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Blaming the poor for the crimes of the rich

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Author Topic: Blaming the poor for the crimes of the rich  (Read 673 times)
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« on: January 03, 2011, 06:34:19 pm »

Note: Since I continue to hear right-wing ideologues parrot the self-serving myth that the financial meltdown which began in 2008 is primarily the result of "deadbeat borrowers" [read: poor people] taking out loans on things they couldn't afford, I thought I'd post for everyone's thoughtful consideration the following:


Subprime Suspects
The right blames the credit crisis on poor minority homeowners. This is not merely offensive, but entirely wrong.

By Daniel Gross
Slate Magazine
Oct. 7, 2008

We've now entered a new stage of the financial crisis: the ritual assigning of blame. It began in earnest with Monday's congressional roasting of Lehman Bros. CEO Richard Fuld and continued on Tuesday with Capitol Hill solons delving into the failure of AIG. On the Republican side of Congress, in the right-wing financial media (which is to say the financial media), and in certain parts of the op-ed-o-sphere, there's a consensus emerging that the whole mess should be laid at the feet of Fannie Mae and Freddie Mac, the failed mortgage giants, and the Community Reinvestment Act, a law passed during the Carter administration. The CRA, which was amended in the 1990s and this decade, requires banks—which had a long, distinguished history of not making loans to minorities—to make more efforts to do so.

The thesis is laid out almost daily on the Wall Street Journal editorial page, in the National Review, and on the campaign trail. John McCain said yesterday, "Bad mortgages were being backed by Fannie Mae and Freddie Mac, and it was only a matter of time before a contagion of unsustainable debt began to spread." Washington Post columnist Charles Krauthammer provides an excellent example, writing that "much of this crisis was brought upon us by the good intentions of good people." He continues: "For decades, starting with Jimmy Carter's Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac—which in turn pressured banks and other lenders—to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity." The subtext: If only Congress didn't force banks to lend money to poor minorities, the Dow would be well on its way to 36,000. Or, as Fox Business Channel's Neil Cavuto put it, "I don't remember a clarion call that said: Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster."

Let me get this straight. Investment banks and insurance companies run by centimillionaires blow up, and it's the fault of Jimmy Carter, Bill Clinton, and poor minorities?

These arguments are generally made by people who read the editorial page of the Wall Street Journal and ignore the rest of the paper—economic know-nothings whose opinions are informed mostly by ideology and, occasionally, by prejudice. Let's be honest. Fannie and Freddie, which didn't make subprime loans but did buy subprime loans made by others, were part of the problem. Poor Congressional oversight was part of the problem. Banks that sought to meet CRA requirements by indiscriminately doling out loans to minorities may have been part of the problem. But none of these issues is the cause of the problem. Not by a long shot. From the beginning, subprime has been a symptom, not a cause. And the notion that the Community Reinvestment Act is somehow responsible for poor lending decisions is absurd.

Here's why.


Blaming The Poor For Wall Street's Mess: The Game Continues

By Bob Ryley
May 25, 2009

Being a political junkie I'm on a lot of mailing lists. A day hardly passes when my mailbox doesn't contain something "political" from one or more advocacy groups. A recent arrival provides a good example of how the right has a problem sorting out facts from fiction when it comes to factors that caused the current financial crisis.

I received the Spring 2009 issue of Cato's Letter published by the nonprofit organization bearing the same name. Of course, this is a "non-profit" that many "for-profit" capitalists like to support because of their unfettered advocacy of free-market economics, limited to no government intervention in the markets, and some civil liberty advocacy thrown in for window dressing.

The current issue of the newsletter contained an article titled "In Defense of Doing Nothing" by Jeffrey Miron. Jeffrey's Widipedia page tells us that he is an outspoken libertarian, former chairman of the Economics Department at Boston University, and currently a professor at Harvard. Quite impressive.

In his Cato Letter article Jeffrey claims that among many factors leading to the current banking and financial crisis, the primary cause was government programs to encourage new home ownership. Miron discusses what he calls "mild interventions" by government to create more first-time homeowners. Then he delivers the kicker. Here are his own words:

"Over time howerver, these mild interventions began to focus on increased home ownership for lower income households. In the 1990s the Department of Housing and Urban Development ramped up pressure on lenders to support affordable housing. In 2003, accounting scandals at Fannie and Freddie allowed key members of Congress to pressure these institutions into substantial risky mortgage lending.. By 2003-2004, therefore, federal policies were generating strong incentives to extend mortgages to borrowers with poor credit characteristics. Financial institutions responded and created huge quantities of assets based on risky mortgage debt."

This exact quote from Miron's article is a text book example of how the right wing invents a distorted reality and gives it credibility by using a non-profit think tank and the presumed expertise of a professor to make it the commentary of a "expert" in the field. If a Harvard professor said it, it must be true. Harvard professor or not, I think we need to look at some facts.

In his new book "The 86 Biggest Lies on Wall Street" author John Talbott described the 2003 versions of Fannie and Freddie as "over-extended and poorly managed." The worst part of the housing bubble, the part that was created by those "huge quantities of assets based on risky mortgage debt" occurred between 2003 and 2006. Fannie and Freddie were largely on the sidelines during this period. Think about that. During the period when most of the questionable loans were made, Fannie and Freddie were on the sidelines.

Further, those "newly created assets" were actually pieces of paper known as Collateralized Debt Obligations (CDOs). This is a fancy name for a bundle of sub-prime and other loans packaged up and sold to hungry (some might say greedy) investors looking to rake in big profits. Here's the kicker. According to Talbott, loans backed by Fannie and Freddie were, by definition, not sub-prime because they were basically insured.

More importantly, CDOs were Wall Street's invention pure and simple. No government agency pushed the financial industry to create this tool for speculation. Further, no government institution pressued private bond rating agencies to blindly give their seal of approval to such investments. In this case, Wall Street did it to itself. Unfortunately, they were able to use their influence to send the taxpayers the bill for bailing them out.

When you realize this it becomes clear that Miron's whole thesis is claptrap. The big joke in all this is the notion that Fannie, Freddie and other government institutions were pushed by liberal politicians to make risky loans. In fact, almost the exact opposite was true. Both institutions engaged in heavy lobbying, and made over $150 million in campaign contributions to members of Congress to, as John Talbott suggests, get less, not more, regulation and oversight from the government. The government didn't push Fannie and Freddie to do anything. But the execs of these two private "for profit" companies did use their enormous financial power to keep regulators at bay.

This explains how myths and distortions work their way into daily discourse among pundits and politicians and then work they way down and often become part of the public's perception of "conventional wisdom."


Finance 101: Blame the Poor
(While Taking Their Money)

By Gordon Arnaut
Information Clearing House
May 12, 2010

Did you know that the poor (and mostly black) people in the US caused the global financial crisis that threw the world economy into its worst slump since the Great Depression of the 1930’s?

I didn’t know that either, until I heard this news from the US media and popular broadcasters like Glenn Beck, Sean Hannity and Rush Limbaugh.

This is how it all happened: Special interest groups representing poor people, minorities, and “socialist” elements in the US government “pressured banks to make loans to people who could not afford them, and then the whole thing melted down…” explains Beck, who has a radio and TV audience of several million viewers and listeners.

Thomas Sowell, a right-wing economist for the Hoover Institution and a writer for the Wall Street Journal and Forbes magazine, says that anti-poverty activists “blocked drive-up lanes and made business impossible for banks until they surrendered to demands that they make billions in loans that they wouldn’t otherwise have made.”

God Bless America. The land where truth and freedom prevails.

The only thing I don’t understand is how these poor, black and Hispanic Americans, whose combined share of the national wealth is less than the personal fortune of a few wealthy individuals at the top of the Forbes list, could possibly have exerted such a disproportionate influence on the nation’s economy.

Statistics from the United Nations tell us that the bottom 40 percent of the population of the United States own less than 1 percent of the nation’s wealth. That is about 120 million people. If each and every one of these individuals “forced” the banks to give them mortgages and loans, and then failed to pay them back, the worst that could happen would be a total national loss of 1 percent of wealth.

Is this what happened? That 120 million poor Americans all simultaneously defaulted on their mortgage and loan payments and the economy collapsed because of a 1 percent decline?

Or perhaps the collapse had more to do with the top 1 percent of Americans who own 38 percent of the national wealth? If we do a bit of simple math we see that a member of that top 1 percent—about 3 million wealthy Americans—owns, on average, about 1,500 times as much as a member of the bottom 120 million Americans. Put another way, about 1,500 poor people share a single piece of pie that one wealthy American has all to himself.

Also curious are numbers on who actually lost the most in this Great Recession. According to a study by a professor at the University of California, the average American household lost an astounding 36 percent of their total wealth. But the top 1 percent households lost only 11 percent. So the net result is that the wealth distribution is even more unequal than it was it was before the financial crisis. Maybe the top 1 percent should be thanking the poor black folks for “causing” the financial meltdown.

What we do know for sure is that the US government has given more than a trillion taxpayer dollars to big banks like Goldman Sachs and Citigroup, to prevent them from going under. This has led to huge deficits, which has brought demands from the wealthy that the government cut back on social security and Medicare. So while the bank executives continue to reward themselves with multimillion dollar bonuses at the taxpayer’s expense, poor pensioners—who you will see at the grocery store buying marked-down, half-rotten fruit and vegetables—are asked do get by without their medicines and live on bread and water.

Of course the plight of the poor, the sick and the old is of no concern to the slick business media, with their glossy spreads of the “good life” and fawning write-ups of the business elite whose lifestyles would make Marie Antoinette blush—an army of servants, chauffeurs, pilots, prostitutes, maids, cooks, valets, butlers, masseuses, caddies, surgeons…at their beck and call.


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« Reply #1 on: January 03, 2011, 06:36:52 pm »

For those who don't remember (or were never familiar with) this story, check out the following article:


'I find cheap populism oddly arousing' Stewart mocks CNBC

by David Edwards and Rachel Oswald
The Raw Story
March 5, 2009

Daily Show host Jon Stewart took aim Wednesday at newly minted populist and former derivatives trader Rick Santelli, after he abruptly canceled a guest appearance on his show.

Stewart delighted his audience by running through a stream of bad business predictions by Santelli’s own network, CNBC.

Santelli recently garnered conservative applause for a televised rant against President Obama’s proposal to help homeowners in danger of loosing their homes through foreclosure.

“Yea, man, Wall Street is mad as hell and they’re not going to take it anymore, unless by it you mean $2 trillion dollars in their own bailout money. That they will take,” Stewart sarcastically opined.

Stewart then got his audience riled up over calls for Santelli to come on his show.

“How many people would have liked to see Santelli come on this program?,” called Stewart to rousing cheers from the audience. “Are you listening Rick Santelli?"

Joked Stewart, “I have to say I find cheap populism oddly arousing.”

“So to all you dumb-ass homeowners out there who let your optimism and bad judgment blind you to accepting money that was offered to you by banks – educate yourselves,” Stewart said, in a mockery of comments made by Santelli.

Stewart followed this statement with scenes of some choice reporting by CNBC where commentators and reporters were shown to be heralding the strength of banks like Bear Stearns, Lehman Brothers and Merrill Lynch not long before they went under and predicting the rebounding of the financial markets last year, though they continued to steadily decline.

“It’s not rocket science homeowners. It’s apparently alchemy,” Stewart said. “You just had to tune into CNBC shows.”



Santelli's "televised rant" was quite revealing, and not just for what it said, but for what it conveniently omitted. This becomes obvious when one considers a few basic facts.

Take the issue of subprime mortgages. How large was the subprime mortgage bubble before the financial meltdown of 2008?

While searching for the answer to that question, I consistently found information such as the following:

"Total subprime mortgage debt outstanding is about $1.3 trillion." --

"Although subprime and other risky mortgages were relatively rare before the mid-1990s, their use increased dramatically during the subsequent decade. In 2001, newly originated subprime, Alt-A, and home equity lines (second mortgages or "sec­onds") totaled $330 billion and amounted to 15 per­cent of all new residential mortgages. Just three years later, in 2004, these mortgages accounted for almost $1.1 trillion in new loans and 37 percent of residen­tial mortgages. Their volume peaked in 2006 when they reached $1.4 trillion and 48 percent of new res­idential mortgages." --

Now, if, as some keep insisisting, the financial crisis is entirely (or at least primarily) the fault of subprime mortgages, then how does one explain this?


Cost Of Bailout Hits A Whopping $24 Trillion Dollars

Paul Joseph Watson
Monday, July 20, 2009

According to the watchdog overseeing the federal government’s financial bailout program, the full exposure since 2007 amounts to a whopping $23.7 trillion dollars, or $80,000 for every American citizen.

The last time we were able to get a measure of the total cost of the bailout, it stood at around $8.5 trillion dollars. Eight months down the line and that figure has almost tripled.

The $23.7 trillion figure comprises “about 50 initiatives and programs set up by the Bush and Obama administrations as well as by the Federal Reserve,” according to the Associated Press.



If the subprime mortgage bubble was never any higher than $1.4 trillion, then why is the cost of the "bailout" so much higher?

Could it be that certain people don't want us asking that question, since an honest search for the true answer inevitably brings one face-to-face with the derivatives bubble?

And could it also be that the reason these same people consistently refuse to even mention the word "derivatives" is that derivatives are entirely the creation of Wall Street speculators, and so cannot be attributed to any of the unwise borrowing decisions that cash-strapped wage-earners may have made -- and are thus of no public relations value to those intent on scapegoating the poor for the crimes of the rich?

Read the following and decide for yourself:



Ellen Brown, September 18, 2008

“I can calculate the movement of the stars, but not the madness of men.”
– Sir Isaac Newton, after losing a fortune in the South Sea bubble

Something extraordinary is going on with these government bailouts.  In March 2008, the Federal Reserve extended a $55 billion loan to JPMorgan to “rescue” investment bank Bear Stearns from bankruptcy, a highly controversial move that tested the limits of the Federal Reserve Act.  On September 7, 2008, the U.S. government seized private mortgage giants Fannie Mae and Freddie Mac and imposed a conservatorship, a form of bankruptcy; but rather than let the bankruptcy court sort out the assets among the claimants, the Treasury extended an unlimited credit line to the insolvent corporations and said it would exercise its authority to buy their stock, effectively nationalizing them.  Now the Federal Reserve has announced that it is giving an $85 billion loan to American International Group (AIG), the world’s largest insurance company, in exchange for a nearly 80% stake in the insurer . . . .

The Fed is buying an insurance company?  Where exactly is that covered in the Federal Reserve Act?  The Associated Press calls it a “government takeover,” but this is not your ordinary “nationalization” like the purchase of Fannie/Freddie stock by the U.S. Treasury.  The Federal Reserve has the power to print the national money supply, but it is not actually a part of the U.S. government.  It is a private banking corporation owned by a consortium of private banks.  The banking industry just bought the world’s largest insurance company, and they used federal money to do it.  Yahoo Finance reported on September 17:

    “The Treasury is setting up a temporary financing program at the Fed’s request. The program will auction Treasury bills to raise cash for the Fed’s use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters.”

Treasury bills are the I.O.U.s of the federal government.  We the taxpayers are on the hook for the Fed’s “enhanced liquidity facilities,” meaning the loans it has been making to everyone in sight, bank or non-bank, exercising obscure provisions in the Federal Reserve Act that may or may not say they can do it.  What’s going on here?  Why not let the free market work?  Bankruptcy courts know how to sort out assets and reorganize companies so they can operate again.  Why the extraordinary measures for Fannie, Freddie and AIG? 

The answer may have less to do with saving the insurance business, the housing market, or the Chinese investors clamoring for a bailout than with the greatest Ponzi scheme in history, one that is holding up the entire private global banking system.  What had to be saved at all costs was not housing or the dollar but the financial derivatives industry; and the precipice from which it had to be saved was an “event of default” that could have collapsed a quadrillion dollar derivatives bubble, a collapse that could take the entire global banking system down with it.

The Anatomy of a Bubble

Until recently, most people had never even heard of derivatives; but in terms of money traded, these investments represent the biggest financial market in the world.  Derivatives are financial instruments that have no intrinsic value but derive their value from something else.  Basically, they are just bets.  You can “hedge your bet” that something you own will go up by placing a side bet that it will go down.  “Hedge funds” hedge bets in the derivatives market.  Bets can be placed on anything, from the price of tea in China to the movements of specific markets. 

“The point everyone misses,” wrote economist Robert Chapman a decade ago, “is that buying derivatives is not investing.  It is gambling, insurance and high stakes bookmaking.  Derivatives create nothing.”  They not only create nothing, but they serve to enrich non-producers at the expense of the people who do create real goods and services.  In congressional hearings in the early 1990s, derivatives trading was challenged as being an illegal form of gambling.  But the practice was legitimized by Fed Chairman Alan Greenspan, who not only lent legal and regulatory support to the trade but actively promoted derivatives as a way to improve “risk management.”  Partly, this was to boost the flagging profits of the banks; and at the larger banks and dealers, it worked.  But the cost was an increase in risk to the financial system as a whole.

Since then, derivative trades have grown exponentially, until now they are larger than the entire global economy.  The Bank for International Settlements recently reported that total derivatives trades exceeded one quadrillion dollars – that’s 1,000 trillion dollars.  How is that figure even possible?  The gross domestic product of all the countries in the world is only about 60 trillion dollars.  The answer is that gamblers can bet as much as they want.  They can bet money they don’t have, and that is where the huge increase in risk comes in.   

Credit default swaps (CDS) are the most widely traded form of credit derivative.  CDS are bets between two parties on whether or not a company will default on its bonds.  In a typical default swap, the “protection buyer” gets a large payoff from the “protection seller” if the company defaults within a certain period of time, while the “protection seller” collects periodic payments from the “protection buyer” for assuming the risk of default.  CDS thus resemble insurance policies, but there is no requirement to actually hold any asset or suffer any loss, so CDS are widely used just to increase profits by gambling on market changes.  In one blogger’s example, a hedge fund could sit back and collect $320,000 a year in premiums just for selling “protection” on a risky BBB junk bond. The premiums are “free” money – free until the bond actually goes into default, when the hedge fund could be on the hook for $100 million in claims. 

And there’s the catch: what if the hedge fund doesn’t have the $100 million?  The fund’s corporate shell or limited partnership is put into bankruptcy; but both parties are claiming the derivative as an asset on their books, which they now have to write down.  Players who have “hedged their bets” by betting both ways cannot collect on their winning bets; and that means they cannot afford to pay their losing bets, causing other players to also default on their bets. 

The dominos go down in a cascade of cross-defaults that infects the whole banking industry and jeopardizes the global pyramid scheme.  The potential for this sort of nuclear reaction was what prompted billionaire investor Warren Buffett to call derivatives “weapons of financial mass destruction.”  It is also why the banking system cannot let a major derivatives player go down, and it is the banking system that calls the shots.  The Federal Reserve is literally owned by a conglomerate of banks; and Hank Paulson, who heads the U.S. Treasury, entered that position through the revolving door of investment bank Goldman Sachs, where he was formerly CEO. 


« Last Edit: January 22, 2011, 10:00:24 am by Geolibertarian » Report Spam   Logged

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« Reply #2 on: January 03, 2011, 06:38:57 pm »

Bauer not only American blaming the poor
Economic downturn makes middle class less generous

The Philadelphia Inquirer
Feb. 23, 2010

Last month, S.C. Lt. Gov. Andre Bauer said that when the government helps the poor, it's like people feeding stray animals that continually "breed."

And this month, Colorado state legislator Spencer Swalm said poor people in single-family homes are "dysfunctional."

Both statements riled some Americans from the Piedmont to the Rockies and underscored a widely held belief: In tough times, people are tough on the poor.

In an April 2009 poll by the Pew Research Center in Washington, 72 percent agreed with the statement that "poor people have become too dependent on government assistance programs." That's up from 69 percent in 2007.

"It's easier to send money to Haiti because you don't have to relate to them directly," said Mariana Chilton, a professor of public health at Drexel University.

The economic downturn has made the middle class less generous, said Guy Molyneux, a partner at Hart Research Associates, a Washington firm that researches attitudes toward the poor.

"People are less supportive of the government helping the poor, because they feel they're not getting enough help themselves," he said.

Matt Wray, a sociologist at Temple University, said these feelings stem from a new vulnerability: "Hatred of the poor is fueled by the middle class's fear of falling during hard times."

Americans don't understand how the poor are victimized by a lack of jobs, inefficient schools and unsafe neighborhoods, experts say.

"People ignore the structural issues - jobs leaving, industry becoming more mechanized," said Yale sociologist Elijah Anderson. "Then they point to the poor and ask, 'Why aren't you making it?'"

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