![obamakr[1]](http://www.businessinsider.us/BusinessInsider/wp-content/uploads/2009/11/obamakr1.jpg "obamakr[1]")
By David Kerns
(Strategic Cultural Foundation)
“I have no interest in spending all of our time relitigating the policies of the last eight years.… laying blame…. can distract us from focusing our time, our efforts and our politics on the challenges of the future.”
–Barack Obama, speech on national security, delivered at the National Archives, Washington, D.C., May 21st, 2009
It seems President Obama has done as much as humanly possible to avoid prosecution of the many varieties of criminality that flourished in the Bush administration, and the White House has generously extended its indifference to Wall Street, where virtually no one has been held accountable in connection with the ongoing financial crisis. Justice was far more visible even during Ronald Reagan’s administration, when almost 2,000 financial officers were prosecuted—500 of the CEOs or other top ranks–and almost 1,100 jailed for their roles in the Savings & Loan scandals of 1987 (1).
Wall Street and the rest of the financial sector has largely maintained a satisfied silence while Obama and Co. have done what they can to stymie investigation into wrongdoing. When spokesmen for the sector have joined the debate on assigning responsibility, they have predictably laid blamed on others, namely: 1) financially undereducated American home buyers (for accepting mortgages on which they would likely default), or 2) the non-regulated mortgage origination companies (2) (companies that developed and promoted all manner of predatory lending practices, thus facilitating a real estate bubble and an eventual crash), or 3) government encouragement of mortgage lending to low-income portions of the population (a criticism in the spirit of the mantra that government is always the problem).
“It’s like money falling from the sky!”
Sober scholarship has exposed the feebleness of these interpretations of the crisis. Thus, however irresponsible some home buyers might have been in accepting onerous mortgages, the big banks did all they could to encourage this irresponsibility. They goaded the non-regulated mortgage originators to expand predatory lending practices, flooded them with credit to expand their operations, and then purchased many mortgage-related companies so as to spread the process further (3). They systematically pressured real estate appraisers to inflate property values so as to fuel the bubble (4). They pioneered the pooling and securitization of mortgage-related debt, then suborned the purportedly objective ratings agencies to sanction the repackaged debt as virtually risk-free (5). They spared no effort in distributing mortgage-related financial instruments to institutional investors around the globe, thus effectively exporting 40% or so of the risk they were creating (6). Having perfected the art of shoveling the risk of mortgage debt off to other parties, the big banks shed all decorum in promoting home loans. Headlines from Chase Bank flyers to mortgage loan agents in the field speak volumes (7):
“Even More Borrowers Qualify With Chase!
“Check out our great lineup of no-income verification programs.”
“It’s like money falling from the sky!”
Of course the process did not stop with the systematic, wholesale manufacture of shady mortgage-related debt. The big banks went on to engineer all manner of derivative instruments based on mortgage-related debt (and other assets), which allowed unlimited numbers of speculators to wager bets on the value of these assets, and they prevented the formation of a central exchange for these derivative instruments, which effectively shielded the market in these instruments from regulation and even surveillance (8). The resultant flourishing of derivatives flooded the biggest banks with profits (as much as 40% of their profits were coming from sales of derivatives by 2008 (9)), but also amplified of the shock to the world economy exponentially when the real estate bubble inevitably popped (10). Further still, in 2004 the five biggest banks cajoled Washington (the SEC) into relaxing capital reserve requirements (money they were required to keep kept as a cushion against possible failure of loans or other investments) for the largest firms only—those with $5 billion or more in assets– allowing them dramatically to accelerate all of their machinations across the board (11).
Horrific, Endemic Fraud
The story is grotesque. The pressuring of appraisers alone prompted William Black to charge the big banks with “horrific, endemic fraud” (12). Can we really take seriously the verdict of Martin Wolf, chief economist of Financial Times, and a dean of the financial community, to the effect that the current generation of leaders were simply captivated by the thesis of efficient markets, and that every generation has to relearn the lessons of its grandparents” (13)? This is not a story of an unfortunate ideological bias in favor of free markets. It is a story of greed and regulatory capture, wherein the largest banks–“The Frankenstein Fifteen”, as Kevin Phillips has labeled the new oligarchy (14) –took control of regulatory bodies and made sure they served the banks’ interests, with minimal interest in the costs to society.
