Where's the Reporting On the Fraud That Led to the Economic Collapse?

Economist James Galbraith says America’s economic collapse “was the product of wide-scale criminal fraud” but that the press, instead of investigating it aggressively, has treated it as a ‘boys will be boys” phenomenon.

Galbraith, a University of Texas professor and author of seven books, notes that during the savings and loan scandal of the 1980s more than 11,000 cases were referred to the Justice Department for investigation and possible prosecution. Reports vary on the number of investigations today but they are believed to be nowhere near that number even though the sub-prime mortgage collapse led to a national and world wide catastrophe. One difficulty, Galbraith pointed out, is that hundreds of FBI agents were switched from white collar crime to terrorism after the 9/11 bombings.

Here’s an interview with Galbraith on the subject by writer John Hanrahan, running today (October 15th) on the Nieman Foundation’s niemanwatchdog Web site. It’s part of a series on coverage and the crash, and what the press should be doing now, titled “Reporting the Collapse.” Also included, at the bottom, are links to other stories in the series.

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John Hanrahan's Interview with James Galbraith

University of Texas economist and author James Galbraith believes the press has paid too little attention to investigating the “criminal and felonious behavior” involved in the economic crash of last year.

“The press as a whole used [Ponzi-schemer] Bernie Madoff as the emblem of wrongdoing, but compared to the wrongdoing in the housing sector, the Madoff scandal was small-bore,” Galbraith told Nieman Watchdog in a recent interview. “The press has tended a bit to treat this issue [mortgage related fraud] as a kind of boys-will-be-boys phenomenon. The press has not been aggressive in investigating this the way they should, to point out to readers the extent to which we’re talking about fraud -- criminal, felonious behavior -- that will end up with people in the penitentiary.”

Galbraith said last year’s economic collapse “was the product of wide-scale criminal fraud,” just as was the case in the savings and loan scandal of the late 1980s, which produced thousands of criminal charges against S&L officials and loan officers.

(In 1987-1988, the Federal Home Loan Bank Board referred more than 11,000 S&L cases to the Justice Department for investigation and possible prosecution. A book, “Big Money Crime” by Kitty Calavita, et al., reported that by the spring of 1992, more than 1,000 defendants had been charged in major S&L cases, with a conviction rate of 91 percent.)

So far, Galbraith said, there have been few prosecutions of mortgage related fraud in connection with the economic collapse. One difficulty, he noted, is that after the 9/11 bombings, hundreds of FBI agents (2,400, according to this Nieman Watchdog piece) were switched by the Bush administration from white-collar crime investigations to terrorist/national security cases, and were not replaced.

The FBI’s ability to conduct full-scale field investigations of white-collar crime appears to be improving somewhat. Since the end of 2007, various mortgage fraud task forces have been established by U.S. attorneys and the FBI, most recently in July in Connecticut. A press report a year ago indicated there were then some 1,500 active investigations involving such giants as AIG, Lehman Brothers, Fannie Mae and Freddie Mac.

Additionally, other press reports have indicated that Countrywide Financial, the nation’s largest mortgage lender, was being investigated for securities fraud by the Justice Department and FBI. Also, officials in various states -- including New York, California, Connecticut, Illinois, Massachusetts and Ohio -- are reportedly investigating mortgage related fraud.

However, there are concerns that Justice Department and FBI investigators are still in too short supply to conduct widespread and in-depth investigations into crimes underlying the economic collapse, and that Congress is exerting inadequate oversight needed to prod federal investigators. Rep. Marcy Kaptur (D-Ohio), on the PBS program Bill Moyers Journal, said recently, "We need to get hired over at the Justice Department, 1,000 agents, in mortgage fraud and in securities fraud. Then, I pray, that the leadership of both chambers [of Congress] will do the kind of robust hearings that the nation deserves to rout out those who did wrong and to change the fundamental financial architecture of this country."

The Nation's national affairs correspondent William Greider, in the magazine's October 26 issue, spotlights one promising vehicle for exposing the root causes of the nation's financial crisis -- the Congressionally-created, bipartisan, 10-member Financial Crisis Inquiry Commission that began operations September 17. (And, as Greider observes, "it was a nonevent for the media," which has "moved on" and seems to regard the financial crisis as "last year's story.") 

The commission is headed by Phil Angelides, the former California state treasurer. Greider quoted Angelides as saying the commission's purpose is "uncovering the facts and providing an unbiased historical accounting of what brought our financial system and our economy to its knees."

Noting that "the landscape remains littered with unanswered questions and informed suspicions about who did what to produce the breakdown," Greider warned: "Given the rush of events, the commission may be the public's last, best chance to get at the truth of the matter." 

"The industry will not be trustworthy until their crimes are investigated and prosecuted," Galbraith said. "The press needs to get on this one. The wheels of justice grind slowly, but they will grind."

Galbraith holds the Lloyd M. Bentsen Jr. chair in government business relations and is a professor of government at the University of Texas, Austin. He is the author of seven books, the most recent being "The Predator State: How Conservatives Abandoned tgeh Free Market and Why Liberals Should, Too," published last year.

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Next in the ‘Reporting the Collapse’ series:
What the press can learn from its failure to report the housing bubble before it burst. Reporters and editors need to evaluate arguments for themselves, and get officials and economists to back up their statements, not just make assertions. That’s advice from someone who suspected early on that there was a bubble about to burst and did research that confirmed his suspicions.

Earlier in this series:
Doing a better job coping with economic disaster. Writer Henry Banta lays out what has gone wrong and why it is so important for the press to do a better job.

Rein in entitlements? No. Increase them, says James Galbraith. It’s time the press stopped falling for false, ongoing efforts to portray Social Security and Medicare as going broke, says Galbraith in the first installment of his interview with John Hanrahan.

As joblessness rises, reporters need to focus on calls for a second stimulus. Dean Baker sees a new, large stimulus as urgent. He has an alternate plan, also: Give companies tax credits to reduce workers’ hours (but not their pay) and put on new staff to take up the slack.

Galbraith: Deficits are the solution, not the problem. The University of Texas economist views aiding households, not banks, ia the key to recovery. He is highly critical of most coverage of deficits and fiscal policy and singles out the Washington Post editorial page as the worse offender.

Health care patents cost Americans hundreds of billions a year. Dean Baker says drug and medical device patents drive up costs enormously but are seldom if ever mentioned in the debate over health care reform. Drugs and equipment that could be sold profitably for a few dollars may instead sell for thousands.

Story ideas, from an expert. Dean Baker becomes assignment editor for a day, and asks for stories on deficits, on the mathematical basis for figuring the right size of a stimulus program, and the set-up by which banks borrow money from the Federal Reserve at 0 percent and re-lend it to the Treasury at 3-1/2 percent.

 

 

Follow Barry Sussman on Twitter: www.twitter.com/niemanwatchdog

Comments

[lapdogs]

Excellent question in the title; which I hope TV News and Newspapers across the country are asking themselves - and then hitting the pavement running, to start some digging for all the facts - and THEN REPORTING THEM!!

[uvymopka]

Government auditors spent the past five years examining all federal programs and found that 22 percent of them--costing taxpayers a total of $123 billion annually--fail to show any positive impact on the populations they serve.

[sposton]

Our whole financial system is based on the criminal fraud. Just like concentrating on people like Madoff leaves the Wall Street banksters off the hook, leaving the investigation of Federal Reserve off the table will leave the heart of the fraud intact.

[satyriasis]

The Republicans criminals in the financial industry learned their lessons well from the S and L crisis. They concealed their tracks effectively.

But massive Justice Department investigations can still uncover the crimes. But like so much else will their be a will to prosecute?

[FogBelter]

Mr. Sussman, I've read that all of the assets of all of the Nations on Earth combined comes in at about $140 Trillion Dollars ... and the derivatives bubble that was inflated thanks to unregulated Wall Street alchemy is upwards of $500 Trillion Dollars, with the notational value of derivatives in the neighborhood of $1.144 Quadrillion dollars. If you mull over the implications of those numbers you can see why no one is seriously interested in either reporting on or investigating, from a legal stand point, the culprits in this crime. The culprits might be the only ones preventing the bubble from popping. At least that would be my guess.

[petef59]

Most reporters, editors or their supervisors live in the same neighborhoods as the Finance/Banking industry. And since this financial fraud could no way be blamed on civil servants, teachers, cops, fierfighters or other government or unionized workfore, the investigations will never happen.

[ProfessorDuh]

An excellent observation. Are we sure ACORN didn't do it, plotting the whole thing from their secret volcano headquarters?

[pinegrove]

Don't be silly, they were in their secret underwater base........

[BurtonOerney]

Well, every network is reporting 41 arrests for mortgage fraud by the FBI, the New York State Banking Department, federal housing authorities, the U.S. Secret Service and U.S. Postal Service investigators. I'm sure there's a story about it on this website. Like when 500,000 people were put into trial mortgage plans at 31% pre-tax income. HP was all over that. Darn that biased, mainstream media!

http://www.cbsnews.com/stories/2009/10/15/business/main5386084.shtml

[schatsie]

Sugar, I just got my interest rate increased by CHASE by 10%!!!! These people need to take this depression seriously and cut the rates instead of increasing them....They are the ones driving this country into the ditch.....Obama can throw them all the money they ask for and they willl never never never let it trickle down....

[land2341]

Please. How many papers, tv networks and radio stations are owned by Rupert Murdoch? He never hid his political agenda and we let him buy it all. He either owns it outright or has a holding company or one of his children and their spouses owning it.

Huge swaths of this country hear only what Rupert wants them to hear.

[johnsopinion]

Out with the old, in with the new.

The time for term limits is now!

[josephXY]

The well known video with Peter Schiff and the bunch of other financial experts forecasting
and advising in 06 / 07, the height of the media hype then, might come in handy for that purpose. The viewer can instantly figure out a whole lot. It is considered awesome by many who know it. It may also be helpful to save a lot a problems.
http://www.youtube.com/watch?v=2I0QN-FYkpw

As far as newspapers are concerned, Danny Schechter gave a nice insight last year:
http://rinf.com/alt-news/media-news/where-was-media-when-sub-prime-disaster-unfolded/2854/

[dadw5boys]

here is a good one too

http://www.youtube.com/watch?v=V5HN8fqQI1U

http://www.youtube.com/watch?v=kNqQx7sjoS8&feature=related

[josephXY]

Thanks. That could be serious raw material for financial thriller writers.
I wish there would be a quite place somewhere on the HuffPo for such videos.

[lapdogs]

And everybody in the media - especially the Financial Networks - all laughed at Schiff's predictions.

[Vinca]

WE know money has gone missing, Bigtime.

[TruelyFedUp]

In current clinical use, psychopathy is most commonly diagnosed using the checklist devised by Emeritus Professor Robert Hare. He describes psychopaths as "intraspecies predators[14][15] who use charm, manipulation, intimidation, and violence[1­6][17][18] to control others and to satisfy their own selfish needs. Lacking in conscience and in feelings for others, they take what they want and do as they please, violating social norms and expectations without guilt or remorse".[19] "What is missing, in other words, are the very qualities that allow a human being to live in social harmony."[20]
From the free dictionary online.

Seems to fit doesn't it?

Let's ignore this too and go directly to a resource based economy - www.thevenusproject.com

Truly

[schatsie]

Sounds like the OLD TIME ROYALTY in england and france....At least the French had the cahones to do something real about it.

[TruelyFedUp]

Yes, the French did do something - but it was ultimately only a change of the guard with some Have-nots simply replacing the Haves. I think it is the monetary system that makes this most difficult - but it is only now that we have enough technology to do the heavy lifting with labor intensive work. The monetary system gives the apparency that things are scarce. It demands that homes, automobiles, etc, etc. break down quickly so they can be made, sold over and over forcing us to work repeatedly for the same stuff. Pile on top of that the fact that somehow the bankers came to own all (most) of the homes and land by charging exhorbitant interest making us pay 3x over for a home and bingo we are peasants again!

The Venus Project describes a resource based economy where all the basics are covered - health care, home, food - work days are shortened because of the support of technology and the city centers are universities where we all contribute ideas that forward freedom and an enjoyable life for anyone that wants to participate.

[knosiswar]

What has come of the FBI's 'investigation' that was announced in the papers Sep 23, 2008, over a year ago?


http://www.breitbart.com/article.php?id=D93COC400&show_article=1#
FBI investigating companies at heart of meltdown
Sep 23 07:09 PM US/Eastern
By LARA JAKES JORDAN
Associated Press Writer

[Vinca]

The News media have strings as do politicians. On thev webb you can find out some about the Fraud has caused this mess we're in. It's clear as a bell, that fraud and greedv and lust for power has caused our situation.

[dadw5boys]

How about the FBI investigation in 2004 into mortage fraud ?????

http://www.youtube.com/watch?v=V5HN8fqQI1U

[olephart]

Fraud, conspiracy, misrepresentation on Wall Street, I'm shocked!

It goes well beyond Wall Street. Appraisers, real estate brokers, mortgage brokers and many individuals sought to cash in on the bubble. Wall Street was the collector and distributor of trillions of dollars in bad paper. In one instance a house flipper had down on his mortgages that all of his 200 properties were owner occupied. He couldn't have done this without the collusion of several other parties. In the overall scheme of things we could jail hundreds of thousands of individuals for millions of years.

[schatsie]

We can send them all to Texas where they execute the poor boy criminals and by gum they can execute the massive fraud boys too....

[TruelyFedUp]

Or we can create a general amnesty - cancel all debt as paid in full, then assign ownership of homes to each individual, organize work parties to take control of food supplies so everyone has access to food, make sure that medicine and health care is available to all. Create local governments of willing individuals to make lists of all available resources and to create distribution centers so that people have clothes, heat, transportation and free energy fuel. Ignore the existing government but create a military or engage the existing forces in helping us create safe environments for the Citizens of this great country. Everyone can chip in and help just like during the 2nd world war.... It won't be perfect but it will be a heck of a lot better than the mess we have now.