No Consequences for Bad Behavior; Little Regulation to Prevent It

For a long time I have been thinking--almost brooding--over the global financial crisis. Before 2007, I hadn't thought much about Wall Street though I had read my share of news articles over the years about the power of Wall Street and was passingly concerned about the influence of that power over our elected officials. With the financial meltdown in 2008, however, I began paying much more attention to financial and economic news. Nothing in my background--poet, teacher of literature and writing, gardener, art car enthusiast--prepared me for such an interest. I certainly knew nothing about derivatives. But the financial meltdown has enough sturm und drang for any engaging narrative of greed and corruption, tragedy and despair. And when the narrative touches one's own life, well, it does make one sit up and pay attention, doesn't it?

After reading numerous articles and blog posts about the crisis, after watching PBS Frontline specials and Charles Ferguson's documentary Inside Job (now available through Netflix), I think I can say with some confidence that the rats who almost blew up the world as we know it are still on the ship. Nor have they been caught and brought to trial and punished for their bad behavior. Nope. Some are at the helm of the ship. Others are cocooned on islands of privilege and are enjoying their millions.

Meanwhile, millions of Americans have been laid off, are out of work, can't find work, have lost their homes, are in danger of losing their homes, can't afford a college education or to pursue their dreams of owning a business. Ordinary Americans have bailed out the banks and the bastards who brought us to the brink--yet our elected leaders are trying to cut the very benefits that would prevent many Americans from suffering an impoverished and miserable old age. We can afford to save Goldman Sachs and Fannie Mae but not Medicare or Medicaid. We can regulate a woman's uterus but not the financial market.

Today, in The Washington Post, Ezra Klein points out that "though the financial crisis remains lodged in our minds, and in our jobless rates," our elected officials are not confirming leaders to help regulate the financial institutions that caused the crisis:

... [T]he Federal Reserve lacks a vice chairman for banking supervision. There’s no one officially in charge of the Treasury Department’s Office of Financial Research. The seat marked “insurance” on Financial Stability Oversight Council is empty. The Consumer Financial Protection Bureau has a leader but not a director. No one has been confirmed to head the Office of the Comptroller of the Currency. And Republicans are still saying Nobel Prize-winning economist Peter Diamond is underqualified to serve on the Federal Reserve’s Board of Governors." "If it can go wrong, it will go wrong. And it'll be our fault," The Washington Post, 24 May 2011.

And, in their over-the-cliff plans to cut the deficit, "the House GOP is fighting to starve financial regulators of the resources they need to do their work." As Klein points out, we have a deficit because of the financial crisis, and we have a financial crisis because of a lack of regulation, and we're not funding regulation because we have a deficit. See some circular reasoning on the part of our leaders?

How to respond to such idiocy? With cynicism, says Kevin Drum (well, actually, he says the situation overwhelms his own cynicism):

It's this, more than anything else, that has convinced me over the past couple of years that America's wealthy class is simply morally bankrupt and that the leadership of the Republican Party is politically bankrupt. Five years ago I would have been embarrassed to write a blog post suggesting that this might be the reaction of the moneyed class to an economic collapse. Then we had one and this was the reaction. Once again, events have outrun my best efforts to be cynical.

It's certainly with cynicism that I listened to Dave Davies interview Gretchen Morgenson on NPR's Fresh Air today. Morgenson, who writes about finance for The New York Times, has just published a book she co-wrote with Joshua Rosner: Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon. In this book, Morgenson "focuses on the managers of Fannie Mae, the government supported mortgage giant." Like the later financial players of Wall Street--Morgan Stanley, Goldman Sachs, et alia--the managers of Fannie Mae pursued deals that enriched them and that weakened regulatory oversight. But lest listeners think these details support the Republican narrative that the financial crisis was all due to mortgage defaults, to the government's "meddling in the market" in its determination to "push home ownership" to people who couldn't afford it, Morgenson adds that "Wall Street was not a passive player." Had regulators done their due diligence, had there been rigorous oversight, we would not be in the economic situation that we're in now.

And it's certainly with cynicism that I read today that the Tea-Party backed candidates who were elected because of the anger people felt toward the bailouts and Wall Street shenanigans "are now pushing pro-Wall Street legislation" and that "[t]he 10 Republican freshmen on the House Financial Services Committee have taken in nearly $600,000 from the financial industry since Election Day, according to the Sunlight Foundation." ["Tea-Partiers Swept in on Anti-Wall Street Wave Now Pushing Deregulation," Ryan J. Reilly, TPMMuckraker, 24 May 2011.]

To maintain that realistic and appropriate level of cynicism, I am creating here a list of articles to read (or re-read) and documentaries to view (or re-view) on the financial crisis, on who took us there (a bipartisan ride), who abandoned us, who profited, who suffered, and why it's probably gonna happen again. (in no particular order except that I'm working backward from today and jumping around locating articles I remember reading and identifying others I haven't read but which look promising)

• Marian Wang, "Cheat Sheet on Bank Investigations and the Probes that have Petered Out," ProPublica: Journalism in the Public Interest, 24 May 2011.
• Matt Taibbi, "The People versus Goldman Sachs," Rolling Stone, 11 May 2011.
• Matt Taibbi, "The Great American Bubble Machine," Rolling Stone 5 April 2010.
• Brian Beutler, "One-Time Warren Foe Now Pressuring Obama to Give Her Recess Appointment to Head Consumer Bureau," TPMDC 23 May 2011.
• Ben Protess, "Warren and Republicans Spar Over Bureau's Power," DealBook, in The New York Times, 24 May 2011.
• Katrina vanden Heuvel, "Why Obama Should Appoint Elizabeth Warren,", in The Washington Post, 24 May 2011.
• The Reckoning--a series of articles published in The New York Times that "explored the causes of the financial crisis of 2008." The series includes these articles, among others: Peter S. Goodman and Gretchen Morgenson, "Saying Yes, WaMu Built Empire on Shaky Loans," 28 December 2008; Jo Becker, Sheryl Gay Stolberg, and Stephen Labaton, "White House Philosophy Stoked Mortgage Bonfire," 21 December 2008; Louise Story, "On Wall Street, Bonuses, not Profits, were Real," 18 December 2008; Eric Lipton and Raymond Hernandez, "A Champion of Wall Street Reaps Benefits," 14 December 2008; Peter S. Goodman, "Taking a Hard New Look at Greenspan Legacy," 9 October 2008.
• Jesse Eisinger and Jake Bernstein, "The Magnetar Trade: How One Hedge Fund Helped Keep the Housing Bubble Going," ProPublica, 9 April 2010.
• Jake Bernstein and Jesse Eisinger, "The 'Subsidy': How Merrill Lynch Traders Helped Blow up Their Own Firm," ProPublica 22 December 2010.--Or read the series of ProPublica's investigative articles on the financial crisis here: "The Wall Street Money Machine."
• Oh, and this little post is sort of funny: Did Porn Cause the Financial Crisis?", posted 23 April 2010, by Daniel Indiviglio, associate editor at The Atlantic.
• Jack Dolan, Rob Barry, Matthew Haggman, "Borrowers Betrayed," Miami Herald, 2009--series on the Florida mortgage industry and the lack of regulation oversight that led to criminals being granted state licenses.
• Dean Starkman, of Columbia Journalism Review provides a list of worthy articles on the financial crisis: "No Pulitzers, But Here's an Audie", posted 21 April 2009.
• "The Warning," a Frontline report on Brooksley Born, head of the Commodity Futures Trading Commission during the Clinton administration, who tried to warn the economic power-brokers of the potential for economic meltdown if the derivatives market was not regulated. As of this writing, the full video can be watched online. DVDs are also available for purchase from PBS.(air date, 20 October 2009)
• Frontline's "Inside the Meltdown," first aired on 17 February 2009, at this writing, can be viewed entirely online on the PBS website. Or just go to the webpage that includes links to all the Frontline videos that are available online: "Watch Frontline Online".
• Michael Lewis, "Wall Street on the Tundra," Vanity Fair, April 2009--Unfortunately, this article is no longer fully available on Vanity Fair's website, but I found a .pdf version elsewhere, "Wall Street on the Tundra", that might still be accessible. This is the article that really got me interested in the details of the financial crisis. I remember reading it shortly after it was published online.
• Kevin Hall, "Mortgage Crisis Shows Why Financial Regulation is Needed", McClatchy, 1 November 2009. And you can see all the stories and videos that resulted from McClatchy's five-month investigation into Goldman Sachs here: McClatchy Newspapers, investigation into Goldman Sach's contributions to the economic crisis.
• Paul Solman interviews Charles Ferguson, director of Inside Job. In the interview, Ferguson talks about undisclosed ties and conflicts of interest in the financial relationships between academics in economics departments and the financial sector.

This is a short list of all one can find on the economic crisis online. I didn't include articles from The Wall Street Journal because I'm not a subscriber and am therefore unable to access them. Most of the sources on this list are not locked behind a subscription wall--except for, perhaps, The New York Times articles--because I do subscribe to the online version of The New York Times.

--so little time, so many opportunities for corruption.....

Lessons Learned about Self-Monitoring?

On Saturday of this past weekend, my husband, son, and I traveled to Franklin, Louisiana, to attend the Franklin Black Bear and Birding Festival. On the banks of Bayou Teche,venders had set up booths of local products and crafts, various conservation groups had prepared displays and games for children in a nearby warehouse, and musicians were scheduled to play for a street dance. We took a pontoon ride into the Bayou Teche Wildlife Refuge managed by the U.S. Fish and Wildlife Service. It was a beautiful day, clear and cool, and on the trip up a canal dug over one hundred years ago for logging, we saw several alligators sunning on the banks as well as several species of egrets. The particular area of the refuge near Franklin that we boated into is closed to motorized vehicles from September 1st to April 15th. That area had just been opened for motorized vehicles, and the gate was open, as the picture at left illustrates.

As we motored slowly down the canal, the U.S. Fish and Wildlife employee steering the boat and directing the tour mentioned that there were no old-growth trees here because the area had been intensively logged at the turn of the last century--that is, from the nineteenth century to the twentieth century. Historical records indicate that from 1890 to 1935, timber companies removed virtually all of the cypress from Louisiana; any old growth remaining was few and far between. The trees one sees now are ones that have regenerated since then. The canal we were traveling on was also left over from the timber industry's work. Canals were dug in the swamps in order to get to the trees and then to drag the trees to waterways where they could be then be floated to timber mills. If you pull up a Google Earth map of Lake Maurepas and Lake Pontchartrain, you can still see straight canals radiating out from the places where cypress had been harvested, dragged into the canals by pullboats, and "cribbed up into booms and pushed like barges" to mills.  [Frank B. Williams: Cypress Lumber King, by Anna C. Burns]

Timber industry supporters today complain about the restrictions on harvesting the cypress that has regenerated since 1935 when Louisiana was just about completely stripped of cypress. But the past history of just about any industry that pulled its resources from the natural world--or just about any industry, for that matter--indicates that industries are unable to monitor themselves. It doesn't matter if it's an industry that harvests the resources of the natural world or the banking conglomerates that sell derivatives.  Management and employees live high on the proceeds until they have exhausted the resources that provide those proceeds--or until the financial enterprise threatens to go bankrupt and take the country down with it and is bailed out by the government. Frank Williams "celebrated his fiftieth year in the lumber business by distributing $100,000 in bonuses among his employees" [Burns]. A few short years later, the cypress industry had exhausted its resources. Other timber industries began liquidating their assets in the 1910s, but the company that Frank Williams established managed to branch out into oil and real estate and thus operates to this day.

In 2006, Goldman Sachs paid "its employees a total of $16.5 billion in compensation," bonuses that, if distributed evenly, would mean "$623,418 for every" one of its 26,467 employees. ["The Goldman Sachs Premium," by DealBook, 18 December 2006] By 2008, it was clear that Goldman Sachs and other financial industries had almost brought the U.S.--and the world--to financial disaster. Millions of Americans have yet to recover. But taxpayers bailed out the financial industry, and those "titans" got to keep their bonuses.

But have we learned this lesson: that industries must be vigilantly regulated for the health,  safety, and welfare of not only ordinary people but the planet? It seems that a lot of us haven't. More on that in another post.

More on the logging of cypress in Louisiana:
Jacobs, David. "Logging Off." Baton Rouge Business Report. BusinessReport.com. 10 September 2007. http://www.businessreport.com/news/2007/sep/10/logging

Cypress Logging in Louisiana, circa 1925 (Part 1 of 2)   YouTube. Archival footage provided by Krantz Recovered Woods, Austin, TX. http://youtu.be/HF3-0NISvs4

Cypress Logging in Louisiana, circa 1925 (Part 2 of 2). YouTube. Archival footage provided by Krantz Recovered Woods, Austin, TX. http://youtu.be/FxSP08zJ5tE