Ralph Nader, Media Complicity and the Current Financial Crisis
Columbia Jounalism Review dissects the current coverage of an economic disaster as a natural occurance, then digs back to find that journalists have been reporting on the dangers of securitizing bundled mortgages for years, and not just in the Monthly Review. In fact, though CJR doesn’t mention it, Nader was right about these financial market abuses leading to a housing crisis back in 2000.
“It seems to me that well into Year II of the Panic, the business press is in the process of making the same mistake it made in the run-up to the debacle: focusing on the esoteric Wall Street concerns and ignoring the simplest, most basic, but the most important one – the breathtaking corruption that overran the U. S. lending industry, including and especially the brand names, and the exent to which Wall Street drove that corruption.”
“And one suspects cultural problems. There does seem to be a tendency in big financial newsrooms to zoom in on esoteric stories on the margins—backdated stock options comes to mind—and ignore the big, dumb, honking ones at the heart of the financial system. In the current case, an entire industry’s business model—“selling” consumer debt—is problematic on its face. And was subprime lending ever not the domain of sleazeballs?”
The business press suffers from an accountability problem. They are too close to the subject to talk in a general way about the problem or even recall the route that led to the crisis.
One reason for lack of oversight is the influence wielded by big actors like Freddie Mac and Fannie Mae. Conservative thinktanker Peter Wallison recently spoke about this at length on C-Span (interview in flash player here). And Nader wrote preciently about this influence in an AEI book back in 2000. Wallison and Nader are coming at this from completely different directions. Wallison wants these quasi-public agencies completely privatized. Nader wants the government to take over and run the agencies as a non-profit public trust. Yet both Nader and Wallison were frozen out of the discussion until the crisis broke.
While the financialization of securities has been known for years, it grew dramatically in this century, when sophisticated trading programs made extremely complex bundlings of securities possible.
According to the Securities Industry and Financial Markets Association, aggregate global CDO [Collateralized debt obligations] issuance totaled US$ 157 billion in 2004, US$ 272 billion in 2005, US$ 552 billion in 2006 and US$ 503 billion in 2007. Research firm Celent estimated the size of the CDO global market to close to $2 trillion by the end of 2006.
Since the mortgage institutions were able to force through these changes against the advice of thinktanks like the AEI and Ralph Nader, the amount of money available to to Freddie Mac and Fannie Mae insured that their influence over the media, government and ultimately the public would only grow.
Wallison mentions late in the C-SPAN interview linked above that at one point during this century Fannie Mae had 42 lobbyists working for it on Capitol Hill. Not because they needed 42 lobbyists, but because they wanted to keep those lobbyists from working with anyone else.
Working from the other direction, Fannie Mae and Feddie Mac gave tens of millions of dollars to community organizations, who in turn lobbied Congress whenever necessary to stifle reform. They weren’t unique in doing this, but its almost criminal that something as apparent as this corruption was not part of the reporting until the crisis broke. Wallison even says you’d need a “political revolution” to clear out the system.
Sourcing of expert authorities n the middle of all this noise is a problem for the mainstream media. Only vetted true believers in the free market appear in the business press. There is an interesting post on Nader’s blog about trying to get Nader on cable news to talk about the issue. Nader’s been critical of the financial corporations for years and he is running for President in 46 states. McCain and Obama get asked, and you’d think Nader’d get asked too, since he is qualified to make an answer. Of course Nader gets the runaround, with one producer saying they’d love to have him on for the corporate analysis, but he’s a presidential candidate, the other says they’d like to have him on as a presidential candidate, but they’re a financial show and won’t have any similar coverage of the other campaigns, so…no.
You’re either piggybacking on the biggest story in the world or you’re a critic – neither position endear you to the nonobjective press. If the business press had not been so intent on getting the ‘inside story’ then they would have had critical voices from the get-go discussing regulatory changes that permitted the finanicialization of bundled subprime mortages.
Of course there are exceptions, and the truth was there if you wanted to see it.
So I’m putting up links to some of the precient articles analysed by Starkman.
Some stories cited by Starkman’s “Boiler Room”
- 2005 LA Times articles on Ameriquest by Mike Hudson, E. Scott Reckard and/or Josh Friedman
Doubt Is Cast on Loan Papers: Plaintiffs say identical entries for 3 different Ameriquest borrowers bolster claims of fraud. Page A-1. March 28, 2005. here
States Follow Long Trail of Complaints Against Lender. Page A-1. March 15, 2005.
Workers Say Lender Ran ‘Boiler Rooms’. Page A-1. February 4, 2005
- Mike Hudson at the Wall Street Journal:
The Debt Bomb—Lending a Hand: How Wall Street Stoked the Mortgage Meltdown—Lehman and Others Transformed the Market for Riskiest Borrowers. June 27, 2007. (subscription only).
- Ira Glass et al. on This American Life
“The Giant Pool of Money,” This American Life. No. 355. May 9, 2008. PDF transcript. http://thisamericanlife.org/extras/radio/355_transcript.pdf
Other articles of interest:
Wikipedia: Securitization: History http://en.wikipedia.org/wiki/Securitization#History
Nader Predicted Wall Street Meltdown. Nader/Gonzalez campaign. The Beachwood Reporter. September 17, 2008.
Writings by Ralph Nader
“Predatory Lending” [payday lending and refinance mortgages]. Nader.org. Wednesday, December 12, 2001.
Testimony of Ralph Nader on THE HOUSING FINANCE REGULATORY IMPROVEMENT ACT U.S. House of Representatives Subcommittee on Capital Markets, Securities, and Government Sponsored Enterprises Committee on Banking and Financial Services, June 15, 2000. H.R. 3703. Nader.org. Thursday, June 15, 2000.
2000 American Enterprise Institute book about Fannie & Freddie Mac in which Ralph Nader wrote a chapter – Serving Two Masters, Yet Out of Control – Fannie Mae and Freddie Mac
Ralph Nader’s chapter: “How Fannie and Freddie Influence the Political Process.” (starts on pg. 110)
C-SPAN interview with Peter Wallison, AEI fellow
From the Left Business Observer by Doug Henwood
The magnificence in housing: Frothing at the house. August 2005. http://www.leftbusinessobserver.com/Housing.html
Reflections on the Current Crisis [the housing bubble]. June 2007. http://www.leftbusinessobserver.com/Turmoil.html
Rescue Party!: Reflections on the current crisis (part two). February 2008. http://www.leftbusinessobserver.com/Turmoil2.html
Sources yet to be found:
Illinois v. Countrywide, Cook County Circuit Court, 6/25/08;
Ferguson v. IndyMac Bank, Brooklyn federal court, 2/14/08,
“Citigroup Settles FTC Charges,” Federal Trade Commission press release, 9/19/02;
Chain of Blame, Muolo and Padilla, Wiley, 2008;
Deceptive Ads at Bottom of Sub-prime Mortgage Crisis, McClatchy Newspapers, 8/31/07;
‘The Party’s Over at Kirkland [Washington] Mortgage Company, Seattle Times, 12/3/06
Posted on September 19, 2008, in Analysis, News, Politics and tagged 2008 Presidential election, AEI, American Enterprise Institute, American International Group Inc., Ameriquest, boiler room, Collateralized debt obligations, Columbia Journalism Review, Dean Starkman, Doug Henwood, E. Scott Reckard, Fannie Mae, Federal Home Loan Mortgage, Federal National Mortgage Association, Financial crisis, financial panic, financial press, Freddie Mac, housing bubble, Josh Friedman, Mike Hudson, Peter Wallison, Ralph Nader, Securitization. Bookmark the permalink. 2 Comments.