Sorry Folks: Happy Days Are Not Here Again

“Demonizing the bankers as if they and they alone created the financial meltdown is both inaccurate and short-sighted,” Citigroup chairman Richard Parsons whined to reporters recently. “Everybody participated in pumping up this balloon and now that the balloon has deflated, everybody has some part in the blame.”

Oh no we don’t.

Talk about dissembling. The truth is that the top subprime lenders whose loans are largely blamed for triggering the global collapse were owned or backed by giant banks – including Citigroup, whose chairman feels vilified so unjustly – that are now collecting hundreds of billions of dollars in bailout money. Even worse, several paid huge fines to settle predatory lending charges for their direct, sub-prime activity. So, big banks funding the subprime industry weren’t hapless victims of an unforeseen financial collapse as they portray themselves; they were enablers who were bankrolling the lending that all-but brought down the world’s financial system.

Who says so?

Not some lefty, fringe, bank hating, consumer activist group but The Center for Public Integrity (CPI), a highly respected, non-partisan research organization. It released a massive report this week on its analysis of government loan data. CPI scoured nearly 7.2-million subprime mortgages made from 2005 through 2007, a span between the peak and collapse of the boom, and its findings are depressingly dismal.

It turns out that big American banks truly are the demons here.

They poured billions into the subprime lending market due to a never-ending demand for high-yield, high-risk bonds backed by home mortgages. The banks – including household names like the late Lehman Brothers, Merrill Lynch, Citigroup and Goldman Sachs – made huge profits for fuelling the sub-prime engine while executives collected bonuses reaching hundreds of millions of dollars until the bottom fell out of the real estate market, a bubble they were largely responsible for creating in the first place by generating artificial demand for homes the banks knew buyers could not afford.

Stressed Out Test

Meanwhile, the so-called “stress tests” of the 19 largest banks released Thursday by Treasury says everything is almost hunky-dory. Thursday night, Steve Bartlett of the Financial Services Roundtable was on the PBS NewsHour insisting “it's good news for the economy, good news for the financial sector.”

Well, not quite, as it turns out; not if you look more closely.

How can a stress test be trusted when the final audit reports were negotiated between Treasury and each bank, more than half of the humongous banks put under a microscope need to ante up tens of billions of dollars in new capital and quickly, and the toxic assets – such as subprime loans – that keep banks from lending are still on their books and they're balking at selling them?

In effect, we’re in about the same financial pickle brine as we were last fall except billions are propping up a trembling financial system and it’s still not healthy.

My reaction to the Treasury report was, “Oy, gevault!” Paul Krugman, writing in today’s New York Times, was more elegant: “While bankers may find the results of the stress tests ‘reassuring,’ the rest of us should be very, very afraid.”

If Krugman is afraid, I am terrified.

Media Nonchalance

While the news media was busy reporting “it ain’t so bad,” Dean Baker was writing at The American Prospect that overlooked in all the cheerleading are new Bureau of Labor Statistics findings that growth of salaries and benefits in the private sector fell to only 0.8% last quarter – well below the rate of inflation – and represent another sharp drop from the previous quarter.

Since wage and benefit income make up 60% of all national income, Baker writes, “This is a piece of really bad news that swamps by an order of magnitude the items presented as good news …”

He goes on to say, “If reporters would focus more on reporting the news rather than repeating what the Fed chairman says the public would be much better informed.”

Here we go again.

One reason we’re in this financial mess is because too few business and financial reporters at Authoritative And Respected Publications such as the Times, Business Week and The Wall Street Journal as well as CNBC, the NewsHour and even the usually deliberate BBC World drank gallons of Wall Street’s Kool-Aid all through the Bush years. With the occasional exception of Bloomberg News, few journalists bothered to scrounge beyond news releases and PR-flacked interviews with sometimes dissembling, often lying, CEOs to bother noticing the shaky house of cards on which the Republican’s “robust” economy was built.

What isn’t being covered – not even now, after all we’ve been through since September – is the raft of financial stories that will keep bolo punching us:
• How about the tens of millions of our dollars the banks are spending on lobbying against measures that would help beleaguered taxpayers who are bailing them out.
• No attention is paid to the fact that banks still aren’t lending, not to consumers, small businesses, home buyers or folks brave enough to buy a new car.
• Nobody is writing about the rising default rate on credit cards, a sure sign people are out of cash.
• There’s nothing about the fault line to about split the earth open again when another round of sub-prime mortgages adjust beyond the home owner’s ability to pay.

Meanwhile, Pres. Obama and Congress are dithering over re-regulating the financial markets, shying away from clamping down on predatory credit card practices, failing to exercise control over the banks and auto companies we all now own, shying away from forcing banks to sell off their toxic assets – something that TARP was supposed to be all about – and acting as if they’re forgetting about how poor we all are.

Maybe this is why the mournful, opening lines of a Janis Joplin song keep echoing in my head today:

“Busted flat in Baton Rouge, waitin’ for a train,
And I’s feelin' near as faded as my jeans.”