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Investigating Our Economic Calamity and the Subprime Scandal’

Thursday, September 18th, 2008

By Stephen Lendman - RINF | Danny Schechter is a media activist, critic, independent filmmaker, TV producer as well as an author of 10 books and lecturer on media issues. Some call him “The News Dissector,” and that’s the name of his popular blog on media issues. He’s also co-founder of Media Channel.org. It covers the “political, cultural and social impacts of the media,” and provides information unavailable in the mainstream.

Schechter’s books include Media Wars; Embedded - weapons of Mass Deception; The Death of Media; The More You Watch The Less You Know; and his newest and subject of this review, Plunder. Subtitled: Investigating Our Economic Calamity and the Subprime Scandal, Schechter examines the fallout from the current economic and financial crisis. What the mainstream media (MSM) suppresses:

– decades of wealth transfers to the rich;

– the economy in recession;

– the result of multiple imploding bubbles: housing, mortgage finance, and an alphabet soup of SDOs, SIVs, SPVs, and a whole menu of levered-up, high-risk securitized assets amounting to financial alchemy; largely outright fraud;

– the risk things may worsen;

– from drowning in debt and speculative excess;

– bankrupt by some measures;

– huge amounts of corruption;

– government hiding how bad it is; complicit in it as well;

– over one million homeowners foreclosed since summer 2007;

– another million are 90 days past due on payments; foreclosures about to go out on them;

– three million more potentially in coming months with up to five million total at risk over the next few years in the worst housing crisis since the Great Depression and too little government help provided too late;

– rising unemployment;

– failing banks;

– rising inflation; and

– consumers maxed out on credit and strapped by indebtedness the way Schechter portrayed them in his 2006 film titled “In Debt We Trust.”

Schechter’s book is timely, important, and frightening. He does a masterful job deconstructing a complicated subject. One covered up in the mainstream. Its dark side papered over suppressed.

Schechter explains it fully and clearly for lay readers to understand. It’s essential they do it because it touches everyone. No one knows how bad it may get, but the current crisis has legs. The worst of it may be ahead, and before it ends millions may feel it painfully. “Plunder” provides ammunition. A blueprint of what’s unfolding. Explaining that government help won’t be forthcoming, so we’re responsible for making the best of a very bad situation.

It begins with understanding the scandalous dilemma unfolding. The complicity of government and Wall Street behind it. The dominant media promoting it. What author Kevin Phillips calls the “rise of big finance” and “global crisis of American capitalism;” “Frankenstein finance;” and a problem so potentially grave that “there may no longer be a plausible way out.”

Schechter calls it “financialization” to describe “the kind of control (a Credit and Loan Complex) exert(s) over society every bit as insidious as the Military-Industrial Complex.” Made up of Wall Street; big banks; an array of finance, credit card and related companies preying on middle-America and the poor and transferring enormous wealth to the rich. A regulatory environment allowing it. Creating an open field for fraud. Taking full advantage because so-called “watchdogs” are part of the problem. The administration and Federal Reserve as well. The entire power structure allied against working people. A shameful and potentially disastrous situation as a result.

Schechter envisions a different future and dedicates his book to one “free of debt and a world where markets serve the public interest.” Light years from what “Credit Card Nation” author Robert Manning writes in the Preface:

– industrial employment ravaged by neoliberal “free trade” and corporate outsourcing;

– malls replacing factories as the economy’s engine;

– declining wages in the face of soaring expenses;

– most families dependent on credit to survive;

– the calamitous effects of banking deregulation;

– a corrupted “symbiotic financial-industrial complex” called “financialization;”

– a new Gilded Age exalting greed;

– turning consumers into debt slaves; and

– making the country “perilously dependent” on foreign capital sources for economic security.

Schechter continues in his prologue:

– sinking markets from a “full-blown credit/debt crisis;”

– “waves of layoffs,” bankruptcies and foreclosures;

– distorted media coverage on causes and solutions;

– fear that the worst is ahead;

– the infectious effect of the spreading “subprime crisis;”

– trillions of dollars being lost;

– millions of homeowners at risk; millions of working people also;

– a Ponzi scheme writ large; the bigger they are, the harder they implode; what PIMCO’s Managing Director and economist Paul McCulley calls a “Minsky Moment” that derives from economist Hyman Minsky’s analysis; the unwinding of excess exuberance; deflating euphoria; proving market bubbles always burst, and their downward momentum is far more severe and faster than their upside; and

– a “calculated crime” putting America and the global economy at risk; Schechter says “This is an angry book (because) so many of us are in denial or unaware of the importance of economic forces in shaping our future;” he also rails at his colleagues who’ve done “such a poor job reporting on the run-up to this disaster.”

Schechter chronicles what happened. The threat of depression. Alerting people to the possibility. Highlighting concern about the victims. Challenging the media and chastising their ignoring and distorting the story. Telling us that “democracy must have an economic underpinning and a commitment to fairness.” Offering ways to achieve it. Explain how debt restructured the economy and created “a burden that many will never crawl out of.” Exposing “shameless profiteers” and calling for an investigation of their crimes and prosecution. Asking for debt relief for Americans. “Urging citizens to get involved and (demand) politicians respond.” Getting upset and aroused enough to act.

“It’s the Economy Stupid,” according to Schechter in his introduction, and, of course, it always is but especially when times are hard. What Senator Chris Dodd calls “a 50-state Katrina,” but these waters are rising and uncertainty remains on whether something far more calamitous is coming.

Corruption is pervasive. The public uneasy but largely uninformed. The worst of what’s going on is hidden. A vast shady network of “interconnected institutions working through highly legalized and poorly understood systems.” Moving unimaginable sums around the world in seconds. Seducing people into the most outrageous schemes involving unrepayable debt. Then having to borrow more to service amounts already unaffordable. Heading for what money manager Jeremy Grantham calls a “slow motion trainwreck”- the inevitability that bubbles always burst. His advice in the current environment. What he calls the “first truly global bubble:” hunker down and “take as little risk as possible” because “I for one am officially scared.”

The Origins of the Scandal

When it began, “subprime lending” wasn’t a term in common usage, let alone understood outside financial circles. One of its late 1990s originators was Obama campaign finance chairperson Penny Pritzker when she served on the Board of the failed family-owned Hinsdale, IL Superior Bank. It cost the FDIC $700 million and depositors another $65 million, while Pritzker made millions on predatory lending now called “subprime” mortgage schemes. One definition is as follows: “the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history.” Another in the recent environment was to force-feed them to the largest number of homebuying prospects possible.

There’s lots of them, and predatory lenders took full advantage until things erupted into scandal, and the economy headed south. Only then did regulators take notice and decide to investigate - into how “banks, credit rating firms, and lenders value and disclose complex mortgage-backed securities.” Three areas specifically, according to Reuters: “the securitization process, the origination process and the retail area.” Also insider trading, a common illegal practice that’s rarely caught or even looked for. However, the scope of the investigation would be narrow, and its aim was “deterrence.” Of what, asked Schechter, now that the horse is out of the barn, and investors and mortgage holders are left holding the bag?

When it’s too late to matter, they agree, along with critics, that “inadequate disclosure (or lack of transparency) was at the root of the problem.” According to a Senate report, it began in 1997 when house prices began appreciating and registered a 124% gain by 2006. Housing was driving the economy with seven million subprime mortgage loans. Business boomed. Underwriting standards deteriorated, while banks and other lenders invented new ways to make money - “fast” and easy.

In the 1980s, state usury rate ceilings were lifted, creating a whole new market for people who previously couldn’t qualify. At higher interest rates, fees, and other add-ons they did. Most borrowers got so-called “2/28″ and “3/27″ hybrid adjustable rate mortgages (ARMs). They originated with low fixed “teaser” rates, good for a two-year period. Afterwards, they’re reset semi-annually based on an interest-rate benchmark, or the current going rate. For many holders, payments soared 30% and became unaffordable, and by 2004, 90% of subprime loans were these type ARMs. It was well-known in the industry that “these borrowers (are) most likely to default or become delinquent (and) face foreclosure.” The idea was to cash in and let holders take the pain.

Here’s how the scheme worked. “So-called ‘intermediaries,’ unregulated and often unscrupulous mortgage brokers, hustled their way into the housing market” and took over. Using a range of tactics, including “deceptive advertising to block-to-block solicitations to get people to buy and sell, always promising more than they (could) deliver.”

So-called “birddogs” were used to get prospects, and all kinds of practices were employed - “abusive, illegal and predatory.” They pushed, “enticed…seduced (even) threatened.” According to the Joint Economic Report, “For 2006, Inside Mortgage Finance estimates that 63.3% of all subprime originations came through brokers….19.4% through retail channels (and) 17.4% through correspondent lenders….broker share increas(ed steadily) from 2003 through 2006.” These companies aren’t regulated and pretty much operate freely. By 2005, the percent of securitized subprime mortgages reached “a peak value of more than 81%….”

Housing sales were on a roll, and so was Wall Street, quick to see a lucrative new income stream and ready to cash in. “Now they could make fees originating loans and even more money selling the paper into (the) secondary market, where mortgages could be securitized and sold again for even more money as investments.”

The Finmanac financial blog explained its origination:

– when Solomon Brothers launched Mortgage-Based Securities (MBS) in the 1980s - “bonds with bundles of mortgages, bought from bank lenders, as collateral;”

– they used a “special purpose vehicle known as Collateralized Mortgage Obligation (CMO);”

– monthly installments were used to pay interest; and

– others were quick to cash in on the scheme.

The secondary market became a marriage between “the most reputable financial organizations and the sleaziest grass-roots operators. As is often the case, sleaze moved upwards” because the potential profits were huge but so are the risks.

“Since anyone can originate a loan and sell it to the Investment Banks (to package and sell as MBS), it tempts originators (to write) risky loans (without) worry(ing) about payback(s):”

– slicing MBS into tranches by risk profile handles the problem;

– so does having different maturity dates;

– they’re rated by S & P, Fitch and other agencies for legitimacy;

– hedge and some pension funds bought the most risky paper;

– risks were discounted because the potential returns were huge as long as economic conditions stayed sound and/or markets continued to rise; and

– it always helps to have friendly Fed chairmen like Alan Greenspan fueling bubbles.

At the height of the 2000 one he said: “Lofty equity prices have reduced the cost of capital. The result has been a veritable explosion of (high-tech) spending (and) I see nothing to suggest that these opportunities will peter out anytime soon.” A week later the Nasdaq peaked. Dropped 78% to its bottom. The S & P 500 49%, and retail investors lost out while Greenspan was busy engineering another bubble now unwinding at the cost of trillions of dollars, millions of people hurt, and the “Maestro” assuming none of the blame.

Economist Anna Schwartz said otherwise and called the Federal Reserve the main cause of today’s trouble. She told The Sunday Telegraph: “There never would have been a sub-prime mortgage crisis if the Fed had been alert. This is something Alan Greenspan must answer for.” The US Treasury also as one of its senior officials warned subprime lenders about it but was ignored. Even worse, despite state efforts to ban predatory practices, the Bush administration blocked attempts to curtail them and bears major responsibility.

Schechter refers to “an unholy trinity of private players, Wall street firms, and non-regulating regulators” who saw a way to profit hugely. Do it with shady practices, and thus partner in a “criminal conspiracy” to rip off millions of working Americans. “It was the largest robbery in history - not a bank heist but a heist by banks.”

The Real Capital of America (and the World)

Wall Street, of course - a city with “a history of causing disasters from its earliest days.” Succeeding ones keep getting bigger, but unaffected most often are the powerful banks and investment houses. “Masters of the universe,” according to author Tom Wolfe. Well insulated in their luxury board rooms with power, incomes and privileges afforded royalty. Treated like them also in a culture that “rewards clever and devious strategies” within or outside the law. No one is guilty unless caught. Rarely ever does it happen, and when it does the penalties are inconsequential compared to enormous ill-gotten gains. Incentive enough for players to invent new schemes, and they do.

This time, however, they may have been too smart by half. They overreached and are themselves hurt by the fallout. Some won’t survive. Bear Stearns and Lehman Brothers already. Others barely hanging on. Merrill Lynch forced to sell out cheap to Bank of America. The Fed bailing out AIG, and it’s anyone’s guess who or what’s next or if the worst is yet to come. When trouble first surfaced, “only a handful of writers and analysts” understood what was going on - chickens coming home to roost, “a crime in progress, a white collar crime wave” involving trillions of dollars, from working people to the rich. The Wall Street crowd. Mortgage brokers, banks and investment houses, rating agencies and appraisers who overvalued homes for higher fees. Well-designed schemes to let the devil take the hindmost, and they are but so are the perpetrators. Schechter is right calling this “a big story - one of the biggest” and from which “consumers and citizens” have to learn
how to cope. It won’t be easy.

The Unspoken Context

Crime writ large, and in early 2008 the FBI announced 14 unnamed mortgage companies were being investigated. Ones engaged in predatory lending. That may have deliberately steered customers to more expensive loans and concealed hidden payments and fees. In some cases unfairly jacked up for even higher profits. Targeting the most vulnerable. A 2008 Inner City Press/Fair Finance Watch study confirmed these practices. It called mortgage brokers “the wild, wild west of Capitalism.”

Shadowy operators using aggressive, unethical marketing in ghetto and low-income neighborhoods. Making phone solicitations. Door-to-door canvassing. Posing as debt consolidation experts with home improvement schemes and foreclosure “rescue” services. Merchants of sleaze cornering victims and entrapping them in unrepayable debt. Criminal fraud involving respectable bankers as well. Willing to engage in dirty practices because the profits were so tempting and the market so huge. Too big to pass up so it wasn’t.

From 2004 to 2006, Collateralized Debt Obligations (CDOs) mushroomed from $157 billion to $559 billion, and 10 investment banks underwrote 70% of $486 billion in 2006 securitizations. Players made millions and top executives far more. A gravy train, and collectively in 2006, at the cycle’s peak, the big banks earned $130 billion. It looked like more ahead, and their schemes were perfectly legal in an unregulated environment permitting them. They still are short of future regulatory reform that may or may not come but never will be close to what’s needed. Not when both parties embrace a pro-corporate agenda and won’t allow it.

The Charleston Observer published a flow chart on how predatory lending typically works:

– low income, minority and the elderly are targets;

– loan originators contact and high-pressure them to sign up;

– brokers arrange loans between targets and lenders;

– appraisers inflate property values for higher fees and new business;

– lenders may “bundle” new loans to sell off to other institutions; and

– Wall Street sits atop this enormous pyramid; in the “catbird seat;” orchestrating the process; and redistributing millions of loan bundles into pools to back up investments worldwide.

Borrowers have no idea how they’re being used and set up to be scammed by future mortgage resets. Unaffordable so that millions will lose everything in foreclosure. “Where are the prosecutors,” asks Schechter? A Congressional probe. Indictments to go after the guilty. Faint hope along with any chance for redress for victims. No chance either for most people to understand an “opaque and unregulated global financial system” with obscure terminology, according to economist Nouriel Roubini. A highly levered “financial monster that eventually leads to uncertainty, panic, market seizure, liquidity crunch, systemic risk and economic hard landing.”

In spring 2006, over a year before things began unravelling, Schechter wrote about inadequate and deceptive media coverage in an article titled “Investigating the Nation’s Exploding Credit Squeeze.” He examined losers and winners and suggested concrete approaches for responsible reporting:

– doing it regularly and truthfully about a serious growing problem;

– identifying the key corporate institutions involved;

– spotlighting how special interests and lobbyists influence Congress for favorable policies and deregulation;

– credit card companies also and how their ad dollars affect media coverage of their practices;

– predatory lending methods in poor neighborhoods; crimes committed against vulnerable working people;

– what people can do to fight back; and

– getting people involved at state and local levels; enlisting attorney generals to file class action lawsuits; and pressuring key legislators.

Strong material but the response was “tepid” as well as to a follow-up email campaign with tens of thousands of requests for more media coverage of a vital national issue - well before the crisis hit and a public spotlight might have cooled it. Big Media prefer a sanitized world of market “ups and downs” and one-sided Wall Street and Washington views - unrelated to the real world, what affects most people, and it got Schechter to ask: “where’s the outrage?”

Chronicling the Implosion, 2007

In his blogs, newsletters, and articles, Schechter “tracked the evolution of the crisis by week” - a story still evolving about “an economy that is….still unraveling,” It began in July 2007 when Dusseldorf-based IKB surprised markets with a profit warning. It set off sharp falls in other German bank shares, and ended up with IKB needing $11.8 billion in bailout aid to survive. Cracks also began showing up in the multi-trillion dollar US securitization markets. They created a crisis for two Bear Stearns (BS) hedge funds. Like IKB, they were heavily into subprime mortgages, highly levered, and it forced BS to sell out to JP Morgan Chase for pennies on the dollar.

Things then began spreading, and it was soon apparent the trouble was systemic, growing, and could touch down wherever outsized risks were taken. According to Business Week, what began as subprime now affected other kinds of debt as well and far more seriously than originally thought. Involving “real money” and danger, “the kind that terrifies bankers and the elite.”

The Dow Average topped out in early October and headed down while government jawboning and Fed interest rate cuts and huge liquidity injections didn’t help. They still haven’t as markets remain volatile, and no one for sure knows what’s coming. So jitters remain high and with good reason. The economy is far from healthy. Contagion is spreading offshore. Unemployment is rising. So are foreclosures. Inflation also, and hundreds of billions of bailout dollars haven’t helped.

None of this should have happened, and warning signs should have been heeded early on. Schechter chronicled it daily as events unfolded and explained that things were pretty bad and getting worse. Bankers were debating how to handle record losses. Desperation and even panic began surfacing. And America’s debt crunch became a personal crisis for millions.

His book reviewed events as they unfolded:

– jawboning after Wall Street and bankers began reacting and “blaming everybody but themselves;”

– pundits then “calling for higher standards of transparency;”

– bailouts involving real money in the hundreds of billions; first the Fed, then major central banks around the world;

– the result: very little; continued panic; more lending companies imploded; 247 up to April 2008;

– then interest rate cuts and still no relief; mortgage rates rose as banks are reluctant to lend and want higher returns when they do; after the government’s Fannie and Freddie takeover, 30-year fixed-rates fell from 6.26% to 5.88%, but with the economy weak and consumers strapped it’s not clear how much this will help, at least in the short term;

– multi-billions in writedowns continue, likely more coming ahead, and “bear in mind,” Schechter observes: “the banks created these problems by lowering their standards and working in collusion with the alchemists at the rating agencies that turned their junk into gold.” And government regulators looked the other way and let it happen.

Throughout the crisis, real analysis and understanding was missing - like the 50 million “Missing Americans” Bill Moyers profiled on PBS. The ones Michael Harrington called “The Other America” in which he documented the country’s poverty and influenced policy debate in Washington as a result. Today’s victims are largely above the poverty line but just barely with two wage-earners and one or both having multiple (low-paying) jobs. They became predatory lending targets, but practically nothing is being done to help them. Billions for the perpetrators. Lip service only for the vulnerable.

What Happens Now?

Crucial to understand is that the current economic crisis “is an outgrowth of the very corporatist policies that will haunt this country for decades.” Plus our costly wars. “Obscenely high levels of corruption,” and many other characteristics of a nation off its moorings and in trouble. This one in “the quicksand of debt and delusion.” Proving unfettered capitalism doesn’t work. At a time Business Week magazine suggested “an irresistible force (is) meet(ing) an immovable object.” The force is the economy and object an unrepayable wall of debt.

Despite billions of Fed-injected liquidity, the crisis persists and may be worsening. No one knows for sure or how or when it will end. Trillions have been lost. More still to come. Serious talk about a depression. The middle class is shrinking. People are entrapped by debt. Worldwide respect for the country plummeted, and 81% of the public believes things are headed in the wrong direction. Banks are failing. Real estate hit the wall, and in February the Economist magazine wrote that “The world had a weekend to save it from collapsing.”

Contagion is spreading everywhere affecting Wall Street, large and smaller banks, investment firms, insurance companies, hedge funds, non-bank lenders, and the greater economy dependent on them. Experts believe fixing things could take years and would require a vast overhaul of a clearly failed system. Establishing workable regulation. Reinstating Glass-Steagall to separate commercial from investment banks. Curbing speculation, and ending the whole range of predatory lending practices. Under a two-party duopoly, chances for that are practically nil.

Debt As A Global Issue

For better or worse, a global economic system interlocks nations and markets. When the US catches cold, pneumonia threatens the world, and it shows in what the Vigilant Investor website reported: that in one week months back the Fed, ECB, and Japanese and Australian central banks injected $458 billion into the markets “to allow the big players to avoid selling off otherwise healthy assets to cover for heavy losses related to the unfolding housing debacle in the US, led over the cliff by subprimes.” And in America, the combination of credit card and other debt remains a ticking time bomb some see as another eventual bubble to burst.

They’re worried about what author Kevin Phillips calls “a house of cards” built on “reckless finance.” And longtime Wall Street economist Henry Kaufman blames years of irresponsible federal banking for “allowing the expansion of credit in huge magnitudes” and calling today’s crisis a “global calamity.” Former Fed director of monetary affairs and its policy-making panel secretary, Vincent Reinhart, compares today to “the great contraction” of the 1930s and “the great inflation of the 1970s.”

Little of this gets media attention or is addressed in political discourse. Never mind huge structural problems, an economy in crisis, millions in duress, and barely a sign of remedial help coming for the vulnerable. As conditions worsen “when will the American people realize how badly they have been had and turn on the plunderers,” asks Schechter? The politicians and regulators also who allowed it.

How did it happen:

– “warnings were ignored;” for example from Bruce Marks, the Neighborhood Assistance Corporation of America (NACA) CEO; in 2000, he testified before Congress and warned about Fannie Mae and Freddie Mac engaging in predatory subprime lending; all for naught;

– “the (Alan Greenspan) Fed encourag(ing) the securitization of mortgages calling it ‘financial innovation;’ ” and

– “Wall Street firms ignor(ing) worries (from) their own risk managers (and engaging in) shadowy underground banking….They made a fortune - until they didn’t.”

Hundreds of small players have been indicted but only a few symbolic “truly fat cats” and none of the fattest. The way it always is.

Last Words

Capitalism is characterized by economic ups and downs, speculative frenzies, and panics. But, as Schechter observes, “Few have posed such a serious threat to the entire financial system, (yet most media) coverage has been relegated to not widely read business sections (and) the fortunes of CEOs and business enterprises, not citizens, consumers and most of all homeowners” who’ve lost or may lose their homes and livelihoods.

Even worse, “many newspapers and TV outlets were complicit.” They got huge amounts of ad revenue (often deceptive) from “shady mortgage lenders and credit card companies that encouraged readers and viewers to accept more debt. Some major newspapers are connected with local real estate syndicates and get kickbacks from sales tied to their extensive advertising of homes for sale.” Worse still is that coverage (once it began) “may have missed the truly criminal aspects of this crisis” even though there’s plenty of evidence around and the FBI is currently investigating 14 mortgage companies.

Overall reporting largely supports business and hesitates being critical. It builds confidence instead, stays upbeat, generates more heat than light, and engages in what Schechter calls “Investotainment” as their specialty. Well layered with deception and boosterism as well.

They ignored victims dating back to the 1990s and even warnings from people like David Walker, the Comptroller of the Currency (OCC) and Government Accounting Office (GEO) head. For years, he was a voice in the wilderness about our growing debt burden that could lead to a sudden collapse and threaten national security. The National Association of Business Economists as well saying: “The combined threat of subprime loan defaults and excessive indebtedness has supplanted terrorism and the Middle East as the biggest short-term threat to the US economy.”

And John Kenneth Galbraith in his 1961 classic, “The Great Crash 1929,” now prophetic: “The fact was that American enterprise in the twenties had opened its hospitable arms to an exceptional number of promoters, grafters, swindlers, impostors, and frauds. This, in the long history of such activities, was a kind of flood tide of corporate larceny.”

Writer Mike Whitney updates it in one of his commentaries saying: “The financial system has been handed over to scam-artists and fraudsters who’ve created a multi-trillion dollar inverted pyramid of shaky, hyper-inflated, subprime slop that they’ve sold around the world, with the tacit support of the ratings agencies and the US political establishment.”

The story has legs. Banks are in serious trouble. By mid-summer, seven had failed, others since, and many dozens more are at risk. Worldwide as well as contagion spreads everywhere. Huge write-downs have been taken. Unknown amounts more may follow. The Fed has injected over $900 billion to stabilize things with little idea if it will. Then add in lost homes, lender foreclosure costs, falling property prices, equity losses, multiple deflating bubbles, and hundreds of billions for wars and debt service, and the picture is grim, frightening, and according to some experts in the early innings.

Consider a recent “truly stunning but not widely reported” Bank of America study on current “Credit Crisis” losses - $7.7 trillion dollars in equity value globally since the October market peak. Affecting nations everywhere, B of A called it “one of the most vicious (crises) in financial history.” Investor George Soros calls it a “systemic crisis,” the result of “easy credit, financial innovation and contagion.” And economist Ludwig von Misses once said: “There is no means of avoiding the final collapse of a boom brought on by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

Schechter concludes by adding: “Bubbles are rarely foreseen (or want to be seen), as investors scramble into opportunities delivering high returns….self-interest and money-making are the real drivers in the world of finance.” They also drive politics, and now at a time of crisis, it’s “hard to believe that as the house of cards comes tumbling down, there seems to be a trifecta of failure. The government is unwilling to act decisively. The Congress prevaricates. And the media (engages in) boosterism” and keeps the public uninformed “at the very time when exposure might have stopped these practices before they became too deep and/or expensive to ‘fix.’ ”

Little wonder 81% of the public believes the country is headed in the wrong direction. George Bush’s approval rating fluctuates from the low to high 20s. And the July Rasmussen Reports gave Congress its lowest ever rating at 9% with only 2% of respondents calling its performance excellent. Imagine future poll numbers if the economy crashes, millions more become unemployed, lose their homes, and hundreds of billions keep being spent on fruitless wars by whomever becomes president and whichever party controls Washington. Imagine also how people affected will respond or should.

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The price of free speech

Thursday, September 18th, 2008

By George Monbiot | So we saw him off. Last week, in a victory for both medicine and free speech, Matthias Rath dropped his libel suit against the Guardian. But it seems amazing that the courts of this country allowed him to pursue this case. Rath, a German doctor, appears to have encouraged South Africans suffering from HIV to stop using anti-retroviral drugs and take his vitamin pills instead. Several of them died. It’s an important story, which shows that journalists are of some use after all. But the Guardian stood to lose hundreds of thousands of pounds for having the impudence to publish it.

This newspaper is big enough to look after itself, and on Monday it was also able to settle its legal dispute with Tesco. But the net that Rath used is now being cast to catch ever smaller fry. In the past few days, Sheffield Wednesday Football Club has dropped its cases against some of its fans(1,2). I am now allowed to write about the worst example of legal bullying I have ever seen.

The club has had serious problems, on and off the pitch, and many of its fans use an internet forum – owlstalk.co.uk – to discuss them. They make the kind of comments you would expect to find on any talk board, and which would normally be forgotten within 15 minutes. Two and half years ago the club launched its first suit. Only now have the people who posted these comments emerged blinking from the labyrinthine nightmare of English law.

As Geoffrey Robertson and Andrew Nicol explain in their excellent book Media Law, England’s defamation laws date back to a statute created in 1275. The criminal offence of scandalum magnatum was devised to protect “the great men of the realm” from stories which could stir the people against them. Three centuries later, the Star Chamber allowed noblemen to launch civil actions for libel, to provide them with an alternative to duelling(3).

They made prolific use of this privilege until Fox’s Libel Act of 1792 determined that the claimant (the person bringing the case) had to prove that the words used against him were false, malicious and damaging. This means that libel law 216 years ago was more liberal and more in tune with the principle of free speech than it is today. During the 19th and 20th centuries, Robertson and Nicol show, “the common law was re-fashioned to serve the British class system from the perspective of … the Victorian club.” To protect wealthy people from criticism, the courts reversed Fox’s burden of proof. They created a presumption that any derogatory remark made about a gentleman must be false. This remains the case today. Defamation differs from all other civil or criminal laws in Britain: the burden of proof is on the defendant.

The law remains the privilege of gentlemen, by which I mean people who are able to afford costs that often exceed a million pounds on each side. Cases tend to be resolved by sheer financial might, as the plaintiffs bankrupt the defendants, or force them to give in before their money runs out. This ensures that the law retains its 13th Century function. It guarantees that most attempts to hold the wealthy to account founder before they are launched, as people bite their tongues for fear of losing their homes.

Since 1879, corporations have also been able to sue for libel(4). The inequality of arms this causes is compounded by the fact that there is no legal aid for defamation cases. Lawyers are now allowed to fight these suits on a no-win, no-fee basis, but this freedom is double-edged: if a defendant loses, he could end up paying double the claimant’s legal costs.

This is the context in which Sheffield Wednesday went to court to demand the names and email addresses of 14 people who had posted comments on owlstalk. Here are some of the comments over which the club sued. “What an embarrassing, pathetic, laughing stock of a football club we’ve become”. “Another day, another blunder. I doubt even Leeds were in such a mess this time last summer, and look what happened to them”. “I am waiting with baited breath to hear who the Chuckle Brothers have signed after their trip to watch players abroad. With the amount of money they have to spend and the wages they can offer the best we can hope for is that little known Transvestitavian International I.Sukblodov, who last scored in a brothel.”(5)

Such comments were deemed by the Sheffield Wednesday’s lawyers to be “false and seriously defamatory messages”(6) which had caused grievous injury to the delicate flowers who ran the club. (They should try posting an article on the Guardian’s Comment is Free site). The lawyers threatened “proceedings to include claims for injunctions, damages, interest and legal costs (which could be substantial).”(7) The judge threw most of the application out, but instructed the forum’s host to reveal the email addresses of four of the posters, whose remarks seem to me to be almost as trivial as those he dismissed(8). This took place a year ago, and the long shadow of the law hung over the posters until the club’s lawyers dropped the case last week.

Another case dates back to February 2006, when the club sent a warning letter to a fan called Nigel Short. When he received the letter he offered to apologise and to change his comments, but the club rejected this. He was able to fight it only because he found a lawyer – Mark Lewis of George Davies Solicitors in Manchester – who was incensed by this case and was prepared to represent him. “I’ve had two and a half years of worrying I was going to lose my house”, Short tells me. “It’s been hell. If Mark hadn’t done this no win, no fee, I would have been bankrupt by now.”(9)

In November 2007, Short was diagnosed with throat cancer. The case continued. But on Wednesday 3rd September he announced that his treatment had been successful(10). On Friday 5th, the club dropped the case and agreed to pay his costs. It issued a press release which suggested it had done so because of “Mr Short’s medical condition.”(11) I asked the club whether it had abandoned the case because it knew that Nigel would now live to fight the action. It has refused to answer my questions.(12)

The point of this story is not that the directors of Sheffield Wednesday have behaved like a bunch of petulant bullies. It’s that the law equips them to do so. Most people see this as an issue only for journalists. But the internet ensures that the law of defamation now threatens anyone who stands up for what he believes to be right. This autumn the English branch of PEN, which defends the freedom to write, will launch a campaign against our libel law. But where are the rest of you? Where are the petitions, the public protests, the lobbies of parliament? Why is this 13th-Century law still permitted to stifle legitimate dissent? Wake up Britain: your freedoms are disappearing into the pockets of barristers and billionaires.

www.monbiot.com

References:

1. K&L Gates, 9th September 2008. SWFC and others v Neil Hargreaves. Notice of discontinuance.

2. Irwin Mitchell, 5th September 2008. SWFC and Kaven Walker v Nigel Short. Notice of discontinuance.

3. Geoffrey Robertson QC and Andrew Nicol QC, 2008. Media Law, 5th Edition. Penguin, London.

4. Geoffrey Robertson, pers comm.

5. K&L Gates, 10th August 2007. Schedule attached to letter sent to George Davies Solicitors.

6. SWFC and Others, 14th September 2007. Claim Form v Neil Hargreaves. No.HQ07X03169.

7. K&L Gates, 10th August 2007. Letter to George Davies Solicitors.

8. Richard Parkes QC, Sitting as a Deputy Judge of the Queen’s Bench Division, 2nd October 2007. Approved Judgment, Case No: HQ07X03169.

9. Nigel Short, pers comm.

10. http://nigelshort.blog.co.uk/2008/06/24/2008/07/27/they-say-a-picture-pa…

11. SWFC Ltd, 5th September 2008. Statement. This appears to have been removed from SWFC’s site, but I have retained a copy. Please write to me if you want to see it.

12. Colin Wood, SWFC, 15th September 2008. By email.

Have Your Say: The price of free speech
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How the press swallows MoD propaganda

Thursday, September 18th, 2008

 

In January 2007 the British papers went wild over a “Rescue bid by heroes strapped to helicopters“. Describing how British soldiers had tied themselves to the wings of a helicopter to retrive a soldier’s body, an army spokesperson told the Mail:

“It was a leap into the unknown. It was an extraordinary tale of heroism and bravery of our airmen, soldiers and Marines who were all prepared to put themselves back into the line of fire to rescue a fallen comrade.”

 

 

Under the headline “Heroes of Helmand: the first amazing pictures“, the Observer talked of “a mission that carried echoes of Saving Private Ryan”, “a trip into the unknown, a mercy mission that has already etched itself into contemporary military folklore”.

 

The Guardian effused that the mission evoked “the manner of the heroes of the second world war film Flight of the Phoenix”.

The Times had this wonderful line: “Reports said that soldiers from 45 Commando Royal Marines did not want their 30-year-old section commander falling into the hands of insurgents, who they feared would mutilate his body.” Top marks there for demonising the enemy.

 

The Telegraph reported the operation’s success, followed by an army spokesperson’s words that it showed “the level of camaraderie and bravery of those soldiers involved.”

Now that the full MoD report on the mission is out, however, we learn that it was a tale of “poor training, confusion and friendly fire“. In the midst of the chaos, a British gunner had opened fire and shot another soldier dead. “A devastating board of inquiry report released by the Ministry of Defence exposed a catalogue of errors,” said the Guardian.

 

Of course most papers buried this news, and the Sun managed to tell it as a story of “MoD betrayal“.

 

So – when will the British media learn not to take MoD press releases at face value?

Have Your Say: How the press swallows MoD propaganda
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Bush’s War Widens Dangerously

Thursday, September 18th, 2008

By Tariq Ali | The decision to make public a presidential order of last July authorizing American strikes inside Pakistan without seeking the approval of the Pakistani government ends a long debate within, and on the periphery of, the Bush administration. Senator Barack Obama, aware of this ongoing debate during his own long battle with Hillary Clinton, tried to outflank her by supporting a policy of U.S. strikes into Pakistan. Senator John McCain and Vice Presidential candidate Sarah Palin have now echoed this view and so it has become, by consensus, official U.S. policy.

Its effects on Pakistan could be catastrophic, creating a severe crisis within the army and in the country at large. The overwhelming majority of Pakistanis are opposed to the U.S. presence in the region, viewing it as the most serious threat to peace.

Why, then, has the U.S. decided to destabilize a crucial ally? Within Pakistan, some analysts argue that this is a carefully coordinated move to weaken the Pakistani state yet further by creating a crisis that extends way beyond the badlands on the frontier with Afghanistan. Its ultimate aim, they claim, would be the extraction of the Pakistani military’s nuclear fangs. If this were the case, it would imply that Washington was indeed determined to break up the Pakistani state, since the country would very simply not survive a disaster on that scale.

In my view, however, the expansion of the war relates far more to the Bush administration’s disastrous occupation in Afghanistan. It is hardly a secret that the regime of President Hamid Karzai is becoming more isolated with each passing day, as Taliban guerrillas move ever closer to Kabul.

When in doubt, escalate the war is an old imperial motto. The strikes against Pakistan represent — like the decisions of President Richard Nixon and his National Security Adviser Henry Kissinger to bomb and then invade Cambodia (acts that, in the end, empowered Pol Pot and his monsters) — a desperate bid to salvage a war that was never good, but has now gone badly wrong.

It is true that those resisting the NATO occupation cross the Pakistan-Afghan border with ease. However, the U.S. has often engaged in quiet negotiations with them. Several feelers have been put out to the Taliban in Pakistan, while U.S. intelligence experts regularly check into the Serena Hotel in Swat to discuss possibilities with Mullah Fazlullah, a local pro-Taliban leader. The same is true inside Afghanistan.

After the U.S. invasion of Afghanistan in 2001, a whole layer of the Taliban’s middle-level leadership crossed the border into Pakistan to regroup and plan for what lay ahead. By 2003, their guerrilla factions were starting to harass the occupying forces in Afghanistan and, during 2004, they began to be joined by a new generation of local recruits, by no means all jihadists, who were being radicalized by the occupation itself.

Though, in the world of the Western media, the Taliban has been entirely conflated with al-Qaeda, most of their supporters are, in fact, driven by quite local concerns. If NATO and the U.S. were to leave Afghanistan, their political evolution would most likely parallel that of Pakistan’s domesticated Islamists.

The neo-Taliban now control at least twenty Afghan districts in Kandahar, Helmand, and Uruzgan provinces. It is hardly a secret that many officials in these zones are closet supporters of the guerrilla fighters. Though often characterized as a rural jacquerie they have won significant support in southern towns and they even led a Tet-style offensive in Kandahar in 2006. Elsewhere, mullahs who had initially supported President Karzai’s allies are now railing against the foreigners and the government in Kabul. For the first time, calls for jihad against the occupation are even being heard in the non-Pashtun northeast border provinces of Takhar and Badakhshan.

The neo-Taliban have said that they will not join any government until “the foreigners” have left their country, which raises the question of the strategic aims of the United States. Is it the case, as NATO Secretary-General Jaap de Hoop Scheffer suggested to an audience at the Brookings Institution earlier this year, that the war in Afghanistan has little to do with spreading good governance in Afghanistan or even destroying the remnants of al-Qaeda? Is it part of a master plan, as outlined by a strategist in NATO Review in the Winter of 2005, to expand the focus of NATO from the Euro-Atlantic zone, because “in the 21st century NATO must become an alliance… designed to project systemic stability beyond its borders”?

As that strategist went on to write:

“The centre of gravity of power on this planet is moving inexorably eastward. As it does, the nature of power itself is changing. The Asia-Pacific region brings much that is dynamic and positive to this world, but as yet the rapid change therein is neither stable nor embedded in stable institutions. Until this is achieved, it is the strategic responsibility of Europeans and North Americans, and the institutions they have built, to lead the way… [S]ecurity effectiveness in such a world is impossible without both legitimacy and capability.”

Such a strategy implies a permanent military presence on the borders of both China and Iran. Given that this is unacceptable to most Pakistanis and Afghans, it will only create a state of permanent mayhem in the region, resulting in ever more violence and terror, as well as heightened support for jihadi extremism, which, in turn, will but further stretch an already over-extended empire.

Globalizers often speak as though U.S. hegemony and the spread of capitalism were the same thing. This was certainly the case during the Cold War, but the twin aims of yesteryear now stand in something closer to an inverse relationship. For, in certain ways, it is the very spread of capitalism that is gradually eroding U.S. hegemony in the world. Russian Prime Minister Vladimir Putin’s triumph in Georgia was a dramatic signal of this fact. The American push into the Greater Middle East in recent years, designed to demonstrate Washington’s primacy over the Eurasian powers, has descended into remarkable chaos, necessitating support from the very powers it was meant to put on notice.

Pakistan’s new, indirectly elected President, Asif Zardari, the husband of the assassinated Benazir Bhutto and a Pakistani “godfather” of the first order, indicated his support for U.S. strategy by inviting Afghanistan’s Hamid Karzai to attend his inauguration, the only foreign leader to do so. Twinning himself with a discredited satrap in Kabul may have impressed some in Washington, but it only further decreased support for the widower Bhutto in his own country.

The key in Pakistan, as always, is the army. If the already heightened U.S. raids inside the country continue to escalate, the much-vaunted unity of the military High Command might come under real strain. At a meeting of corps commanders in Rawalpindi on September 12th, Pakistani Chief of Staff General Ashfaq Kayani received unanimous support for his relatively mild public denunciation of the recent U.S. strikes inside Pakistan in which he said the country’s borders and sovereignty would be defended “at all cost.”

Saying, however, that the Army will safeguard the country’s sovereignty is different from doing so in practice. This is the heart of the contradiction. Perhaps the attacks will cease on November 4th. Perhaps pigs (with or without lipstick) will fly. What is really required in the region is an American/NATO exit strategy from Afghanistan, which should entail a regional solution involving Pakistan, Iran, India, and Russia. These four states could guarantee a national government and massive social reconstruction in that country. No matter what, NATO and the Americans have failed abysmally.

Tariq Ali, writer, journalist, filmmaker, contributes regularly to a range of publications including the Guardian, the Nation, and the London Review of Books. His most recent book, just published, is The Duel: Pakistan on the Flight Path of American Power (Scribner, 2008). In a two-part video, released by TomDispatch.com, he offers critical commentary on Barack Obama’s plans for Afghanistan and Pakistan, as well as on the tangled U.S.-Pakistani relationship.

                  Copyright 2008 Tariq Ali

Have Your Say: Bush’s War Widens Dangerously
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