- Danny Schechter is a media activist, critic, independent
filmmaker, TV producer as well as an author of 10 books and lecturer on
media issues. Some call him "The News Dissector," and that's
the name of his popular blog on media issues. He's also co-founder of
Media Channel.org. It covers the "political, cultural and social
impacts of the media," and provides information unavailable in the
mainstream.
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- Schechter's books include Media Wars; Embedded - weapons
of Mass Deception; The Death of Media; The More You Watch The Less You
Know; and his newest and subject of this review, Plunder. Subtitled:
Investigating Our Economic Calamity and the Subprime Scandal, Schechter
examines the fallout from the current economic and financial crisis. What
the mainstream media (MSM) suppresses:
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- -- decades of wealth transfers to the rich;
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- -- the economy in recession;
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- -- the result of multiple imploding bubbles: housing,
mortgage finance, and an alphabet soup of SDOs, SIVs, SPVs, and a whole
menu of levered-up, high-risk securitized assets amounting to financial
alchemy; largely outright fraud;
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- -- the risk things may worsen;
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- -- from drowning in debt and speculative excess;
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- -- bankrupt by some measures;
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- -- huge amounts of corruption;
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- -- government hiding how bad it is; complicit in it as
well;
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- -- over one million homeowners foreclosed since summer
2007;
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- -- another million are 90 days past due on payments;
foreclosures about to go out on them;
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- -- three million more potentially in coming months with
up to five million total at risk over the next few years in the worst
housing crisis since the Great Depression and too little government help
provided too late;
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- -- rising unemployment;
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- -- failing banks;
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- -- rising inflation; and
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- -- consumers maxed out on credit and strapped by indebtedness
the way Schechter portrayed them in his 2006 film titled "In Debt
We Trust."
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- Schechter's book is timely, important, and frightening.
He does a masterful job deconstructing a complicated subject. One covered
up in the mainstream. Its dark side papered over suppressed.
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- Schechter explains it fully and clearly for lay readers
to understand. It's essential they do it because it touches everyone.
No one knows how bad it may get, but the current crisis has legs. The
worst of it may be ahead, and before it ends millions may feel it painfully.
"Plunder" provides ammunition. A blueprint of what's unfolding.
Explaining that government help won't be forthcoming, so we're responsible
for making the best of a very bad situation.
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- It begins with understanding the scandalous dilemma
unfolding. The complicity of government and Wall Street behind it. The
dominant media promoting it. What author Kevin Phillips calls the "rise
of big finance" and "global crisis of American capitalism;"
"Frankenstein finance;" and a problem so potentially grave that
"there may no longer be a plausible way out."
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- Schechter calls it "financialization" to describe
"the kind of control (a Credit and Loan Complex) exert(s) over society
every bit as insidious as the Military-Industrial Complex." Made
up of Wall Street; big banks; an array of finance, credit card and related
companies preying on middle-America and the poor and transferring enormous
wealth to the rich. A regulatory environment allowing it. Creating an
open field for fraud. Taking full advantage because so- called "watchdogs"
are part of the problem. The administration and Federal Reserve as well.
The entire power structure allied against working people. A shameful and
potentially disastrous situation as a result.
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- Schechter envisions a different future and dedicates
his book to one "free of debt and a world where markets serve the
public interest." Light years from what "Credit Card Nation"
author Robert Manning writes in the Preface:
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- -- industrial employment ravaged by neoliberal "free
trade" and corporate outsourcing;
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- -- malls replacing factories as the economy's engine;
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- -- declining wages in the face of soaring expenses;
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- -- most families dependent on credit to survive;
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- -- the calamitous effects of banking deregulation;
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- -- a corrupted "symbiotic financial-industrial complex"
called "financialization;"
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- -- a new Gilded Age exalting greed;
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- -- turning consumers into debt slaves; and
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- -- making the country "perilously dependent"
on foreign capital sources for economic security.
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- Schechter continues in his prologue:
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- -- sinking markets from a "full-blown credit/debt
crisis;"
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- -- "waves of layoffs," bankruptcies and foreclosures;
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- -- distorted media coverage on causes and solutions;
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- -- fear that the worst is ahead;
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- -- the infectious effect of the spreading "subprime
crisis;"
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- -- trillions of dollars being lost;
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- -- millions of homeowners at risk; millions of working
people also;
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- -- a Ponzi scheme writ large; the bigger they are, the
harder they implode; what PIMCO's Managing Director and economist Paul
McCulley calls a "Minsky Moment" that derives from economist
Hyman Minsky's analysis; the unwinding of excess exuberance; deflating
euphoria; proving market bubbles always burst, and their downward momentum
is far more severe and faster than their upside; and
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- -- a "calculated crime" putting America and
the global economy at risk; Schechter says "This is an angry book
(because) so many of us are in denial or unaware of the importance of
economic forces in shaping our future;" he also rails at his colleagues
who've done "such a poor job reporting on the run-up to this disaster."
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- Schechter chronicles what happened. The threat of depression.
Alerting people to the possibility. Highlighting concern about the victims.
Challenging the media and chastising their ignoring and distorting the
story. Telling us that "democracy must have an economic underpinning
and a commitment to fairness." Offering ways to achieve it. Explain
how debt restructured the economy and created "a burden that many
will never crawl out of." Exposing "shameless profiteers"
and calling for an investigation of their crimes and prosecution. Asking
for debt relief for Americans.
- "Urging citizens to get involved and (demand) politicians
respond." Getting upset and aroused enough to act.
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- "It's the Economy Stupid," according to Schechter
in his introduction, and, of course, it always is but especially when
times are hard. What Senator Chris Dodd calls "a 50-state Katrina,"
but these waters are rising and uncertainty remains on whether something
far more calamitous is coming.
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- Corruption is pervasive. The public uneasy but largely
uninformed. The worst of what's going on is hidden. A vast shady network
of "interconnected institutions working through highly legalized
and poorly understood systems." Moving unimaginable sums around the
world in seconds. Seducing people into the most outrageous schemes involving
unrepayable debt. Then having to borrow more to service amounts already
unaffordable. Heading for what money manager Jeremy Grantham calls a "slow
motion trainwreck"- the inevitability that bubbles always burst.
His advice in the current environment. What he calls the "first truly
global bubble:" hunker down and "take as little risk as possible"
because "I for one am officially scared."
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- The Origins of the Scandal
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- When it began, "subprime lending" wasn't a
term in common usage, let alone understood outside financial circles.
One of its late 1990s originators was Obama campaign finance chairperson
Penny Pritzker when she served on the Board of the failed family-owned
Hinsdale, IL Superior Bank. It cost the FDIC $700 million and depositors
another $65 million, while Pritzker made millions on predatory lending
now called "subprime" mortgage schemes. One definition is as
follows: "the practice of making loans to borrowers who do not qualify
for the best market interest rates because of their deficient credit history."
Another in the recent environment was to force-feed them to the largest
number of homebuying prospects possible.
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- There's lots of them, and predatory lenders took full
advantage until things erupted into scandal, and the economy headed south.
Only then did regulators take notice and decide to investigate - into
how "banks, credit rating firms, and lenders value and disclose complex
mortgage-backed securities." Three areas specifically, according
to Reuters: "the securitization process, the origination process
and the retail area." Also insider trading, a common illegal practice
that's rarely caught or even looked for. However, the scope of the investigation
would be narrow, and its aim was "deterrence." Of what, asked
Schechter, now that the horse is out of the barn, and investors and mortgage
holders are left holding the bag?
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- When it's too late to matter, they agree, along with
critics, that "inadequate disclosure (or lack of transparency) was
at the root of the problem." According to a Senate report, it began
in 1997 when house prices began appreciating and registered a 124% gain
by 2006. Housing was driving the economy with seven million subprime
mortgage loans. Business boomed. Underwriting standards deteriorated,
while banks and other lenders invented new ways to make money - "fast"
and easy.
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- In the 1980s, state usury rate ceilings were lifted,
creating a whole new market for people who previously couldn't qualify.
At higher interest rates, fees, and other add-ons they did. Most borrowers
got so-called "2/28" and "3/27" hybrid adjustable rate
mortgages (ARMs). They originated with low fixed "teaser" rates,
good for a two-year period. Afterwards, they're reset semi-annually based
on an interest-rate benchmark, or the current going rate. For many holders,
payments soared 30% and became unaffordable, and by 2004, 90% of subprime
loans were these type ARMs. It was well-known in the industry that "these
borrowers (are) most likely to default or become delinquent (and) face
foreclosure." The idea was to cash in and let holders take the pain.
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- Here's how the scheme worked. "So-called 'intermediaries,'
unregulated and often unscrupulous mortgage brokers, hustled their way
into the housing market" and took over. Using a range of tactics,
including "deceptive advertising to block-to-block solicitations
to get people to buy and sell, always promising more than they (could)
deliver."
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- So-called "birddogs" were used to get prospects,
and all kinds of practices were employed - "abusive, illegal and
predatory." They pushed, "enticed...seduced (even) threatened."
According to the Joint Economic Report, "For 2006, Inside Mortgage
Finance estimates that 63.3% of all subprime originations came through
brokers.... 19.4% through retail channels (and) 17.4% through correspondent
lenders....broker share increas(ed steadily) from 2003 through 2006."
These companies aren't regulated and pretty much operate freely. By 2005,
the percent of securitized subprime mortgages reached "a peak value
of more than 81%...."
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- Housing sales were on a roll, and so was Wall Street,
quick to see a lucrative new income stream and ready to cash in. "Now
they could make fees originating loans and even more money selling the
paper into (the) secondary market, where mortgages could be securitized
and sold again for even more money as investments."
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- The Finmanac financial blog explained its origination:
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- -- when Solomon Brothers launched Mortgage-Based Securities
(MBS) in the 1980s - "bonds with bundles of mortgages, bought from
bank lenders, as collateral;"
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- -- they used a "special purpose vehicle known as
Collateralized Mortgage Obligation (CMO);"
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- -- monthly installments were used to pay interest; and
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- -- others were quick to cash in on the scheme.
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- The secondary market became a marriage between "the
most reputable financial organizations and the sleaziest grass-roots operators.
As is often the case, sleaze moved upwards" because the potential
profits were huge but so are the risks.
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- "Since anyone can originate a loan and sell it to
the Investment Banks (to package and sell as MBS), it tempts originators
(to write) risky loans (without) worry(ing) about payback(s):"
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- -- slicing MBS into tranches by risk profile handles
the problem;
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- -- so does having different maturity dates;
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- -- they're rated by S & P, Fitch and other agencies
for legitimacy;
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- -- hedge and some pension funds bought the most risky
paper;
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- -- risks were discounted because the potential returns
were huge as long as economic conditions stayed sound and/or markets continued
to rise; and
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- -- it always helps to have friendly Fed chairmen like
Alan Greenspan fueling bubbles.
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- At the height of the 2000 one he said: "Lofty equity
prices have reduced the cost of capital. The result has been a veritable
explosion of (high-tech) spending (and) I see nothing to suggest that
these opportunities will peter out anytime soon." A week later the
Nasdaq peaked. Dropped 78% to its bottom. The S & P 500 49%, and
retail investors lost out while Greenspan was busy engineering another
bubble now unwinding at the cost of trillions of dollars, millions of
people hurt, and the "Maestro" assuming none of the blame.
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- Economist Anna Schwartz said otherwise and called the
Federal Reserve the main cause of today's trouble. She told The Sunday
Telegraph: "There never would have been a sub-prime mortgage crisis
if the Fed had been alert. This is something Alan Greenspan must answer
for." The US Treasury also as one of its senior officials warned
subprime lenders about it but was ignored. Even worse, despite state efforts
to ban predatory practices, the Bush administration blocked attempts to
curtail them and bears major responsibility.
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- Schechter refers to "an unholy trinity of private
players, Wall street firms, and non-regulating regulators" who saw
a way to profit hugely. Do it with shady practices, and thus partner in
a "criminal conspiracy" to rip off millions of working Americans.
"It was the largest robbery in history - not a bank heist but a heist
by banks."
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- The Real Capital of America (and the World)
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- Wall Street, of course - a city with "a history
of causing disasters from its earliest days." Succeeding ones keep
getting bigger, but unaffected most often are the powerful banks and
investment houses. "Masters of the universe," according to author
Tom Wolfe. Well insulated in their luxury board rooms with power, incomes
and privileges afforded royalty. Treated like them also in a culture that
"rewards clever and devious strategies" within or outside the
law. No one is guilty unless caught. Rarely ever does it happen, and when
it does the penalties are inconsequential compared to enormous ill-gotten
gains. Incentive enough for players to invent new schemes, and they do.
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- This time, however, they may have been too smart by half.
They overreached and are themselves hurt by the fallout. Some won't survive.
Bear Stearns and Lehman Brothers already. Others barely hanging on. Merrill
Lynch forced to sell out cheap to Bank of America. The Fed bailing out
AIG, and it's anyone's guess who or what's next or if the worst is yet
to come. When trouble first surfaced, "only a handful of writers
and analysts" understood what was going on - chickens coming home
to roost, "a crime in progress, a white collar crime wave" involving
trillions of dollars, from working people to the rich. The Wall Street
crowd. Mortgage brokers, banks and investment houses, rating agencies
and appraisers who overvalued homes for higher fees. Well-designed schemes
to let the devil take the hindmost, and they are but so are the perpetrators.
Schechter is right calling this "a big story - one of the biggest"
and from which "consumers and citizens" have to learn
- how to cope. It won't be easy.
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- The Unspoken Context
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- Crime writ large, and in early 2008 the FBI announced
14 unnamed mortgage companies were being investigated. Ones engaged in
predatory lending. That may have deliberately steered customers to more
expensive loans and concealed hidden payments and fees. In some cases
unfairly jacked up for even higher profits. Targeting the most vulnerable.
A 2008 Inner City Press/Fair Finance Watch study confirmed these practices.
It called mortgage brokers "the wild, wild west of Capitalism."
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- Shadowy operators using aggressive, unethical marketing
in ghetto and low-income neighborhoods. Making phone solicitations. Door-to-
door canvassing. Posing as debt consolidation experts with home improvement
schemes and foreclosure "rescue" services. Merchants of sleaze
cornering victims and entrapping them in unrepayable debt. Criminal fraud
involving respectable bankers as well. Willing to engage in dirty practices
because the profits were so tempting and the market so huge. Too big to
pass up so it wasn't.
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- From 2004 to 2006, Collateralized Debt Obligations (CDOs)
mushroomed from $157 billion to $559 billion, and 10 investment banks
underwrote 70% of $486 billion in 2006 securitizations. Players made millions
and top executives far more. A gravy train, and collectively in 2006,
at the cycle's peak, the big banks earned $130 billion. It looked like
more ahead, and their schemes were perfectly legal in an unregulated environment
permitting them. They still are short of future regulatory reform that
may or may not come but never will be close to what's needed. Not when
both parties embrace a pro-corporate agenda and won't allow it.
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- The Charleston Observer published a flow chart on how
predatory lending typically works:
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- -- low income, minority and the elderly are targets;
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- -- loan originators contact and high-pressure them to
sign up;
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- -- brokers arrange loans between targets and lenders;
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- -- appraisers inflate property values for higher fees
and new business;
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- -- lenders may "bundle" new loans to sell off
to other institutions; and
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- -- Wall Street sits atop this enormous pyramid; in the
"catbird seat;" orchestrating the process; and redistributing
millions of loan bundles into pools to back up investments worldwide.
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- Borrowers have no idea how they're being used and set
up to be scammed by future mortgage resets. Unaffordable so that millions
will lose everything in foreclosure. "Where are the prosecutors,"
asks Schechter? A Congressional probe. Indictments to go after the guilty.
Faint hope along with any chance for redress for victims. No chance either
for most people to understand an "opaque and unregulated global financial
system" with obscure terminology, according to economist Nouriel
Roubini. A highly levered "financial monster that eventually leads
to uncertainty, panic, market seizure, liquidity crunch, systemic risk
and economic hard landing."
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- In spring 2006, over a year before things began unravelling,
Schechter wrote about inadequate and deceptive media coverage in an article
titled "Investigating the Nation's Exploding Credit Squeeze."
He examined losers and winners and suggested concrete approaches for responsible
reporting:
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- -- doing it regularly and truthfully about a serious
growing problem;
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- -- identifying the key corporate institutions involved;
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- -- spotlighting how special interests and lobbyists influence
Congress for favorable policies and deregulation;
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- -- credit card companies also and how their ad dollars
affect media coverage of their practices;
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- -- predatory lending methods in poor neighborhoods; crimes
committed against vulnerable working people;
-
- -- what people can do to fight back; and
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- -- getting people involved at state and local levels;
enlisting attorney generals to file class action lawsuits; and pressuring
key legislators.
-
- Strong material but the response was "tepid"
as well as to a follow- up email campaign with tens of thousands of requests
for more media coverage of a vital national issue - well before the crisis
hit and a public spotlight might have cooled it. Big Media prefer a sanitized
world of market "ups and downs" and one-sided Wall Street and
Washington views - unrelated to the real world, what affects most people,
and it got Schechter to ask: "where's the outrage?"
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- Chronicling the Implosion, 2007
-
- In his blogs, newsletters, and articles, Schechter "tracked
the evolution of the crisis by week" - a story still evolving about
"an economy that is....still unraveling," It began in July 2007
when Dusseldorf-based IKB surprised markets with a profit warning. It
set off sharp falls in other German bank shares, and ended up with IKB
needing $11.8 billion in bailout aid to survive. Cracks also began showing
up in the multi-trillion dollar US securitization markets. They created
a crisis for two Bear Stearns (BS) hedge funds. Like IKB, they were heavily
into subprime mortgages, highly levered, and it forced BS to sell out
to JP Morgan Chase for pennies on the dollar.
-
- Things then began spreading, and it was soon apparent
the trouble was systemic, growing, and could touch down wherever outsized
risks were taken. According to Business Week, what began as subprime now
affected other kinds of debt as well and far more seriously than originally
thought. Involving "real money" and danger, "the kind that
terrifies bankers and the elite."
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- The Dow Average topped out in early October and headed
down while government jawboning and Fed interest rate cuts and huge liquidity
injections didn't help. They still haven't as markets remain volatile,
and no one for sure knows what's coming. So jitters remain high and with
good reason. The economy is far from healthy. Contagion is spreading offshore.
Unemployment is rising. So are foreclosures. Inflation also, and hundreds
of billions of bailout dollars haven't helped.
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- None of this should have happened, and warning signs
should have been heeded early on. Schechter chronicled it daily as events
unfolded and explained that things were pretty bad and getting worse.
Bankers were debating how to handle record losses. Desperation and even
panic began surfacing. And America's debt crunch became a personal crisis
for millions.
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- His book reviewed events as they unfolded:
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- -- jawboning after Wall Street and bankers began reacting
and "blaming everybody but themselves;"
-
- -- pundits then "calling for higher standards of
transparency;"
-
- -- bailouts involving real money in the hundreds of billions;
first the Fed, then major central banks around the world;
-
- -- the result: very little; continued panic; more lending
companies imploded; 247 up to April 2008;
-
- -- then interest rate cuts and still no relief; mortgage
rates rose as banks are reluctant to lend and want higher returns when
they do; after the government's Fannie and Freddie takeover, 30-year
fixed-rates fell from 6.26% to 5.88%, but with the economy weak and consumers
strapped it's not clear how much this will help, at least in the short
term;
- -- multi-billions in writedowns continue, likely more
coming ahead, and "bear in mind," Schechter observes: "the
banks created these problems by lowering their standards and working in
collusion with the alchemists at the rating agencies that turned their
junk into gold." And government regulators looked the other way and
let it happen.
- Throughout the crisis, real analysis and understanding
was missing - like the 50 million "Missing Americans" Bill Moyers
profiled on PBS. The ones Michael Harrington called "The Other America"
in which he documented the country's poverty and influenced policy debate
in Washington as a result. Today's victims are largely above the poverty
line but just barely with two wage-earners and one or both having multiple
(low-paying) jobs. They became predatory lending targets, but practically
nothing is being done to help them. Billions for the perpetrators. Lip
service only for the vulnerable.
-
- What Happens Now?
-
- Crucial to understand is that the current economic crisis
"is an outgrowth of the very corporatist policies that will haunt
this country for decades." Plus our costly wars. "Obscenely
high levels of corruption," and many other characteristics of a nation
off its moorings and in trouble. This one in "the quicksand of debt
and delusion." Proving unfettered capitalism doesn't work. At a time
Business Week magazine suggested "an irresistible force (is) meet
(ing) an immovable object." The force is the economy and object an
unrepayable wall of debt.
-
- Despite billions of Fed-injected liquidity, the crisis
persists and may be worsening. No one knows for sure or how or when it
will end. Trillions have been lost. More still to come. Serious talk about
a depression. The middle class is shrinking. People are entrapped by
debt. Worldwide respect for the country plummeted, and 81% of the public
believes things are headed in the wrong direction. Banks are failing.
Real estate hit the wall, and in February the Economist magazine wrote
that "The world had a weekend to save it from collapsing."
-
- Contagion is spreading everywhere affecting Wall Street,
large and smaller banks, investment firms, insurance companies, hedge
funds, non-bank lenders, and the greater economy dependent on them. Experts
believe fixing things could take years and would require a vast overhaul
of a clearly failed system. Establishing workable regulation. Reinstating
Glass-Steagall to separate commercial from investment banks. Curbing speculation,
and ending the whole range of predatory lending practices. Under a two-party
duopoly, chances for that are practically nil.
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- Debt As A Global Issue
-
- For better or worse, a global economic system interlocks
nations and markets. When the US catches cold, pneumonia threatens the
world, and it shows in what the Vigilant Investor website reported: that
in one week months back the Fed, ECB, and Japanese and Australian central
banks injected $458 billion into the markets "to allow the big players
to avoid selling off otherwise healthy assets to cover for heavy losses
related to the unfolding housing debacle in the US, led over the cliff
by subprimes." And in America, the combination of credit card and
other debt remains a ticking time bomb some see as another eventual bubble
to burst.
-
- They're worried about what author Kevin Phillips calls
"a house of cards" built on "reckless finance." And
longtime Wall Street economist Henry Kaufman blames years of irresponsible
federal banking for "allowing the expansion of credit in huge magnitudes"
and calling today's crisis a "global calamity." Former Fed director
of monetary affairs and its policy-making panel secretary, Vincent Reinhart,
compares today to "the great contraction" of the 1930s and "the
great inflation of the 1970s."
-
- Little of this gets media attention or is addressed in
political discourse. Never mind huge structural problems, an economy in
crisis, millions in duress, and barely a sign of remedial help coming
for the vulnerable. As conditions worsen "when will the American
people realize how badly they have been had and turn on the plunderers,"
asks Schechter? The politicians and regulators also who allowed it.
-
- How did it happen:
-
- -- "warnings were ignored;" for example from
Bruce Marks, the Neighborhood Assistance Corporation of America (NACA)
CEO; in 2000, he testified before Congress and warned about Fannie Mae
and Freddie Mac engaging in predatory subprime lending; all for naught;
-
- -- "the (Alan Greenspan) Fed encourag(ing) the securitization
of mortgages calling it 'financial innovation;' " and
-
- -- "Wall Street firms ignor(ing) worries (from)
their own risk managers (and engaging in) shadowy underground banking....They
made a fortune - until they didn't."
-
- Hundreds of small players have been indicted but only
a few symbolic "truly fat cats" and none of the fattest. The
way it always is.
-
- Last Words
-
- Capitalism is characterized by economic ups and downs,
speculative frenzies, and panics. But, as Schechter observes, "Few
have posed such a serious threat to the entire financial system, (yet
most media) coverage has been relegated to not widely read business sections
(and) the fortunes of CEOs and business enterprises, not citizens, consumers
and most of all homeowners" who've lost or may lose their homes and
livelihoods.
-
- Even worse, "many newspapers and TV outlets were
complicit." They got huge amounts of ad revenue (often deceptive)
from "shady mortgage lenders and credit card companies that encouraged
readers and viewers to accept more debt. Some major newspapers are connected
with local real estate syndicates and get kickbacks from sales tied to
their extensive advertising of homes for sale." Worse still is that
coverage (once it began) "may have missed the truly criminal aspects
of this crisis" even though there's plenty of evidence around and
the FBI is currently investigating 14 mortgage companies.
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