Why Aren't These People in Jail?
In 2008 when the housing bubble broke and the nation’s economy took a nosedive, many Republicans and conservatives were quick to blame Congress for the problems. They pointed to a 1977 law called the Community Reinvestment Act that encouraged banks to offer mortgages in minority neighborhoods. The CRA – and the Capital Hill Democrats who championed it - became the boogeyman for forcing banks to loan money to unqualified homebuyers. These mostly subprime loans eventually defaulted, resulting in the cataclysmic implosion of the US financial industry, or so their well-publicized claims went.
But last week, in a mostly overlooked report from a bipartisan Financial Crisis Inquiry Commission that examined the causes of the great financial collapse, that myth was finally put to bed. “The CRA was not a significant factor in subprime lending or the crisis,” the report says. “Many subprime lenders were not subject to the CRA. Research indicates only 6% of high-cost loans—a proxy for subprime loans—had any connection to the law.”
The Commission went on to say that loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were only half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law. In other words, the CRA subprime loans often performed better than loans that were doled out by the banks on their own, without the supposed government interference.
Nevertheless, this myth that a 30-year-old law designed to make home loans equally available to minorities is the culprit of the financial crisis persists. You would think that the news media that gave lots of attention to the Republican myth-making machine at the height of the crisis would have taken some time last week to set the record straight. But having missed the warning signs that led to the greatest economic crisis since the Great Depression, why start now to accurately and thoroughly report on its causes and consequences?
The truth is the financial crisis that cost millions of jobs and brought misery to millions more was caused by simple greed. That was the conclusion of the FCIC report. Investors turned Wall Street into a giant casino and the regulators, who are supposed to be looking out for the public’s interest, were either in on the scam or not doing their jobs. The banking industry – even your friendly neighborhood bank – rejected the fundamentals. They gave mortgages to people and didn’t care whether the borrowers had the ability to repay the loans, they were only interested in collecting the commissions. And besides, those mortgages would be repackaged and sold to some other bank or institution or unsuspecting investors over and over again, passed along the banking chain like a hot potato. They only became a problem if you were the last one holding the piece of turd when the borrowers eventually defaulted.
It was fraud on a massive scale, and people should be in jail because of it. Why they're not is the story the press really needs to report.
THE LOCAL ANGLE: Whenever a major story breaks out on the national or world stage, reporters at small dailies always look for the “local angle.” This absurdity was spoofed years ago in the National Lampoon Sunday newspaper parody . One of the headlines read: “TWO LOCAL WOMEN FEARED MISSING,” above a much smaller sub-head reading, “Japan Destroyed by Earthquake.”
So last week, my favorite reporter Scott Thistle was patting himself on the back for a story in the Sun Journal examining the events in Egypt with the headline, “Global Events Impact Heat at Home.”
Really? Who knew. And this is news how?
Well, as it turns out it isn’t. There were two problems with Thistle’s story. First, the unrest in Egypt so far hasn’t had any impact on oil production, delivery or prices in the US or Maine, and it isn’t clear at this point if it ever will. Second, the story failed to even mention the most significant cause of increased oil and gas prices: index speculation by investors on the US commodities markets. Until the early 1990s, you couldn’t invest in commodities futures unless you were an actual producer or large consumer of the product. When those rules were loosened in the 90s, speculators began buying oil and gas contracts on the commodities exchanges even though they never intended to take actual possession of the barrels of oil. They just traded the futures contracts like casino chips. The result was a huge run up in prices.
The last big spike in oil prices took place in the summer of 2008 when oil hit $150 a barrel and gas went to $4 a gallon. There were plenty of stories at the time just like Thistle’s talking about unrest in the Middle East, China’s increased demand for oil or the SUV-loving Americans as the causes for the price hike. It was a perception that Wall Street helped perpetuate, and the news media went along for the ride, even though there were no shortages, no gas lines, no problem with production. In fact, oil supply at the time was at an all-time high, and demand was actually falling.
So if the price hike wasn’t caused by supply and demand issues, what was the cause? Nothing that you would read about in your local newspaper. It was caused primarily by huge gobs of new money flowing into the commodities markets. Between 2003 and 2008, the amount of money invested in commodity indices rose from $13 billion to $317 billion. Big financial institutions like Goldman Sachs warned investors that disruptions in oil production were going to cause prices to rise. They coaxed investors to bet heavily on rising oil prices and created an almost self-fulfilling prophecy. It would be two years before federal regulators conceded that this rampant speculation was a major factor in the gouging at the gas pump.
(It wasn’t as if nobody was warning about Wall Street speculators driving up gas prices back in 2008. In May of that year during his run for Congress, State Senator Ethan Strimling held a press conference blasting greedy Wall Street investors for causing the skyrocketing gas prices. Reporters’ eyes glazed over. “If international oil markets and domestic commodity trading legislation don’t make much sense to you, join the club,” admitted one reporter for the Portland Phoenix. Gee, that's helpful.)
So Thistle’s story had an eerie déjà vu quality. It’s the story that Wall Street wants you to believe, that problems in the Middle East and other “fundamental” factors are likely to cause a spike in oil prices. Get ready. Meanwhile, when you and the news media are looking the other way, speculators will be placing their bets and making billions off our economic misery in a shadow economic system they helped create and only they understand.
WARMING UP TO THE DAILY: OK, at first I thought it was a total bust. Now I find myself waking up to it each morning. The heavily promoted iPad-only news app by Rupert Murdoch and Apple was introduced a week ago, and my first impressions were not good. The actual news content of The Daily seemed thin, and the whole thing was buggy. It took too long to load, it frequently crashed or stalled. Navigation seemed confusing.
But I’m starting to change my mind. The sports section is great and the videos are solid, so much so that I’m beginning to think that The Daily may have a bigger impact on TV news than newspapers. There is still a lot of fluff, but I usually find something that’s mildly interesting to read. (The interview and the nose-to-nose pictures of the Winklevoss twins who claim their idea for Facebook was stolen by Mark Zuckerburg was, well, kinda icky. And how many times did the interviewer have to say that she’s known the twins since they were kids?)
It was a bumpy start, but I’m not ready to give up on it completely. Traditional newspapers don’t have much to fear - yet. But after a few more tweaks and improvements they might.
But last week, in a mostly overlooked report from a bipartisan Financial Crisis Inquiry Commission that examined the causes of the great financial collapse, that myth was finally put to bed. “The CRA was not a significant factor in subprime lending or the crisis,” the report says. “Many subprime lenders were not subject to the CRA. Research indicates only 6% of high-cost loans—a proxy for subprime loans—had any connection to the law.”
The Commission went on to say that loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were only half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law. In other words, the CRA subprime loans often performed better than loans that were doled out by the banks on their own, without the supposed government interference.
Nevertheless, this myth that a 30-year-old law designed to make home loans equally available to minorities is the culprit of the financial crisis persists. You would think that the news media that gave lots of attention to the Republican myth-making machine at the height of the crisis would have taken some time last week to set the record straight. But having missed the warning signs that led to the greatest economic crisis since the Great Depression, why start now to accurately and thoroughly report on its causes and consequences?
The truth is the financial crisis that cost millions of jobs and brought misery to millions more was caused by simple greed. That was the conclusion of the FCIC report. Investors turned Wall Street into a giant casino and the regulators, who are supposed to be looking out for the public’s interest, were either in on the scam or not doing their jobs. The banking industry – even your friendly neighborhood bank – rejected the fundamentals. They gave mortgages to people and didn’t care whether the borrowers had the ability to repay the loans, they were only interested in collecting the commissions. And besides, those mortgages would be repackaged and sold to some other bank or institution or unsuspecting investors over and over again, passed along the banking chain like a hot potato. They only became a problem if you were the last one holding the piece of turd when the borrowers eventually defaulted.
It was fraud on a massive scale, and people should be in jail because of it. Why they're not is the story the press really needs to report.
THE LOCAL ANGLE: Whenever a major story breaks out on the national or world stage, reporters at small dailies always look for the “local angle.” This absurdity was spoofed years ago in the National Lampoon Sunday newspaper parody . One of the headlines read: “TWO LOCAL WOMEN FEARED MISSING,” above a much smaller sub-head reading, “Japan Destroyed by Earthquake.”
So last week, my favorite reporter Scott Thistle was patting himself on the back for a story in the Sun Journal examining the events in Egypt with the headline, “Global Events Impact Heat at Home.”
Really? Who knew. And this is news how?
Well, as it turns out it isn’t. There were two problems with Thistle’s story. First, the unrest in Egypt so far hasn’t had any impact on oil production, delivery or prices in the US or Maine, and it isn’t clear at this point if it ever will. Second, the story failed to even mention the most significant cause of increased oil and gas prices: index speculation by investors on the US commodities markets. Until the early 1990s, you couldn’t invest in commodities futures unless you were an actual producer or large consumer of the product. When those rules were loosened in the 90s, speculators began buying oil and gas contracts on the commodities exchanges even though they never intended to take actual possession of the barrels of oil. They just traded the futures contracts like casino chips. The result was a huge run up in prices.
The last big spike in oil prices took place in the summer of 2008 when oil hit $150 a barrel and gas went to $4 a gallon. There were plenty of stories at the time just like Thistle’s talking about unrest in the Middle East, China’s increased demand for oil or the SUV-loving Americans as the causes for the price hike. It was a perception that Wall Street helped perpetuate, and the news media went along for the ride, even though there were no shortages, no gas lines, no problem with production. In fact, oil supply at the time was at an all-time high, and demand was actually falling.
So if the price hike wasn’t caused by supply and demand issues, what was the cause? Nothing that you would read about in your local newspaper. It was caused primarily by huge gobs of new money flowing into the commodities markets. Between 2003 and 2008, the amount of money invested in commodity indices rose from $13 billion to $317 billion. Big financial institutions like Goldman Sachs warned investors that disruptions in oil production were going to cause prices to rise. They coaxed investors to bet heavily on rising oil prices and created an almost self-fulfilling prophecy. It would be two years before federal regulators conceded that this rampant speculation was a major factor in the gouging at the gas pump.
(It wasn’t as if nobody was warning about Wall Street speculators driving up gas prices back in 2008. In May of that year during his run for Congress, State Senator Ethan Strimling held a press conference blasting greedy Wall Street investors for causing the skyrocketing gas prices. Reporters’ eyes glazed over. “If international oil markets and domestic commodity trading legislation don’t make much sense to you, join the club,” admitted one reporter for the Portland Phoenix. Gee, that's helpful.)
So Thistle’s story had an eerie déjà vu quality. It’s the story that Wall Street wants you to believe, that problems in the Middle East and other “fundamental” factors are likely to cause a spike in oil prices. Get ready. Meanwhile, when you and the news media are looking the other way, speculators will be placing their bets and making billions off our economic misery in a shadow economic system they helped create and only they understand.
WARMING UP TO THE DAILY: OK, at first I thought it was a total bust. Now I find myself waking up to it each morning. The heavily promoted iPad-only news app by Rupert Murdoch and Apple was introduced a week ago, and my first impressions were not good. The actual news content of The Daily seemed thin, and the whole thing was buggy. It took too long to load, it frequently crashed or stalled. Navigation seemed confusing.
But I’m starting to change my mind. The sports section is great and the videos are solid, so much so that I’m beginning to think that The Daily may have a bigger impact on TV news than newspapers. There is still a lot of fluff, but I usually find something that’s mildly interesting to read. (The interview and the nose-to-nose pictures of the Winklevoss twins who claim their idea for Facebook was stolen by Mark Zuckerburg was, well, kinda icky. And how many times did the interviewer have to say that she’s known the twins since they were kids?)
It was a bumpy start, but I’m not ready to give up on it completely. Traditional newspapers don’t have much to fear - yet. But after a few more tweaks and improvements they might.
As a person who has been grossly "under employed" for approximately 38 months, I couldn't agree with you more that there should be a whole bunch of people in jail for the many "misdeeds" which created the current economic woes we're now experiencing. My "favorite" story of the last week or so was how JPMorgan Chase foreclosed on the homes of over 1,000 personnel serving in Iraq. Of course, when called to the table by the U.S. Senate, the JPMorgan Chase shill explained that it was all "an unfortunate oversight" and noted that these people would be refunded over $2 million total. While I think that is the "correct" approach, it still does not put these people who are in harm's way back into their houses. Plus, I couldn't help but note that JPMorgan Chase made no mention of addressing the INCORRECT foreclosures foisted upon those poor souls who are not on active duty in the military.
My opinion is that the reason none of these people are in jail is that they contributed heavily to the campaigns of the very people charged with providing oversight of the industry and I wouldn't doubt that most of the politicians know these "unindicted criminals" on a first name basis! As far as the "myth" regarding the Community Reinvestment Act, the Republicans learned well from "Turdblossom" Rove that if you repeatedly tell “the people” something, they will come to believe it regardless of whether it is the truth!
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