A rchive Date
[ 12-01-2022 ]
Category
[ International Relations ]
sub-Categoy
[ U.S ]
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[http://www.torontosun.com/2011/11/25/guilty-guilty-guilty
Guilty, Guilty, Guilty
Wall Street, Republicans, Democrats, all responsible for 08 crash
By Lorrie Goldstein ,Toronto Sun Saturday, November 26, 2011 08:02 PM EST
A sign of how broken the American political system has become is that three years after the global economic crash caused by Wall Street’s massive fraud, Republicans and Democrats continue to blame each other for what happened.
In reality, both parties were responsible for accepting billions of dollars in political donations from Wall St., while they did its bidding by stripping laws and regulations of safeguards put in place following the stock market crash of 1929 to prevent a repeat of the Great Depression.
Typical of Democratic spin is Barack Obama’s charge from 2008, cited in Dissent magazine, that “George Bush’s Washington … let the banks and financial institutions run amok and take our economy down this dangerous road.”
What Democrats don’t say is much of the deregulation and gaming of the financial system started under Bill Clinton, before being expanded on by Bush.
Republicans and Democrats worked together for Wall Street to repeal the 1933 Glass-Steagall Act in 1999. That removed the barriers between commercial and investment banks, allowing them to speculate with depositors’ money.
While it was passed by a Republican Congress, it was signed into law by Clinton, after being steered through the White House by his treasury secretary, Robert Rubin.
Rubin subsequently left for a senior post with Citigroup, which directly benefited from the repeal of Glass-Steagall and had to be bailed out by U.S. taxpayers in 2008.
Nor do Democrats mention the role played in repealing Glass Steagall by Rubin’s deputy, Lawrence Summers, who later became Obama’s chief economic advisor and, who, as Clinton’s treasury secretary following Rubin’s departure, opposed efforts to regulate derivatives, the financial weapons of mass destruction instrumental in the subprime disaster.
Republicans charge Clinton’s use of the Community Reinvestment Act (CRA) in the mid-1990s, requiring banks to lend money to low-income Americans, was the root cause of the subprime mortgage crisis, and that similar lending by government sponsored enterprises Fannie Mae and Freddie Mac provided the jet fuel for it.
That’s absurd.
First, the CRA was passed in 1977. Claiming it caused a financial scandal three decades later is silly.
Second, increased mortgage activity under Clinton ended by 2001. The subprime frenzy didn’t take off until after that.
Third, as Aaron Pressman in Businessweek and others have been writing since 2008, 80% of subprime loans were made by mortgage companies and other firms to which the CRA didn’t apply, or minimally applied. Thus it’s ridiculous to suggest it caused the subprime crash.
While Fannie Mae and Freddie Mac committed massive accounting fraud for which, like the Wall St. firms they competed against, they received only minimal fines, with no one going to jail, to argue they were the primary cause of the crash makes no sense.
At the height of the subprime frenzy — take 2006 as an example — over 80% of subprime mortgages were being issued by private lenders, not government or government-backed ones.
As Barry Ritholtz, CEO of Fusion IQ, wrote in Barron’s in 2008, the real story was one of Wall St. greed enabled by government incompetence:
“We on Wall St. do not deny our part. We created these securities, we rated them triple-A, we traded them without understanding them. Now that they have gone bad, we are real close to getting the rest of the country to take them off our hands … (But), here’s a news flash for you, D.C. We could not have done it without you. We may be drunks, but you were our enablers … Our recklessness would not have reached its soaring heights but for your government incompetence.”
What Republicans and Democrats did — not one or the other, but both — was to take Wall Street’s cash and do its bidding.
They let banks speculate with deposits.
They rejected controls on derivatives and limits on leveraging (speculating with borrowed money).
They facilitated predatory lending and borrowing, making it easy for mortgage buyers to lie about their incomes and mortgage sellers to encourage and ignore those lies.
They ignored conflicts of interest in the credit rating agencies that rated junk subprime mortgage securities as Triple A safe.
They looked the other way as Wall Street banks sold them as safe investments world-wide, while privately taking out bets they would fail.
That no Wall St. executive or Washington politician has gone to jail for what happened, is an outrage.
Copyright © 2011 mention All rights reserved
 World Fact Book (CIA)]
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