavior – to think that my tax dollars are bailing out these swine just makes my blood boil.

But to think that we have a national media failing to tell these stories — I found out about your book at FDL and I read Yves nearly daily.

The fraud that you describe is so outrageous, so egregious — it is beyond my comprehension that people are not in jail. Unless (which is quite possible) there are SO MANY OF THEM that there are more former mortgage employees than we have FBI white collar crime agents.

Talk about your ‘criminogenic’ environment!
I knew these guys were sleazy, but the descriptions in your book simply blow my mind.

It really needs to be an audio book (I say this about Yves’ book as well).
There are city council members, planning dept members, legislators all over this nation who are faced with appalling budgets — but may not have time to read the book. There really needs to be an audio version, or a podcast.

I hate to beg, but might I earnestly beseech…?

Teddy Partridge January 29th, 2011 at 2:44 pm
In response to tammanytiger @ 64

And it’s not as if they will ever vote for any kind of public financing system, since they are so inextricably tied to and expert at the current bribery.

Sebastos January 29th, 2011 at 2:44 pm

There was a sharp and unexplained surge in home prices from a 100-year long trend. This was not matched by an remotely corresponding increase in rents.

I, too, realized that something was wrong at the ground level, looking for a domicile in San Francisco at the time. Rents were about half of what they should have been, based on purchase prices for comparable real estate. My wife and I were looking to rent, and decided that we couldn’t risk an increase in rents to levels comparable to the purchase prices. Nor did we want to buy into a bubble.

Dean Baker January 29th, 2011 at 2:45 pm

It is remarkable how even (especially?) Democratic politicians are so reluctant to do anything to help homeowners. I think the mortgage modification program was a 100 percent predictable disaster. I have suggested that people caught up in the bubble be given the right to rent their home at the market rate for 5 years following foreclosure. I have even gotten Fox news types to agree that this fair, but there are only about 15 Dems in the House who would sign on to something like this. They are too scared to do anything to interfere with the banks’ prerogatives.

Michael W. Hudson January 29th, 2011 at 2:45 pm
In response to eCAHNomics @ 9

here’s Fuld speaking for him, off the cuff when a reporter surprised him…

In early September 2009, a reporter from Reuters, the British wire service,
tracked down Dick Fuld alongside a river in Idaho. It was little
more than a week before the fi rst anniversary of Lehman Brothers’
bankruptcy. Th e reporter had come to Fuld’s vacation home, set
among tree- covered slopes in the Rocky Mountains, in the hopes of
getting the former CEO to talk about what had happened. Fuld stood
in his gravel driveway dressed in a black fl eece vest, dark gray shorts,
and sandals. Th e fi rst words out of his mouth were: “You don’t have a
gun. Th at’s good.” Fuld felt he had been slandered and mistreated by
reporters, politicians, and others looking to blame someone for the
economy’s collapse. “You know what? Th e anniversary’s coming up,”
Fuld told the reporter. “I’ve been pummeled, I’ve been dumped on,
and it’s all going to happen again. . . . Th ey’re looking for someone to
dump on right now, and that’s me.” He said he wanted to tell his side
of the story, but he didn’t think much good would come of it. Th e next
day, as he was catching a fl ight at the airport in Salt Lake City, Fuld
continued his discourse. “I’m not a defeatist,” he said. “I do believe at
the end of the day that the good guys do win. I do believe that.”

Shoto January 29th, 2011 at 2:47 pm

It’s probably academic, even absurd to ask this question, but where do we go from here? Is there a way back? I personally do not see it unless and until the largest banks are taken into receivership and broken up, and the chances of that happening in the current climate would appear to be (approximately) zip.

papau January 29th, 2011 at 2:47 pm

Yes – that happen a lot – I tried to stop some minor wall street bribery of the Chief investment officer at the Met because it was interfering with some legitimate large financial deals I was trying to get done – and he had me tossed (other top executives saved my job but at a cubicle level – not an officer – and at 57 there are few options.

Thew background of course is the stripping of American jobs via GATT and then the WTO – treaties that Ricardo said help which Samuelson in 2004 showed hurt because they sold our competitive advantage away.
The job loss was covered up ever since Reagan via home and office construction jobs and then selling between ourselves,

Tammany Tiger January 29th, 2011 at 2:47 pm
In response to Dean Baker @ 15

There is still an effort to claim the Clinton years as golden years rather than the beginning of a path toward the bubble-driven growth that led to disaster.

The Clinton years were also a time of very low energy prices we’ll probably never see again. After the Asian currency crisis erupted, oil was below $10 a barrel.

Sebastos January 29th, 2011 at 2:47 pm
In response to Dean Baker @ 76

It’s really sad that the Dems are relying on finance, and other industry goes to the Republicans. Wasn’t it exactly the other way around in the days of FDR? As much as I personally would like to abolish capitalism altogether, I thought FDR did well with reverse triangulation, allying with manufacturers against the banksters.

Michael W. Hudson January 29th, 2011 at 2:47 pm
In response to Sebastos @ 59

Thanks for supplying a bit of Robert Sherrill. A wonderful, tough, pugnacious reporter from another era.

Dean Baker January 29th, 2011 at 2:48 pm

Michael,

I remember that Fuld quote in your book. I realize that you never actually talked to him, but you did talk to many people who knew him well. Do you think that he believes he didn’t do anything wrong?

Teddy Partridge January 29th, 2011 at 2:48 pm
In response to Sebastos @ 75

I left the home-seeking market the moment I was told, for the fourth time in as many weeks of open-houses, “Oh, this is a new mortgage product, especially designed for first-time home buyers looking to get into the tenancy-in-common market.” I didn’t want a specially-designed mortgage meant for people like me who really couldn’t qualify for a loan.

sadlyyes January 29th, 2011 at 2:49 pm
In response to Dean Baker @ 76

how many own bank stocks?

Michael W. Hudson January 29th, 2011 at 2:49 pm
In response to Shoto @ 78

I think Dean Baker should respond to that. As a reporter, I’m not so good at recommending policy. I can do the autopsy and tell you what killed the patient but am not so good at figuring out how to treat the illness.

CTuttle January 29th, 2011 at 2:50 pm

Aloha, Dean and Michael…! Do you think we’ll see more of this…

Michigan sues Countrywide for $65M in pension losses

readerOfTeaLeaves January 29th, 2011 at 2:50 pm

That is just obscene.

It should be answered by more people saying, ‘Listen, Mr Congressman, what do you know about the Art Department at Ameriquest?’

Because this is brazen, institutionalized, fraud.
It’s not even ‘grey’; it’s very, very clear.

But what this book suggests is an entire segment of the population that is either: (a) so desperate for a job they’ll commit fraud to keep their employment with Ameriquest, and/or (b) so confused they can’t tell ‘right’ from ‘wrong’.

Sebastos January 29th, 2011 at 2:51 pm

Sherrill’s era should have been, but wasn’t, the last hurrah of the banksters. In 1990 people could honestly say, maybe, that they were caught by surprise. Not today. This happened because people at the top let it happen, and thereby showed themselves to be every bit as bad as any of the banksters.

Michael W. Hudson January 29th, 2011 at 2:51 pm
In response to Dean Baker @ 83

At the time I was working on the book, there weren’t too many folks close to Fuld who would go on the record about him. New York Magazine’s cover profile of him is a pretty good compilation of quotes from former Lehman folks about Fuld’s style.

It seems clear, at least from his public statements, that he didn’t think he did anything wrong.

Michael W. Hudson January 29th, 2011 at 2:52 pm

what’s the line? “politicians see the light when they feel the heat”

readerOfTeaLeaves January 29th, 2011 at 2:53 pm
In response to Dean Baker @ 76

To me, the underlying problem is a society in which the FIRE sector was far too large a portion of economic activity to be sustainable.

To me, the expanded FIRE sector was a symptom of far more serious underlying economic problems.

Anyway, have other obligations the rest of the day but this book is just outstanding, so I wanted to be able to offer my best wishes to the author and encourage all FDLers to read it. It’s well worth my time; just excellent.

Chilling, but excellent ;-)

Tammany Tiger January 29th, 2011 at 2:53 pm
In response to Dean Baker @ 76

It’s okay for a company to walk away from its pension obligations and collective bargaining agreements via bankruptcy, but not for a homeowner facing foreclosure. Charles Dickens would feel right at home in 21st century America.

Dean Baker January 29th, 2011 at 2:54 pm

well, i wanted to dodge this one. There are obvious things to do, but the political obstacles are immense. Breaking up the large banks would be a good start.

I and others have estimated their “too big to fail” subsidy as being in the range of $30-$60 billion a year. This is their savings on interest costs because everyone assumes that the government will bail them out if they get in trouble.

Another obvious item is a financial speculation tax. My calculations show that it can raise around $150 billion a year, almost all of which would come out of the hide of the financial industry.

I can throw out more ideas, but the problem is getting anything through a government that is owned by the financial industry. There is not much support in the Iranian government for Koran burning and not much support in our government for reining in the financial industry.

SanderO January 29th, 2011 at 2:54 pm

Mr. Hudson…

Is it actually possible to reform the economic system since it appears to be so entrenched and almost like a cancer on our economy… kill the cancer… kill the patient. These guys have their tentacles everywhere and are not leaving the party.

What say you?

Michael W. Hudson January 29th, 2011 at 2:54 pm
In response to Sebastos @ 89

The media played a role in allowing all this happen. there were some notable exceptions — great reporters who did great reporting on the fraud and out of control practices — but they were mostly drowned out by the sort of boosterism and adulatory CEO coverage that often seems to be the default mode for the biz press.

Sebastos January 29th, 2011 at 2:55 pm

politicians see the light when they feel the heat

Personally, I’m an atheist. These banksters had better hope I’m right about that, because if the fundamentalist Christian God does exist, they’ll be feeling some serious heat.

John Atlas January 29th, 2011 at 2:56 pm

Hi Michael and congratulations on the book which I hope to read soon. As you know I recently finished a book about Acorn called Seeds of Change, (available from Amazon, Progressive Book Club and book stores.) I am quite aware of Acorn’s relationship with Ameriquest, including their fights to rein in its predatory practices in 1999 and 2000, as well as its partnership with Ameriquest. Later in 2005, Ameriquest helped Acorn, whose HQ were in New Orleans, survive Hurricane Katrina by donating $100,000 to the group, as well as weeks of housing in Houston for dislocated staff. This helped Acorn regroup and then lead the fight to save the Lower Ninth from destruction and help thousands of homeowners to return.

In my chapter on the subprime crisis I detail Acorn’s huge victory against Household Finance Corporation. In these difficult times its important to know a poor people’s group can defeat Goliath.

Tell us how Acorn aided and abetted Ameriquest’s destructive behavior?

readerOfTeaLeaves January 29th, 2011 at 2:56 pm

Well, I think it is important for everyone that the vignettes you serve up — the Art Department, some guy forging mortgage signatures against the sunny wall of a skyscraper — are so basic, so… human… so irrefutable that it makes quite obvious anyone who doesn’t take action to clean up a mess this obscene is just utterly worthless.

(Not that I’m opinionated ;-)

But must go — thanks to FDL, and this is a fantastic book.

Michael W. Hudson January 29th, 2011 at 2:57 pm
In response to Sebastos @ 89

Remember in the late 90s, 2000, when corporate executives were hailed as Smartest Guys in the Room, and given celebrity treatment on the covers of magazine (remember magazines before we had the Internets?).

Then Enron and Worldcom etc. blew up, and the adulation was muted for about 20 minutes.

And we were back to treating CEOs as heros. Remember March of 2007, when Lehman Brothers was named the NO. 1 most respected securities firm by Fortune Magazine? And who was No. 2? Bear Stearns.

In other words, two companies that within 18 months had crashed and burned to ground.

bigbrother January 29th, 2011 at 2:57 pm

Can we discuss the shadow banks, hedge funds and bet for or against about any financial transaction that mat be $700 trillion market and where is the 30 to 1 leverage that catapulted the global economy off of the cliff?

PeasantParty January 29th, 2011 at 2:58 pm

Michael,

Would an enormous letter writing campaign get rid of Bernanke and Geithner? I am seriously upset at people losing their homes when there is no prospect for work in the US.

Dean Baker January 29th, 2011 at 2:59 pm

putting heat on reporters is a good place to start. When they report on suggestions from Ben Bernanke that we cut Social Security to reduce the deficit it would be appropriate to remind readers that this is a guy who was too out to lunch to see the largest asset bubble in the history of the world.

the same applies to the bond rating agencies when they suggest cuts to SS and Medicare to get our deficits in line. People who have a demonstrated track record of incompetence should not be treated as great authorities on these issues.

Tell your local paper/NPR/PBS etc.

papau January 29th, 2011 at 3:00 pm

I keep getting confused -

Barney Frank fought for affordable housing for all via more Section 8 and no more red-lining, and this was wrong? When the head of Fannie/Freddie were caught with their hand in the cookie jar he defended the concept of Fannie and Freddie (without securitization home building would have flat out stopped in 1981), but he did not defend the actual thieves – no one did as far as I can tell – they just beat back GOP attacks on community investing – which by the way never had to this date a bad record.

As to Open secrets the headline is “Power Players: Despite Industry Funds, Frank Cracks Down on Bailout Recipients
By Lindsay Renick Mayer on January 22, 2009 11:20 AM”

I remain confused.

Sebastos January 29th, 2011 at 3:00 pm

Boosterism is right. I’ve read about the financial press in Matt Taibbi and Stieg Larsson. Larsson wrote novels, of course, but he edited a real magazine similar to the one in his novels, and I have little doubt that the opinion of financial reporters expressed by his characters was his own opinion in real life.

Still, enough information was out there that I can’t believe ignorance, or professional liars in the financial press, explained the behavior of the decisionmakers.

bigbrother January 29th, 2011 at 3:01 pm
In response to Sebastos @ 89

“This happened because people at the top let it happen,”
More like they had their foot on the accelerator, pedal to the medal,fueled by giant bonuses to big to refuse. One year of fraud and retire like a king.

PeasantParty January 29th, 2011 at 3:01 pm
In response to Dean Baker @ 103

Excellent idea!

DWBartoo January 29th, 2011 at 3:02 pm
In response to Dean Baker @ 94

I think that the ideas matter, Dean.

The problem is not going to go away.

The financial plight of many is going to worsen beyond what most can imagine.

Where, and by what real means may America, once again, produce actual, real wealth and not feed upon itself?

You are correct … the government will not do what must, ultimately, be done. We must change the system, we … the people … nothing and no thing will change … otherwise.

Think post- current-”thinking” … imagine where we must go … and then, please, share your thoughts … your doubts … and even your fears.

Honestly, Dean, that is what we, the non-elites, need from you and other thoughtful economists.

DW

Dean Baker January 29th, 2011 at 3:02 pm

Frank, like many politicians, has a mixed record. F&F were profit making operations in which the CEOs pocketed tens of millions of dollars. This deserved no defense. I don’t know how much of Frank’s support for F&F was out of a desire to help moderate income people get homes and how much was out of a desire to protect big paychecks for his friends. It was probably some of both.

Shoto January 29th, 2011 at 3:02 pm
In response to Dean Baker @ 103

putting heat on reporters is a good place to start.

In that light, I do think it incumbent upon NBC to acknowledge that Mrs. Greenspan is one of the company’s high-profile reporters. She might not be covering “the financial beat,” but being on staff in any capacity is too much of a conflict of interest to suit me. It isn’t like she needs the money…

sadlyyes January 29th, 2011 at 3:05 pm
In response to Dean Baker @ 103

or worse letting them privatize it,discussed at yesterday gooper meeting Hensarling i believe

Sebastos January 29th, 2011 at 3:05 pm
In response to Dean Baker @ 103

I agree about reporters – and academic and professional organizations, as eCAHN pointed out above. I hope they got a good deal for selling their souls. But that really still doesn’t get politicians off the hook. I think the professional-liar factor has more to do with conning the public into accepting whatever the politicians and banksters want to do to us. I can’t believe that the decisionmakers were fooled.

econobuzz January 29th, 2011 at 3:07 pm

Great discussion.

sadlyyes January 29th, 2011 at 3:08 pm
In response to Shoto @ 110

touche

Michael W. Hudson January 29th, 2011 at 3:08 pm
In response to John Atlas @ 98

Thanks John, I’m looking forward to reading your book.

Re ACORN and Ameriquest:

In 2000, the FTC was investigating Ameriquest’s practices, and ACORN was staging protests against the company, calling it out for predatory lending.

ACORN reached a deal with Ameriquest in which the lender agreed that it would funnel low-cost loans through ACORN chapters. Ameriquest announced a series of Best Practices and was soon hailed as a leader in cleaning up dirty practices in subprime.

Soon after, the FTC dropped its investigation. If an advocacy group like ACORN wasn’t going to keep fighting Ameriquest, why should the FTC?

With the FTC investigation dropped and, in a very real sense, a stamp of approval from ACORN, Ameriquest was able to move forward and grow into the biggest and, many would argue, the most predatory lender in the land.

Between 2001 and 2004, Ameriquest went from $6 billion a year in subprime volume, to $82 billion a year — that’s not a typo, a roughly 13-fold increase (15 percent of the market and roughly twice what the No. 2 bigger subprime lender, New Century, produced in 2004).

Dean Baker January 29th, 2011 at 3:09 pm
In response to DWBartoo @ 108

There are many policies that i could recommend, but none are likely to get through. The bad guys so completely dominate the system that for the most part, important ideas that could have a big impact are not even discussed.

Give me the argument against taxing financial speculation. I hear people tell me that we couldn’t collect the tax. I have to remind them that the UK gets the equivalent of $40 billion a year by just taxing stock trades.

If we want to make U.S. goods more competitive in a world economy, we should get the dollar down. An over-valued dollar is a subsidy for imports and a tax on exports. Every economist knows this. Instead of having a discussion of currency values President Obama goes around with silly lines about doubling exports — yeah and if also double imports that is a net job loser — and he and everyone else know this.

We throw almost $300 billion a year in the toilet every year because the government gives Pfizer, Merck and other drug companies patent monopolies that allow them to charge prices that are way above the competitive market price. There are much more efficient ways to finance drug research, but no one in Washington wants to talk about them.

There is a longer list, but we have a Congress and an economics profession that are largely owned by the bad guys. This is the big obstacle to progressive change.

Sebastos January 29th, 2011 at 3:09 pm

Et tu, ACORN?

jest January 29th, 2011 at 3:10 pm

Michael -

One of my frustrations has been the lack of critique of bank accounting, specifically in regards to compensation & capital requirements, as well as the role of the Basel accords in providing the legal & intellectual framework for the crimes committed.

How can we address the role of failed international standards & policies domestically?

econobuzz January 29th, 2011 at 3:10 pm

I still think the biggest tragedy in all of this is that we have D president who has absolutely no interest in the American people knowing and understanding what really happened. That’s the least I expected of him: the truth about who the good guys are and who the bad guys are.

TOTAL FAIL.

sadlyyes January 29th, 2011 at 3:11 pm
In response to Dean Baker @ 116

$40 billion a year by just taxing stock trades
======================
simple and smart

Dean Baker January 29th, 2011 at 3:11 pm
In response to econobuzz @ 119

Yes, well many of the bad guys helped our D president get where he is today.

bigbrother January 29th, 2011 at 3:12 pm
In response to DWBartoo @ 108

Investor are making money so they continue playing the markets and the corporations makes profits by cutting payroll, health care and other cost as well as off shoring jobs. the 25 million unemployed will not get much help like the 99rs. Down sizing, conglomerating leveraged buyouts are alive and well.

econobuzz January 29th, 2011 at 3:12 pm
In response to econobuzz @ 119

And, personally, the economics profession that has totally disgraced itself.

sadlyyes January 29th, 2011 at 3:12 pm
In response to econobuzz @ 119

biggest disappointment evah,ask Cornell West

econobuzz January 29th, 2011 at 3:13 pm
In response to econobuzz @ 123

Present company excluded, of course.

Dean Baker January 29th, 2011 at 3:13 pm
In response to econobuzz @ 123

Yes, being an economist should disqualify anyone from talking about the economy. (I’ll go away if they’ll go away.)

Michael W. Hudson January 29th, 2011 at 3:14 pm
In response to papau @ 104

re the role of Fannie and Freddie:

this piece I did for the Daily Beast is worth a look:
http://www.thedailybeast.com/blogs-and-stories/2011-01-17/wall-street-not-fannie-and-freddie-led-mortgage-meltdown/?cid=hp:mainpromo5

The key stat: Mortgages financed by Wall Street from 2001 to 2008 were 4½ times more likely to be seriously delinquent than mortgages backed by Fannie and Freddie.

That’s right.

Fannie/Freddie-backed loans: 6 percent serious dlq.

Wall Street backed: 27 percent serious dlq.

If Fannie and Freddie had been the ones who caused the mortgage frenzy, the numbers would be far different.

Fannie and Freddie played a role in the meltdown and did some serious damage, but their role was secondary to that of Wall Street and the private-label lenders it bankrolled.

DWBartoo January 29th, 2011 at 3:14 pm
In response to Dean Baker @ 116

Dean, like the economic “system” the political “system” is corrupt beyond reasonable redemption, neither will rise to the real needs of the people, the nation, or the times.

Can you imagine that we might have to change things without the “help” of the ruling classes?

I cannot imagine things being changed … WITH the “help” of the ruling classes.

DW

bgrothus January 29th, 2011 at 3:14 pm

That is an interesting angle on ACORN that I had not heard. I don’t think this is what caused the Congress to come unhinged. Was I mistaken? Did ACORN make bad loans?

sadlyyes January 29th, 2011 at 3:14 pm
In response to econobuzz @ 123

outlaws,with the DOJ asleep at the wheel

sadlyyes January 29th, 2011 at 3:15 pm

amazing stat

econobuzz January 29th, 2011 at 3:15 pm
In response to Dean Baker @ 121

Losing the narrative is the most depressing thing to me. Humans haven’t progressed all that much. So, I expect the seven deadly sins to prevail as often as not. But losing the narrative gives me NO hope.

Michael W. Hudson January 29th, 2011 at 3:16 pm
In response to papau @ 104

one more stat:

In addition to buying loans directly, Fannie and Freddie also purchased mortgage-backed securities produced by Wall Street. From 2002 to 2007, Wall Street produced more than $3 trillion in securities backed by subprime mortgages and so-called Alt-A mortgages, another class of risky home loans. During that time, Fannie and Freddie purchased 23 percent of Wall Street securities underpinned by subprime and Alt-A loans, according to Inside Mortgage Finance.

That’s a big chunk, but still not enough to make the case that Fannie and Freddie were the MAIN drivers of the growth in risky lending.

Fannie and Freddie was involved (as a purchaser) in 23 pct of Wall Street’s toxic securities. Wall Street, on the other hand, was involved in 100 pct of these deals.

sadlyyes January 29th, 2011 at 3:17 pm

i will get your book ,fascinating

jest January 29th, 2011 at 3:18 pm
In response to Dean Baker @ 121

Yes, well many of the bad guys helped our D president get where he is today.

That’s a fact people often try to forget.

When Hillary was the frontrunner, the amount of Wall Street cash she was raising was eye-popping; being a senator from New York probably didn’t hurt either.

No matter who the Dem nominee was, they were bought and paid for by the banks… Heads they win, tails we lose.

Michael W. Hudson January 29th, 2011 at 3:18 pm
In response to Sebastos @ 117

ACORN wasn’t the only community activist group that made deals with big subprime lenders. Many others did as well. These deals helped lessen the heat on Citigroup and other big-time players just at the time when the subprime market was moving toward critical mass.

Michael W. Hudson January 29th, 2011 at 3:19 pm
In response to sadlyyes @ 134

Thanks, it’s nice to know The Monster is getting out there, and actually being read.

econobuzz January 29th, 2011 at 3:20 pm

I have been asked often to return to the program where I received my degree — to address (and encourage) the graduates. I’ve always declined.

I just may reconsider — to deliver the message of what a fucking sham the profession has become.

bigbrother January 29th, 2011 at 3:20 pm

The next big hammer is falling now. Commercial real Estate is underwater with bonds/loan coming due and banks will not be refinancing these five year terms according the the owner of the 17 largest in the US. The bank balance sheets will be groaning as they scramble for more cash to cover there reserve requirements. What is the next bailout mr. Obama. Paulsen, the bail out architect, walked with a cool Billion!

Michael W. Hudson January 29th, 2011 at 3:20 pm
In response to econobuzz @ 132

It’s amazing how quickly we forget. The S&L scandal should have taught us everything we needed to know about safe and sound (and fair) banking principles.

bgrothus January 29th, 2011 at 3:21 pm

I am confused. What did the community groups “get” from these banksters? Was it just a guarantee that they would not red line neighborhoods, or was it something more?

bigbrother January 29th, 2011 at 3:22 pm
In response to DWBartoo @ 128

Create local sustainable economies. Decentralize

econobuzz January 29th, 2011 at 3:23 pm

I can’t tell you how much I respect you and Dean — and the Shrill One — and others for pissing into the wind of bullshit coming out of DC.

Michael W. Hudson January 29th, 2011 at 3:24 pm
In response to bgrothus @ 129

The recent controversy over the crazy, doctored videotapes that helped spark an uproar over ACORN had nothing to do with lending as far as I can tell.

don’t think ACORN made bad loans. they just, at least in the case of Ameriquest, helped provide a gloss of respectability to a company that made lots of bad loans.

Dean Baker January 29th, 2011 at 3:24 pm

It is also worth mentioning that F&F started to buy up more subprime backed MBS in 04 and 05 because they were losing market share. This is discussed quite openly in one of the rating agencies reports on Freddie. The report raises the possibility of a downgrade, but then expresses confidence that their move into non-traditional mortgages would allow them to regain market share.

In other words, they got into these markets in a bigger way in their pursuit of profit, not because they were trying to get low-income people into homes.

PeasantParty January 29th, 2011 at 3:25 pm
In response to econobuzz @ 143

Ditto! I think we should plan a summit for them along with W. Black, Stiglitz, Krugman, and others on our side and hammer out a real workable template to fix it all.

Michael W. Hudson January 29th, 2011 at 3:26 pm
In response to bgrothus @ 141

one sidenote re ACORN:

In 2009, ACORN found er Wade Rathke was still defining ACORN’s Ameriquest settlement as a victory.

When he put out a book on community
activism, Citizen Wealth: Winning the Campaign to Save Working
Families, he devoted a passage to his or ga ni za tion’s settlement nearly
a de cade before with Ameriquest. Rathke said the July 2000 agreement
had ensured “fairer, more transparent lending operations” at
the lender. While other companies, such as Household, had fought
ACORN’s eff orts to clean up subprime, Rathke wrote, “Ameriquest
benefi ted by being an early responder in this campaign, quickly realizing
that it was smarter— and much cheaper— to settle and deal with
the problems rather than endure a protracted war in public, in the
courts, and in the marketplace.”

Rathke seemed unaware of the record
of fraud and exploitation that had continued at Ameriquest. Th e
company hadn’t dealt with its problems as a result of its deal with
ACORN. It hadn’t become fairer and more transparent. Th e settlement
with ACORN had helped the company wriggle free from an
FTC investigation and move forward with a seal of approval from one of
the nation’s biggest activist organizations. Ameriquest had used the deal
as cover that allowed it to grow bigger and more predatory.

Michael W. Hudson January 29th, 2011 at 3:28 pm
In response to Dean Baker @ 145

exactly, Federal Housing Finance Agency data shows Fannie and Freddie’s share of new mortgages fell from almost 55 percent in 2003 to less than 35 percent in 2006. They were no longer in control. Wall Street was.

bigbrother January 29th, 2011 at 3:28 pm

Dean and Micheal: Great to have this in this spotlight.
Maybe next post “How to build a sound economy”. Thanks

bgrothus January 29th, 2011 at 3:29 pm

Stunning that none of this was put in the official record when ACORN was taken down. Or if it was, it was not covered in the media.

Michael W. Hudson January 29th, 2011 at 3:30 pm
In response to Dean Baker @ 145

Th e New York Times described a
meeting that had taken place sometime in 2004 or 2005 between Countrywide chief
Angelo Mozilo and Fannie’s chief executive, Daniel Mudd. Fannie
bought large volumes of Countrywide’s plain- vanilla loans. Mozilo
wanted Fannie to buy its riskier mortgages, too. He knew Fannie had
lost much of its market share to Wall Street fi rms that were clamoring
for loans made with little documentation and exotic features that, in
the short term, masked the loans’ true costs. “You’re becoming irrelevant,”
Mozilo told Mudd. “You need us more than we need you, and if
you don’t take these loans you’ll fi nd you’ll lose much more.” Then
Mozilo offered everyone in the room a breath mint.

bigbrother January 29th, 2011 at 3:30 pm

Now 66% of housing sales in CA are by banks!

econobuzz January 29th, 2011 at 3:30 pm

To me, “Winning the Future” means winning the intellectual and moral war that is raging. If we can’t persuade the young of what really happened, there is no hope. I’m not convinced we can’t win the narrative among the groups that really count.

Michael W. Hudson January 29th, 2011 at 3:31 pm
In response to bgrothus @ 150

facts and a real look at what ACORN’s record –good and bad and mixed–didn’t seem to be part of the agenda.

Dean Baker January 29th, 2011 at 3:33 pm

Yes, I remember this one. It really is an amazing story. Btw, Mozilo walked away with a few hundred million from Countrywide. He dumped much of its stock before its price collapsed — i think BoA got them for about $1 a share. He had to pay $20 or $30 million in a legal settlement. It struck me as being like a situation where we catch the bank robber and he is forced to give back 2 of his bags of money, but then walks off with the other 10.

bgrothus January 29th, 2011 at 3:34 pm

Have you ever been invited to testify in front of Congress or any committee there? We need you up there.

bigbrother January 29th, 2011 at 3:34 pm

154 comments in 1.5 hours is ripping it up!

Dean Baker January 29th, 2011 at 3:39 pm
In response to econobuzz @ 153

On the intellectual argument side, one place where i think many progressives are completely out to lunch is allowing the debate be between supporters of big government and supporters of free markets. These Wall Street guys absolutely do NOT want free markets. They desperately need their insurance from the government, they just don’t want to pay for it.

Nor do they want any restrictions on what they can do. It’s like I go out an buy fire insurance on my home and then set up a fireworks factory.

Anyhow, the same story applies almost everywhere. The wealthy do not want a free market — they want the government to rig the rules in their favor. Progressives are giving up the game when we allow them to pretend to be tough guys who support a free market and let the chips fall where they may philosophy.

It would be great if this were really true. Goldman, Citi, Morgan Stanley and Bank of America would all be out of business today if they were committed to the free market.

PeasantParty January 29th, 2011 at 3:39 pm

Michael and Dean,

Can you share your insights on the pension and 401K failures?

econobuzz January 29th, 2011 at 3:40 pm

Sorry if this has been mentioned before, but the most sinister reason given for the crisis is the poor buying a house they couldn’t afford.

That is pure evil. And when progressives respond saying, yes, that was part of the problem, we play right into the hands of the real evildoers.

Scarecrow January 29th, 2011 at 3:40 pm

Michael and Dean — great discussion. What about the FCIC report? It seems destined for a dusty shelf. Did they blow it? Get it right but the story is too complicated? Miss the big picture (e.g., as Dean often says, is the housing bubble, stupid)?

What this country needs is some real monsters we can ID and point to?

What do you expect to happen from the report, now it’s out?

Michael W. Hudson January 29th, 2011 at 3:40 pm
In response to jest @ 118

Good question. Again, I’m not good on policy — Dean? Dean? Are you there? — but I will note that accounting fraud/questionable accounting played a significant role in the recent meltdown (see, for example, the bankruptcy examiners’ reports in Lehman and New Century cases).

It’s worth noting that the LAST TIME WE HAD A SUBPRIME MELTDOWN — in the late 1990s (a history that was completely forgetton by, say, 2002)– accounting shenanigans played a big role.

A slew of subprime auto lenders and mortgage lenders came under scrutiny (many went under or had to give themselves away in fire sales) after the Long Term Capital meltdown/Russia debt crisis/Asian debt crisis exposed their questionable accounting.

For example: Green Tree Financial, the nation’s leading mobile home
lender, acknowledged it had infl ated its earnings by $200
million. Th e confession was especially embarrassing because Lawrence
Coss, Green Tree’s CEO, had become America’s highest- paid
chief executive, nailing down more than $100 million in 1996.

econobuzz January 29th, 2011 at 3:40 pm
In response to Dean Baker @ 158

Amen.

bobash January 29th, 2011 at 3:42 pm

Great book salon Michael and Dean. I’ve read enough here to make me buy the book. Thanks.

Can you comment on what is going on with the states attorneys general and their pursuit of foreclosure fraud? I understand why Holder does nothing–same reason he’s done nothing for patently obvious torture violations–Obama has him handcuffed. But I don’t understand why some young ambitious state attorney general hasn’t used his powers in the context of property law, which is locally regulated not federally regulated, to make a name for him/herself by exposing in court some of the more egregious fraudsters. Any comment?

Michael W. Hudson January 29th, 2011 at 3:42 pm
In response to Dean Baker @ 155

By my calculation, Mozilo’s settlement with the feds required him to pay 16 cents out of his own pocket for every dollar federal authorities claimed he had taken out of the company in ill-gotten personal gains.

See http://www.huffingtonpost.com/mike-hudson/16-cents-on-the-dollar-do_b_766599.html

Dean Baker January 29th, 2011 at 3:43 pm

The big problem is that firms do not want to take the risk associated with traditional pensions and are just dumping that off on workers. There really is nothing to prevent this in the private sector, except in the small share of work places that are unionized. Now the right has launched a huge campaign to go after public sector workers and their pensions.

I think we have to move towards some public universal pension system that is a supplement to Social Security. It can be voluntary, but it should provide a guaranteed benefit based on contributions. I actually think this might be a politically doable task, the problem is that the right will try to funnel the money through Wall Street where hundreds of billions will be siphoned off in fees. There is no reason that a program like this cannot be publicly managed. The federal employees’ Thrift Savings Plan provides a great model.

DWBartoo January 29th, 2011 at 3:43 pm
In response to Dean Baker @ 155

Excellent analogy.

Might we say that both bank “robbers” are simply thugs, likely sociopathic and an actual danger to the rest of us?

;~DW

Shoto January 29th, 2011 at 3:45 pm
In response to Dean Baker @ 158

The wealthy do not want a free market — they want the government to rig the rules in their favor.

And they pay good money to make sure the rules get written in their favor. A straight line can be drawn from the campaign contributors to the ultimate outcome of certain types or pieces of legislation, and yet a great majority of the country seem unable to make this connection. It would seem to me that a crack could be made in the wall if more people (across the political spectrum) understood how the game is actually played.

PeasantParty January 29th, 2011 at 3:46 pm
In response to Dean Baker @ 166

Thanks! Maybe some of us longterm unemployed can do a start up. I know that Bill E. here at FDL and I have discussed this sort of thing.

Michael W. Hudson January 29th, 2011 at 3:46 pm
In response to bobash @ 164

haven’t done enough reporting on this in the past few weeks to talk about what’s going on with the states and feds. but I will say that the record is clear that the states — esp. Minnesota, Iowa, Washington state, Illinois — were much more aggressive about trying to fight mortgage abuses than the feds.

In fact, federal banking regulators actively fought to block the states from taking action, invoking the power of federal preemption whenever a state agency tried to go after a lender that happened to be affiliated with a national bank.

bobash January 29th, 2011 at 3:46 pm
In response to Dean Baker @ 158

Amen again. Same is true in the energy field–I’m convinced renewables would have a chance in a level playing field. As it is, they have to compete against the subsidies to the coal industry and oil and gas industry.

DWBartoo January 29th, 2011 at 3:46 pm

Great salon, Michael and Dean.

Much thanks to you both.

May the Monster go forth and educate widely?

Unleash the truth!

We’ve great need of it.

DW

Scarecrow January 29th, 2011 at 3:47 pm

Bill Black writes about what he calls the criminogenic culture of the industry, and the extent to which it breeds control fraud. That seems a powerful message, but few others tend to speak in the same terms. The books seems to confirm his view.

So that suggests there’s been a massive breakdown in the whole rule of law. Fraud and deception have become pervasive and law enforcement, never mind regulators, are either helpless or indifferent? Is that what you see? And if so, what do we do to reverse that trend?

Dean Baker January 29th, 2011 at 3:47 pm
In response to bobash @ 164

I am worried that these guys will get off the hook. It was sad that the Obama administration would not support a foreclosure moratorium. (the stuff about it wrecking the housing market was complete nonsense.) The logic was the same as with the drilling moratorium following BP — no foreclosures until we are sure that the laws are being followed.

My guess is that there will be some tightening of practices but you will still see tens of thousands of foreclosures go through where the banks do not have the proper paperwork. Again, this is a case where the progressive position is a simple free market argument — follow the law!

Starbuck January 29th, 2011 at 3:48 pm

I see no difference between these “Wall Street Thugs” and the Payday lenders at 25% or more sometimes per month. They need to be seriously prosecuted, shut down and pay back to the American people.

Michael W. Hudson January 29th, 2011 at 3:49 pm

this is a great question, and I don’t have a good answer. anybody want to weigh in: why hasn’t there been tougher action against the rating agencies?

Dean Baker January 29th, 2011 at 3:50 pm
In response to Starbuck @ 175

yes, the payday lenders are another group who need to be reined in. Even Jeb Bush in Florida agreed — capping the annual interest rate at 36 percent. I understand the idea that these are desperate people who take out these loans, but at some point we have to recognize that people are not being helped when they are paying 100-200 percent in annual interest, as if often the case in unregulated states.

Dearie January 29th, 2011 at 3:51 pm

Far as I can tell, we are all toast. Any reason to think differently? Obama is an empty suit….or the best Republican President That Money Can Buy. Feingold and Grayson got axed. Anyone who can be trusted still left? I don’t see much hope for change…..but, you know, WTF (Win The Future).

Dean Baker January 29th, 2011 at 3:52 pm

yes, see my answer in # 55

Scarecrow January 29th, 2011 at 3:52 pm

What public official/agency would want to take responsibility for making the wrong call on securities they don’t understand, can’t track and whose risks they can’t determine. Better to duck on this one.

Or another way to say this is, The Fed’s Greenspan did rate all the financial innovations — he said they were fine — and was dead wrong about them. Who wants to be the next Greenspan?

BevW January 29th, 2011 at 3:53 pm

As we come to the end of this great Book Salon,

Michael, Thank you for stopping by the Lake and spending the afternoon with us discussing your new book and the financial crisis.

Dean, Thank you again for returning and for Hosting this lively discussion.

Everyone, if you would like more information:

Michael’s website and book

Dean’s website and books

Thanks all,
Have a great evening!

Michael W. Hudson January 29th, 2011 at 3:54 pm
In response to Scarecrow @ 161

I’m still trying to get through the thing. There’s some valueable info in the FCIC report but I’m not ready to weigh in on whether the conclusions are right on and how much they’ll be taken to heart by the populace and by the political class.

I know that Columbia Journalism Review has looked at the initial media coverage of the report and dubbed the coverage “lackluster.” As CJR notes:

“The Wall Street Journal puts it on A4, and puts it sixth in its Business & Finance column of top news briefs, below such blockbuster news as the Dow almost closing above 12,000 and Amazon.com’s mixed earnings.

It gives its story a dud headline:

Report Details Wall Street Crisis”

http://www.cjr.org/the_audit/financial_crisis_inquiry_commi.php

econobuzz January 29th, 2011 at 3:54 pm

Just a guess: The only folks who could take action have no interest in making the point that the agencies were part of the problem — a problem that those who could take action deny existing in the first place.

Michael W. Hudson January 29th, 2011 at 3:55 pm
In response to Dean Baker @ 179

Thanks Dean — sorry I missed it. I’ve been flailing away trying to keep up with all the great questions and great ideas that are flying around here.

econobuzz January 29th, 2011 at 3:56 pm
In response to BevW @ 181

x2

Scarecrow January 29th, 2011 at 3:56 pm

Well, we wouldn’t expect the WSJ to splash a headline on its front page that said, “entire financial industry sucks, probably criminal but at least stupid; caused near depression.”

Michael W. Hudson January 29th, 2011 at 4:03 pm
In response to BevW @ 181

Thanks to Bev, FDL, Dean Baker and everyone who took the time to wrestle with The Monster. Sorry if I missed answering all the great questions. I was typing (and cut and pasting) as fast as I could, but I still couldn’t keep up!

For more info on The Monster, there’s always use The Google (!), or you can try these various places:

http://www.truth-out.org/inside-mortgage-monster66080

http://counterpunch.org/hudson12022010.html

http://citypaper.com/arts/books/subprime-suspects-1.1064556

http://www.boston.com/ae/books/articles/2010/11/28/how_main_st_pays_for_wall_st_greed/?rss_id=Boston%20Globe%20–%20Book%20reviews

gordonot January 29th, 2011 at 4:06 pm

As a Californian, I was disgusted by Davis and astounded by the election of Schwarzenegger, especially after his involvement with Enron. So, how does Schwarzenegger figure in this story?

gordonot January 29th, 2011 at 4:06 pm

oops…damn. Well, I’ll get the book and find out!

nowthenzen January 29th, 2011 at 4:21 pm

pay no attention to the men behind the curtain

Teddy Partridge January 29th, 2011 at 4:26 pm

Thanks for this wonderful discussion, really an important book.

I’ll buy it!

BeachPopulist January 29th, 2011 at 5:04 pm

he instilled a “pugilistic, almost paranoid view of the world,”

Isn’t “pugilistic” a little hilarious, in view of the fact that just after he announced the Lehman bankruptcy Fuld was knocked cold by a trader in the company gym?

Fireman1979 January 29th, 2011 at 9:01 pm

Was it this Michael Hudson who wrote a magazine story about 2006 predicting the coming housing crisis? I recall seeing it , looking at it but failing to see any evidence of housing speculation in my city of Buffalo, New York. If this is the same Hudson did the market fail the way that you predicted in the article? Hope you don’t mind but just asking.

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