Who's To Blame For The Mortgage Crisis?

If you're having a hard time getting your head around exactly what happened in the historic meltdown of America's home-mortgage market, you're not alone.

As the wife-and-husband investigative team Leslie and Andrew Cockburn suggest in their new documentary, "American Casino," nobody fully understands it: Not the bankers and brokers who sold subprime mortgages (often using deceptive tactics or disingenuous language), not the Wall Street wizards who carved them up into ever more esoteric financial instruments, not the free-market wise men like former Fed chair Alan Greenspan or former Sen. Phil Gramm, and certainly not the ordinary citizens who believed they were fulfilling the American dream and wound up losing their homes, their financial security and their self-respect.

Actually, the Cockburns meet one guy in "American Casino" who understands the whole mess better than most, a California real estate investor named Jeff Greene who smelled the end of the housing bubble around 2006 and bet $1 billion against the mid-decade exuberance of Wall Street. Sitting in his walled and gated beach compound in Malibu, Greene calmly tells the camera that the opportunity for his successful hedge bet (which has yielded $500 million so far) involved massive pain for millions of homeowners.

We meet some of those people too; the Cockburns focus in particular on the African-American community of Baltimore, a city devastated by the tidal wave of foreclosures. Of course foreclosed properties can be found in virtually every neighborhood of every town and city, and at every income level. But Latinos and African-Americans are several times more likely to be affected than whites, and while the problem is undeniably complicated, that almost certainly reflects the enduring legacy of racism. In the 1990s and 2000s, neighborhoods that had previously been "redlined" by traditional lenders became targeted by unregulated and unscrupulous vendors of subprime mortgages, who neither knew nor cared whether borrowers were likely to default on those loans. As we now know, the results were toxic.

One of the film's sad ironies is that middle-class homeowners like Denzel Mitchell, a Baltimore high-school teacher, or Patricia McNair, a family therapist, might well have qualified for conventional loans from normal banks. (One survey mentioned in the film suggests that at least half the people who applied for subprime mortgages in 2006 could have qualified for prime mortgages.) Instead, they were enticed into too-good-to-be-true first and then second mortgages that adjusted sharply upward, which they couldn't realistically afford. Both people are aware that their own lack of financial sophistication is partly to blame for their predicament, but that does nothing to lessen the heartbreak as McNair and her husband have to leave the appealing family home where her adult children grew up, or as Mitchell must abandon his organic vegetable garden and the Tuskegee Airmen-themed bedroom for his little boys.

But if you want to blame somebody for what happened to Mitchell, McNair and millions of other Americans, the place to point the finger is at the fervid deregulation advocated by Greenspan and enacted by Congress under the whip of Gramm and other free-market ideologues. Such laissez-faire reforms created a wide-open marketplace where bankers and brokers could sell whatever extortionate mortgage deals they wanted to whomever they wanted, while lying to consumers about what they were getting and lying to lenders about the borrower's income and assets. Meanwhile, as one anonymous former Bear, Stearns banker tells the Cockburns, Wall Street securities dealers carved up packages of mortgages into abstruse, "fourth-dimensional" instruments to be sold to "idiots."

"American Casino" is of necessity a fragmentary tale; it was being filmed in 2008 as the crisis broadened and deepened, with events unfolding too fast for the Cockburn cameras. But while the mortgage crisis still awaits a rigorous deconstruction along the lines of Alex Gibney's "Enron: The Smartest Guys in the Room," this film stands as an intimate, terrifying document that renders an incomprehensible slice of recent history in human terms. While the stories of Denzel Mitchell and Patricia McNair made me want to weep, the film's most memorable images stem from the Sisyphean task of Jared Dever, a bright and handsome local official in Riverside County, Calif., whose job is to control the county's mosquito epidemic, largely caused by the fetid, abandoned swimming pools behind foreclosed suburban homes.

Dever patrols a nightmarish, new-but-decrepit landscape straight out of the fiction of J.G. Ballard, carefully checking empty houses for signs of meth labs or marijuana grow zones before attacking the pools, whose algae-green water is full of abandoned patio furniture, tires and sports equipment, along with millions of mosquito larvae and the minnows who live on them. I'm not sure that hosing down the whole subdivision with Malathion is any kind of answer. Civilization didn't leave much of an imprint on that place. Now that the bankers have sucked out all its supposed economic value, we might as well drain the pools, knock down the houses and let the coyotes and rattlesnakes take over.

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Source:

http://www.salon.com/ent/movies/btm/feature/2009/09/02/casino/index.html?source=rss&aim=/ent/movies/btm/feature

Tags:

Salon, American Casino, Leslie and Andrew Cockburn, documentary, bankers, brokers, subprime mortgages, Jeff Greene, redlined, Phil Gramm, Alan Greenspan, Global Economic News,

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IKEA is as Bad as Wal-Mart

My mother still owns, and uses, the same vacuum cleaner she bought early in her marriage, just after World War II. She still lives in the house my father -- not a carpenter by trade, but an electrician -- built in the early 1950s with the help of his brothers, a small but sturdy Cape Cod-style dwelling with hardwood floors and solid wood doors that close with a hearty, satisfying clunk (as opposed to the echoey click of hollow-core doors).

Today the idea of anything -- a household appliance, a piece of furniture, a house -- being built to last is almost laughable. When your vacuum cleaner stops sucking, you most likely haul it out to the curb and trek to Target or a big-box home-goods store to replace it. Even if you could readily find someone to repair it, the trouble and the cost would be prohibitive. If you need a bookcase, there's always IKEA: Sure, you'd prefer to buy a sturdily built hardwood version that doesn't buckle under the weight of actual books, but who has extra dough to spend on stuff like that? The IKEA bookcase is good enough, for now if not forever.

That cycle of consumption seems harmless enough, particularly since we live in a country where there are plenty of cheap goods to go around. But in her lively and terrifying book "Cheap: The High Cost of Discount Culture," Ellen Ruppel Shell pulls back the shimmery, seductive curtain of low-priced goods to reveal their insidious hidden costs. Those all-you-can-eat Red Lobster shrimps may very well have come from massive shrimp-farming spreads in Thailand, where they've been plumped up with antibiotics and possibly tended by maltreated migrant workers from Burma, Cambodia and Vietnam. The made-in-China toy train you bought your kid a few Christmases ago may have been sprayed with lead paint -- and the spraying itself may have been done by a child laborer, without the benefit of a protective mask.

"Cheap" is hardly a finger-waggling book. This isn't a screed designed to make us feel guilty for unknowingly benefiting from the hardships of workers in other parts of the world. And Shell -- who writes regularly for the Atlantic -- isn't talking about the shallowness of consumerism here; she makes it clear that she, like most of us, enjoys the hunt for a good deal. "Cheap" really is about us, meaning not just Americans, but citizens of the world, and about what we stand to lose in a global economic environment that threatens the very nature of meaningful work, work we can take pride in and build a career on -- or even at which we can just make a living.

Discount chains pretend to be the most democratic of enterprises, willing and able to fill our every need at a price we can afford: Ingenious slogans like "Design for All" (Target) and "Save money. Live Better" (Wal-Mart) make that point pretty well. Shell asserts that an excess of cheap goods -- and the drive to make and sell them ever more cheaply -- is putting a deadly squeeze on workers worldwide. Most liberal-leaning citizens are aware of the profit-making schemes of Wal-Mart and, even if we actually shop there, find them distasteful (although Shell notes that among economists, the chain has its defenders).

But Shell asserts that even outlet malls and seemingly benign, friendly, progressive stores like IKEA are part of the problem; along with more obvious bad guys like Wal-Mart, they perpetuate a cycle that, far from nurturing creativity and innovation in the marketplace, ultimately benefits a relative few at the very top of the economic chain. Shell notes that before retiring in February 2009, "Wal-Mart CEO Lee Scott Jr. took home in his biweekly paycheck what his average employee earned in a lifetime." You might say that, for Scott, the good news is that everybody can afford to shop at Wal-Mart; the better news is that he himself doesn't have to.

Shell begins by outlining the history of mass production in America (perhaps not surprisingly, firearms were among the first items to be mass-produced) and the rise of the discount chain. In the late 1800s a sickly farmer's son named Frank W. Woolworth opened the first "five-and-dime"; later, foreshadowing a future that workers around the world now seem doomed to live out, he quipped, "We must have cheap labor or we cannot sell cheap goods. When a clerk gets so good she can earn better wages elsewhere, let her go."

The understanding is that she'll have somewhere else to go, where her skills and talents are wanted or needed, considered something worth paying for. But increasingly in our current work climate, more skills only make a worker more expensive and possibly more demanding, not more desirable. With meticulousness and daring, Shell approaches this problem and the myriad thorny issues twined around it, incorporating the research and views of an assortment of economists, political scientists and law professors to build her case. At the core of her argument is the idea that the wealth of cheap goods available to us doesn't make our lives better; instead, it fosters an environment that endangers not just the jobs of American workers but the idea of human labor, period.

It's impossible to grapple with the global economy without addressing the tricky subject of China, and Shell does so with the right amount of clear-eyed empathy. She notes that China as a nation has grown wealthier while its poor have become poorer. According to figures released by the World Bank, between 2001 and 2003 the income of the poorest 10 percent of China's 1.3 billion people had fallen by 2.4 percent, to less than $83 per year. In that same period, the country's economy grew by 10 percent, and its richest people became 16 percent richer.

Many of China's poor work in factories, earning ever-shrinking pay under inhospitable or dangerous conditions, as the American conglomerates who do business there press the Chinese government to revise or reverse regulations that might make these laborers' work lives more tolerable. The government, understandably eager for China to take its place at the global-commerce table, is all too eager to comply. A Shanghai journalist makes a piercing comment to Shell: "We do not yet have the luxury to concern ourselves too much with things like human rights."

But Shell is careful to point out that China isn't the source of the "cheap goods" problem. She quotes Mark Barenberg, a professor of law at Columbia University and an expert on international labor law: "The severe exploitation of China's factory workers and the contraction of the American middle class are two sides of the same coin." The idea is that when global corporations squeeze labor in China and other developing nations, they're able to use the threat of low-wage competition to, as Shell puts it, "roll back decades of hard-won gains in wages, benefits, and dignified treatment for workers in the United States." In other words, employers in the United States can easily use the threat of downsizing and outsourcing to gain more power over, and squeeze more juice out of, their employees -- who, in turn, enjoy increasingly less protection from unions.

While the Chinese are hardly the villains of Shell's story, certain Swedes have plenty to answer for: Shell's chapter on IKEA is the most gently damning in the book. Shell is quick to admit that IKEA products -- from bookshelves to tables to lamps -- are very nicely designed. And the ingenuity of designing furniture so that it can be shipped efficiently, compactly and cheaply, with an eye toward environmental concerns, is admirable. But Shell also points out the hypocrisy inherent in IKEA's philosophy.

As a clever IKEA commercial, directed by Spike Jonze, points out, an old lamp (or bookcase or table) doesn't have feelings; any piece of furniture can and should be replaced at any time. The ad, and the whole IKEA approach, suggests that objects have no lasting meaning or value. They're disposable; when we tire of them, we should just throw them out. Then why, Shell asks, does IKEA personify its products by naming them, à la the Lack coffee table or the Kura loft bed? "If IKEA thinks it's crazy to care deeply about objects, why," she asks, "does it sell a wok named after a girl?"

IKEA makes money, and lots of it, by passing on to the consumer the cost of assembling its products, thus turning the consumer into part of its workforce: Depending on how you look at it, we either save money by putting IKEA furniture together ourselves, or we pay for the privilege of putting IKEA furniture together ourselves.

Regardless, these tables and bookcases aren't, and aren't intended to be, heirloom pieces. But Shell wonders if our expectations are too low. We no longer expect craftsmanship in everyday objects; maybe we don't feel we even deserve it. "Objects can be designed to low price," she writes, "but they cannot be crafted to low price." But if we stop valuing -- and buying -- craftsmanship, the very idea of making something with care and expertise is destined to die, and something of us as human beings will die along with it: "A bricklayer or carpenter or teacher, a musician or salesperson, a writer of computer code -- any and all can be craftsmen.

Craftsmanship cements a relationship between buyer and seller, worker and employer, and expects something of both. It is about caring about the work and its application. It is what distinguishes the work of humans from the work of machines, and it is everything that IKEA and other discounters are not."

What's more, IKEA is the third-largest consumer of wood in the world and uses timber that comes mostly from Eastern Europe and the Russian Far East, where, Shell points out, "wages are low, large wooded regions remote, and according to the World Bank, half of all logging is illegal." IKEA president and CEO Anders Dahlvig asserts that the timber his company uses is harvested legally, and the company does employ forestry experts to monitor the company's suppliers. But Shell points out that IKEA has only 11 forestry monitors, not nearly enough to keep a watchful eye on all those suppliers worldwide, and five of those specialists are devoted to China and Russia, a vast spread of territory by itself. Dahlvig says that hiring more inspectors would cost too much; he'd have to pass the cost on to the consumer.

Would enlightened consumers pay a little more, maybe, to buy products made from wood that had been, unquestionably, legally harvested? Maybe -- but it's not the consumer's choice to make, at least not right now. And if there's one thing that makes reading this eye-opening book an ultimately frustrating experience, it's that Shell can't offer many helpful solutions to this tangle of economic and moral problems, aside from urging us to be more aware as consumers.

Still, she does cite one example of an organization that at least tries to get it right: Wegmans, a chain of supermarkets with stores located mostly in the suburbs of New York state, Pennsylvania, New Jersey, Virginia and Maryland, offers its employees job-training programs, health insurance and retirement benefits. The company operates on the supposition that if it treats its employees respectfully, they'll be better prepared (and more willing) to serve the needs of customers. The approach seems to work: Wegmans profits financially by fostering and retaining customer loyalty, and its employee turnover rate is low -- roughly 6 percent, measured against an industry-wide rate of more than 30 percent. The company also buys a large percentage of its produce from small, local farmers, and has been doing so for 20 years.

If "Cheap" is a harrowing document of the pursuit of profit at the expense of our basic humanity, the example set by Wegmans -- Shell saves it for the end of the book -- sounds almost too good to be true, the kind of crazy business idea that, according to the logic of outfits like Wal-Mart, shouldn't work. In reality, it's one of the foundations of good business: Treat your employees well, and they'll serve you well in return. The cost may be higher, but the price is right.

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Source: http://www.salon.com/books/review/2009/07/12/cheap/index.html?source=rss

Tags: IKEA, Walmart, China, Cheap labor, low-cost producer, Outsourced manufacturing, World Bank, Columbia University, Russian forests and timber, Global Economic News, Global Development News, Salon,

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The Great Deficit Scare Returns

Even liberals are getting antsy about debt and government spending. Stop worrying. The deficit hawks are wrong.

By Robert Reich

It's the kind of thing I expect to hear from deficit hawks and chicken littles -- from the self-described "fiscally responsible" right, from the scolds Ross Perot and Pete Peterson, from my former cabinet colleague Bob Rubin. But yesterday I was shown slides developed by the putatively liberal Center for American Progress intended to make the point. And today's front page story in the New York Times, by the eminent David Leonhardt, entitled "Sea of Red Ink: How It Spread From A Puddle," puts the issue right before our progressive noses, so to speak.

The Great Debt Scare is back.

Odd that it would return right now, when the economy is still mired in the worst depression since the Great one. After all, consumers are still deep in debt and incapable of buying. Unemployment continues to soar. Businesses still are not purchasing or investing, for lack of customers. Exports are still dead, because much of the global economy continues to shrink. So the purchaser of last resort -- the government -- has to create larger deficits if the economy is to get anywhere near full capacity, and start to grow again.

Odder still that the Debt Scare returns at the precise moment that bills are emerging from Congress on universal health care, which, by almost everyone's reckoning, will not increase the long-term debt one bit because universal health care has to be paid for in the budget. In fact, universal health care will reduce the deficit and cumulative debt -- especially if it includes a public option capable of negotiating lower costs from drug makers, doctors, and insurers, and thereby reducing the future costs of Medicare and Medicaid.

Even odder that the Debt Scare rears its frightening head just as the President's stimulus is moving into high gear with more spending on infrastructure. Every expert who has looked closely at the nation's crumbling infrastructure knows how badly it suffers from decades of deferred maintenance -- bridges collapsing, water pipes bursting, sewers backed up, highways impassable, public transit in disrepair. The stimulus, along with the President's long-term budget, also focus on the nation's schools, as well as America's capacity to reduce emissions of greenhouse gases. These public investments are as important to the nation's future as are private investments.

First, some background: Deficit and debt numbers mean nothing in and of themselves. They take on meaning only in relation to something else. And the most important something else, in terms of deciding whether the nation can afford such deficits or debts, is the size of the national economy.

Pay close attention, in particular, to the debt/GDP ratio. True, that ratio is heading in the wrong direction right now. It may reach 70 percent by the end of 2010. That's high, but it's not high compared to the 120 percent it was in 1946, after the ravages of Depression and war.

Over time, the basic way America has reduced the debt/GDP ratio is by growing the U.S. economy. GDP growth makes even large debts manageable. When the economy is cooking, more people have jobs and better wages. So they pay more taxes. And they require less unemployment assistance and other social insurance. That's why it's so important now, in the depths of depression, that government, as purchaser of last resort, steps in and runs large deficits. Without large deficits this year and next, and perhaps the year after, the economy doesn't have a prayer of getting back on a growth path, and the debt/GDP ratio could really get ugly.

That growth path, by the way, will be faster and stronger if the nation invests in our infrastructure, our schools, and our environment -- which is exactly what Obama aims to do. In this respect, national budgets are like family budgets. It's dumb for an indebted family to borrow more money to take a world cruise. But it's smart even for an indebted family to borrow money to send their kids to college. So too with the Obama budget. Public investments, just like family investments, build future wealth. They allow faster growth. They make the debt/GDP ratio even lower and more manageable over time.

Don't get me wrong. I'm not saying there's nothing to worry about when it comes to long-term deficit and debt projections. I'm just saying now's not the time to worry, and we ought to temper our worries by understanding the larger context.

Not every expert agrees that a deficit-driven stimulus is the best and fastest way to get the economy back on a growth track, or that public investments can speed growth. Conservative economists, Republicans, and many Wall Streeters are skeptical because they don't think government can do anything well. But look at the record of the last seventy-five years -- look at how the nation got out of the Great Depression, and consider the critical role public investments have played since then in speeding the nation's growth, investments such as the interstate highway system -- and you have ample evidence that the deficit hawks are wrong. They were wrong when they convinced Bill Clinton to chuck a large part of his investment agenda (the nation is now paying the price) and they're wrong now.

So, back to the mystery. Why are the ostensibly liberal Center for American Progress and New York Times participating in the Debt Scare right now? Is it possible that among the President's top economic advisors and top ranking members the Fed are people who agree more with conservative Republicans and Wall Streeters on this issue than with the President? Is it conceivable that they are quietly encouraging the Debt Scare even in traditionally liberal precincts, in order to reduce support in the Democratic base for what Obama wants to accomplish? Hmmm.

Source: http://www.salon.com/opinion/feature/2009/06/11/deficits/index.html?source=rss&aim=/opinion/feature

Tags: Robert Reich, Salon, Debt, Deficit, Economics, Obama, New York times, Center For American Progress, Republicans, Democrats, GDP, Wall Street, Global Economic News, Bill Clinton, Budgets,

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Obama's Trail of Broken Promises

The prophet of hope now doesn't even bother with explanations when he reneges on his campaign pledges.

 

By David Sirota

 

Though not (yet) having children of my own, I often consider what my future offspring won't know about and will find humorous. I fantasize that they will have no idea what gasoline-powered cars or private health insurance policies are. But I also worry they will guffaw in disbelief when I tell them politicians once knew that breaking campaign promises without explanation had consequences.

 

Historically, Americans generally held campaign promises sacred. We understood that republican democracy makes us rely on pledges of future action as the metric for choosing representatives; we knew that politicians reneging on pledges without adequate reason were desecrating that democracy; and we therefore often punished promise-breakers accordingly.

 

I'm not idealizing halcyon days that never were -- just ask George H.W. Bush, who lost re-election in 1992 after trampling his "no new taxes" guarantee. Indeed, breaking campaign pledges was one of the surest ways for politicians to hurt themselves -- until 2006.

 

That year's highest-profile campaign was Connecticut's U.S. Senate race between incumbent Joseph Lieberman and challenger Ned Lamont -- a race signaling a tectonic shift. Lieberman had broken two key promises: 1) He was violating an explicit term-limits pledge and 2) He vowed to "help end the war in Iraq" while working to continue it. And yet, he was re-elected without ever explaining his reversals.

 

I'd like to think that result was merely a symptom of momentary shellshock. Perhaps an electorate so numbed by Republicans' then-recent attacks on John Kerry's changing positions was temporarily unable to process discussions of "flip-flopping." But, then, behavior by President Obama suggests a more systemic assault on the campaign promise is underway.

 

It started in December when he was asked why he was making Hillary Clinton his chief diplomat after criticizing her qualifications and promising Democratic primary voters that his views on international relations were different than hers. He responded by telling the questioner "you're having fun" trying "to stir up whatever quotes were generated during the course of the campaign." The implicit assertion was that anyone expecting him to answer for campaign statements must just be "having fun" -- and certainly can't be serious.

 

A few months later, in reversing a five-year-old commitment to support ending the Cuban embargo, Obama offered no rationale for the U-turn other than saying he was "running for Senate" at a time that "seems just eons ago" -- again, as if everyone should know that previous campaign promises mean nothing.

 

At least that was a response. After the New York Times recently reported that "the administration has no present plans to reopen negotiations on NAFTA" as "Obama vowed to do during his campaign," there was no explanation offered whatsoever. We were left to recall Obama previously telling Fortune magazine that his NAFTA promises were too "overheated and amplified" to be taken literally.

 

It's true that politicians have always broken promises, but rarely so proudly and with such impunity. We once respected democracy by at least demanding explanations -- however weak -- for unfulfilled promises. Then we became a country whose scorched-earth campaigns against flip-flopping desensitized us to reversals. Now, we don't flinch when our president appears tickled that a few poor souls still expect politicians to fulfill promises and justify broken ones.

 

The worst part of this devolution is the centrality of Obama, the prophet of “hope” and “change” who once said that "cynicism is a sorry kind of wisdom." If that's true, then he has become America's wisest man -- the guy who seems to know my kids will laugh when I tell them politicians and voters once believed in democracy and took campaign promises seriously.

 

© 2009 Creators Syndicate Inc.

 

Source: http://www.salon.com/opinion/feature/2009/06/06/sirota/index.html?source=rss&aim=/opinion/feature

  

Tags:  Hillary Rodham Clinton, Joseph Lieberman, Opinion, Barack Obama, David Sirota, Salon, 

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