A constant narrative heard across the media landscape today is that miscalculations and unforeseen circumstances led to the economic crisis facing America. Yet, beneath this media refrain are voices of integrity who claim the truth is entirely different. The voices declare a decade-long financial war for control of the American economy pitted a Financial Coalition -- consisting of the federal government, the Federal Reserve and Wall Street leaders -- against the citizens of the United States.
In 1998, one woman, Brooksley Born, engaged in battle against a group of President Bill Clinton's closest economic advisers, the Federal Reserve and Congress. Her story ought to be mandatory study for all media and every political leader in the country. As the head of the Commodities Futures Trading Commission, Born fought to derail a corrupt system of unaccountability involving bad loans sold under the guise of derivatives on Wall Street. A number of congressional hearings were held. Alan Greenspan, Robert Rubin, Lawrence Summers and Timothy Geithner led the battle to squash the reform movement headed by one woman.
Today, Born serves as a commissioner on the Financial Crisis Inquiry Commission. In an April 7, 2010 hearing, she blasted former Fed chairman, Greenspan, telling him the agency he led, "... failed to prevent the housing bubble, failed to prevent the predatory lending scandal and failed to prevent the activities that would bring the financial system to the verge of collapse."
Born politely left out the fact that she sought to prevent all of Greenspan's failures more than a decade ago when he and his cohorts successfully lobbied Congress to rule against her warnings. She lost a valiant fight against the Financial Coalition: federal government, Federal Reserve and Wall Street.
Economic Civil War
Shortly thereafter, under President George W. Bush, all 50 states attorneys general fought together against the executive branch, the Federal Reserve and Wall Street executives to derail a corrupt system of unaccountability involving bad loans and predatory practices targeting the American people. Former New York Governor Eliot Spitzer wrote a Feb. 14, 2008 editorial in The Washington Post that exposed the federal government's collusion with Wall Street and its Federal Reserve to defeat efforts to protect citizens against predatory lending practices that were at the core of the current economic crisis. As the states sued banking establishments for unlawful practices, the Office of the Comptroller of Currency in 2003 invoked an archaic federal law that undermined the efforts of the states to protect their resident consumers.
All 50 states lost an epic economic battle against the Financial Coalition. Media chose to wallpaper America with Spitzer's personal exploits, completely ignoring his public plea to investigate the Financial Coalition.
Today's notion that miscalculations and unforeseen circumstances led to the crisis belies the fact that the course of America's economy was established through court battles and congressional hearings with several strong warnings along the way. The Financial Coalition did not innocently nor inadvertently stumble onto an economic landmine. It defeated armies of experts in its effort to maintain a strategy it devised.
Face-to-Face Stark Warning
Five years ago, another public warning was presented to the Financial Coalition. According to a May 21, 2010 article in Time magazine titled, "Economic Seer Says U.S. Not Addressing Cause of Crisis":
"In 2005, Raghuram Rajan stood before a room of prominent economic policy makers celebrating Alan Greenspan's legacy and presented a paper about how the world was headed for financial disaster. The University of Chicago economist was roundly scoffed at even though, as it turns out, he was right."
Time asked Rajan, "How do you rate the financial re-regulation coming out of Washington? Because what you're talking about doesn't sound like what Congress is talking about." Rajan responded:
"I would ask a more fundamental question than is being asked, which is why were markets so oblivious of the risks being taken? I would argue a big reason was because they believed the markets would be bailed out by the government, and that expectation has been confirmed, with the government intervention in the housing markets and the credit markets and the Fed pushing enormous amounts of liquidity."
In a Jan. 2, 2009 article titled, "Mr. Rajan Was Unpopular (But Prescient) at Greenspan Party," The Wall Street Journal looked back at the 2005 event.
"Mr. Rajan, a professor at the University of Chicago's Booth Graduate School of Business, chose that moment to deliver a paper called 'Has Financial Development Made the World Riskier?'
"His answer: Yes.
"Mr. Rajan quickly came under attack as an antimarket Luddite, wistful for old days of regulation. Today, however, few are dismissing his ideas. The financial crisis has savaged the reputation of Mr. Greenspan and others now seen as having turned a blind eye toward excessive risk-taking.
"He says he had planned to write about how financial developments during Mr. Greenspan's 18-year tenure made the world safer. But the more he looked, the less he believed that. In the end, with Mr. Greenspan watching from the audience, he argued that disaster might loom.
"He pointed to 'credit-default swaps,' which act as insurance against bond defaults. He said insurers and others were generating big returns selling these swaps with the appearance of taking on little risk, even though the pain could be immense if defaults actually occurred."
Credit-Default Swaps soon attracted the interest of Bloomberg business reporter Mark Pittman. He died while embroiled in a battle with the Federal Reserve to crack its secrets regarding the whereabouts of more than $2 trillion in U.S. securities. Bloomberg paid homage to Pittman in its Nov. 30, 2009 article titled, "Mark Pittman, Reporter Who Challenged Fed Secrecy, Dies at Age 52." A statement made by a financial editor revealed a lot about Pittman and the rest of his journalist colleagues:
"'Who sues the Fed? One reporter on the planet,' said Emma Moody, a Wall Street Journal editor who worked with Pittman at Bloomberg News. 'The more complex the issue, the more he wanted to dig into it. Years ago, he forced us to learn what a credit-default swap was. He dragged us kicking and screaming.'"
Pittman is yet another warrior who fought to shed light in the dark corners of the financial sectors. He was an award-winning business reporter for Bloomberg, whose dogged determination to expose the risks involved in the market drew harsh criticism from ratings agencies and skepticism from leading business editors across the nation. Pittman pushed the Federal Reserve to respond to Freedom of Information Act requests it ignored. At the time, Timothy Geithner was the head of the New York Federal Reserve, the most powerful of all Fed branches. Today, Geithner advises President Obama as his Treasury Secretary. Can Geithner open up the Fed? Has anyone asked?
Despite an elevated percentage of economic news over most any other news, most Americans are still so ill-informed about the economic crisis that LIBOR has no meaning, though its rates impact banking institutions and consumers nationwide. Yet even the most unsophisticated and infrequent news consumer will inevitably stumble across a report on the top money-making Hollywood films and easily rattle off the names of top-grossing movies.
Media narratives often inform us that miscalculations, misfortune, mistakes and an inability to foresee the future are the culprits that caused the economic crisis. This narrative is regurgitated garbage thrown up by financial executives who were dragged before Congress in a toothless dog-and-pony exhibition that amounted to little more than more media fodder.
Harvard student sheds more light
Following in the footsteps of the award-winning Pittman, ironically, is a Harvard University student possessing no investigative journalism experience at all. While most media have remained content to regurgitate the blame-tossing chatter of financial executives and spineless excuses offered by elected leaders, Anna Katherine Barnett-Hart decided to delve into one of the real causes of the economic crisis. Her thesis, "The Story of the CDO Market Meltdown: An Empirical Analysis," should be required reading by every journalist involved in business reporting. It might be a good idea for media to invite Barnett-Hart to teach business reporters about collateralized debt obligations and myriad other complex debt instruments that confound both consumers and reporters.
Celebrated author Michael Lewis contacted Barnett-Hart last year after reading her thesis. Lewis' book, "The Big Short: Inside the Doomsday Machine," highlights the unsung heroes inside the financial industry who capitalized upon the broken infrastructure. The irony remains that many still perceive those who bet against the U.S. economy as unpatriotic or worse. It's difficult to understand how people can become so allied to deception and outright lies that they take offense with those who discover and embrace truth and use it to their advantage in the same capitalism game.
In 2006, Sheila Bair was named head of the FDIC. She soon began to peek into areas of suspicious banking activities within the realm governed by the Federal Reserve, according to Time magazine (May 24, 2010). In 2007, Bair began meeting with banking executives to "renegotiate entire categories of loans to avoid massive foreclosures that could erode home values." Her efforts failed and she went public with news of the pending crisis. Despite the fact that 25 banks failed in 2008, 140 more failed in 2009 and 68 have failed thus far this year, Bair's private efforts to help reform a system before it imploded have yet to be adopted by those who run the system.
Bair lost the struggle to save those banks that drowned in a flood of economic disaster. Consumers were also washed away in the aftermath of ignorant arrogance exhibited by banking executives.
Elizabeth Warren, the appointed head of the committee that oversees the Troubled Assets Relief Program, explained part of the process of confusion banks used to trap consumers. In the May 24, 2010 issue of Time magazine, an article titled, "The New Sheriffs of Wall Street: The women charged with cleaning up the mess," quotes Warren:
"For Bank of America's credit card in 1980, the agreement was 700 words long. The average credit card agreement by the mid-2000s was 30 pages long, and it was loaded with 'double-cycle billing' and 'LIBOR-linked' -- terms no one understood."
Today, the Financial Coalition is on its heels while a different coalition is forming comprised of heroic women: SEC Chair Mary Schapiro (who cast the deciding vote to initiate a lawsuit against Goldman Sachs), Elizabeth Warren (head of the TARP oversight committee), Sheila Bair (FDIC head) and Brooksley Born (Financial Crisis Inquiry Commission). I'm optimistic these women will embrace the 24-year-old Harvard-educated Anna Katherine Barnett-Hart and welcome her into the sisterhood.
The economic battles still rage today, as economic reform continues to be the political football tossed back and forth by the same old men who waged war on the American people. Meanwhile the same faces in the Treasury, Federal Reserve and congressional banking and finance committees have yet to change.
But don't worry. All is not lost. There's a new coalition coming. Perhaps its the Cavalry we need to win the economic war for the American people ... for a change.