The election is all but over, but the debate over who is responsible for the financial crisis is just beginning to become more intense.
We know that the FBI has opened a criminal investigation of 26 companies, indicted 400 mortgage scammers and started 1400 criminal white collar cases There are 40 task forces allegedly looking into the fraud at the heart of the subrprime pyramid scheme.
But now we also know that the Bush Administration has made a the prosecution of white collar crime a lesser priority with more agents tasked to chase terror suspects than the men and women who brought our economy down.
"A short-staffed FBI is laboring to keep up with white collar crime linked to the nation's financial crisis, the New York Times reports. FBI officials predicted millions of dollars' in mortgage fraud years ago, but the Justice Department wanted agents focused on counter-terror. When the FBI warned of a fraud "epidemic" in 2004, only 15 of its 13,000 agents were on the case."
On top of that, many in the media prefer to fudge on who is responsible. blaming irresponsible borrowers equally with irresponsible lenders. In this way, the problem becomes binary with two co-guilty parties, each canceling the other out. Under this logic, the ghetto family that was talked into taking out a subprime loan shares the blame with multi-million dollar marketing operations and investment banks with a well conceived schemes for transferring wealth from the poorest among us to the richest institutions.
This cynical pox on all their houses was expressed by Rick Newman in a blog on US News.
Yes, there were villains, and, yes, there were dupes. But everybody got greedy. That includes homeowners who wanted more house than they could afford, along with bankers who wanted higher returns than they could get from conventional securities. If Wall Street committed a crime, then Main Street was an accomplice. And now they're both feeling the pain.
This squares the circle and sounds reasonable. It's also wrong. Just ask financier Eric Hovde who writes in the Washington Post:
Looking for someone to blame for the shambles in U.S. financial markets? As someone who owns both an investment bank and commercial banks, and also runs a hedge fund, I have sat front and center and watched as this mess unfolded. And in my view, there's no need to look beyond Wall Street -- and the halls of power in Washington. The former has created the nightmare by chasing obscene profits, and the latter have allowed it to spread by not practicing the oversight that is the federal government's responsibility."
Anderson Cooper at CNN for one -- and he may be one of the few -- says now IS the time to assess blame and CNN is doing reports on the top ten culprits of the crisis. Usually the CEOS of the companies in trouble (AIG, Lehman etc.)
When tens of billions of dollars in phony securities were written down, when as many as five million families lose their homes, when the economy collapses you have to look deeper at the actual crimes that were committed, starting off with violations of anti-discrimination laws and rules designed to insure that folks knew what they were buying and had their deal clearly explained. Most didn't. You also have to look at business practices and lack of regulation.
That is why the FBI broadened its investigation. Soon 177 agents were on the case and forty task forces were at work. They were being pressured from below by Attorney Generals from many states who were responding to complaints. One of them was New York's ex-Governor Eliot Spitzer who penned an Op-Ed in the Wall Street Journal just before his sexual picadillo blew up into a scandal that forced him to resign. He wrote:
"Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.
Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
Spitzer and his counterparts began investigating large mortgage companies like Countrywide. It became clear that if there was a crime going on, and it was massive and institutional, not just individual. The Wall Street Journal reported that many of the biggest firms knew they were vulnerable to law suits and prosecution and began to hire specialized counsel.
"Perhaps an even better signal that governmental investigations are on the way -- kind of like the swallows returning to San Juan Capistrano -- is the formation of practice specialty groups at major law firms to "help" clients deal with the turmoil. A post on the Wall Street Journal Law Blog notes that firms like Paul Hastings, Patterson Belknap, and Pillsbury Winthrop have assembled teams of lawyers to provide assistance, including members of the white collar crime departments. If the firms smell an opportunity, don't be surprised to see this area develop over the next few months with a range of internal investigations that may well bring criminal behavior to the surface."
Journalists in other countries saw this problem before Americans Diane Francis wrote in Canada's Financial Post:
The subprime mortgage and asset-backed paper scandals constitute one of the biggest frauds ever perpetrated. They have resulted in mass foreclosures, writedowns, bankruptcies, firings and billions lost. The US$10-trillion U.S. home-lending sector was, and perhaps still is, rotten. At the top were mortgage lenders, then Wall Street and others who exported junk debts to lenders around the world after prettying them up.
At the bottom was a corrupt system that handed out mortgage broker licenses like driver's licenses, and then handed out mortgages like candy at Halloween. In between were crooked appraisers and organized crime.
The stories are now seeping out.
So far, there have been few indictments, and the fear is that the small fish will face the media firing squads not the big names like former Treasury Secretary Robert Rubin or his successor Hank Paulson, or regulators including former Fed Chairman Alan Greenspan who enabled and encouraged the housing bubble.
Notes the New Statesman:
"It is far too early to tell who might come to symbolize the meltdown of 2008, although there has been no shortage of ire directed at executives of AIG over lavish corporate retreats, along with former Lehman CEO Richard Fuld, whose company is under investigation by prosecutors in three locations.
The first Wall Street figures to be charged in the subprime mortgage fallout worked as hedge fund managers for Bear Stearns. They were arrested in June, accused of misleading investors about the subprime mortgage crisis." But why stop there? Prosecutors hear the outcry. They realize that investigations and prosecutions are essential as deterrent.
What needs indicting, as I argue in my book Plunder, is the system as well as its mechanics. We need to look closely at the cabal of firms that profited, the regulators who enabled them and the media that was bought out and sold out.
Let's jail the guilty but also totally reform the system, because even now, the shady wheeler dealers are hard at work. Everyone is decrying greed; no one is stopping it.
News Dissector Danny Schechter edits Mediachannel.org and wrote Plunder: Investigating Our Economic Calamity (Cosimio) now at online book stores. Comments to Dissector@mediachannel.org.
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