The last decent president we had

Left to Right: Richard Nicolai, Rosalind Carter, Jimmy Carter, Patricia Nicolai

Almost like they planned it, part 2

I think we should be skeptical about the subprime mortgage crisis, and the subsequent crises it is said to be provoking—credit, banking, confidence, and so on. The paranoid among us, and the non-rich, and the old (almost everybody actually) are always suspicious of these sudden financial panics because somebody like Warren Buffet or Old Man Potter always seems to end up wealthier.

That said, the situation sounds quite bad. The hit to investors, estimated at $70 billion in January, is now thought to be $120 billion or so—about the GDP of a medium sized country (for the Dominican Republic, home country of many of the janitors who clean the bankers’ offices in New York and Boston, it’s only about $85 billion). Last week Germany’s Finance Minister came out of the G7 meeting and said that losses could reach $400 billion. Noriel Roubini says maybe a trillion.

A lot of other shoes are yet to drop—like regulators’ and investors’ who want to know how the banks overlooked such a huge credit risk, and where some of the money went—but the losses already are impressive. Citigroup lost $18 billion, HSBC $17 billion, Merrill Lynch $14 billion, Morgan Stanley $10 billion, and UBS first said $13.5 billion, then $18 billion. Bahrain-based Gulf International Bank lost a billion. Société Général has admitted to €2 billion so far, almost as much as the “rogue trader” cost them. Merrill Lynch lost 42% of its share value. These numbers don’t count the structured investment vehicles that banks sponsored, but say they don’t own, but still maybe have to pay for. That’s how $150 million could turn into a trillion dollars.

The biggest banks in the country are sounding desperate for cash, offering pieces of their institutions to whoever has any. A lot of who has any are the sovereign funds, investment vehicles set up by some nations who aren’t busy giving away all their public wealth, i.e. the U.S. doesn’t have one. Americans who are used to reading (or actually, mostly not reading) about US corporations buying up companies and public facilities in the debt-ridden, desperate global south, are alarmed to see China, Saudi Arabia, Singapore, Kuwait and the United Arab Emirates doing the same in New York.

Inevitably the banks have started suing each other, as HSH Nordbank, the German public sector lender, announced it was going after UBS for subprime losses, claiming that the Swiss bank suckered them on a $500 portfolio of collateralized debt obligations.

Not to miss an opportunity to give away our money to the corporate sector, where they will all soon be working, the Bush administration rushed to Congress with an “emergency” package of tax cuts, including $50 billion for business incentives. Because they’re going to invest the money, and create jobs, in American communities, right? After all, it’s a crisis.

Is it? The whole element of surprise was lost on most inner-city communities, where we were concerned for years about subprime lending “loan sharks,” the originators of most of those small loans that got sold, packaged, and re-sold until they were big enough to wreck a few hedge funds. Mortgage defaults and bankruptcies have been rising for years in American cities. Community groups have staged protests at every single one of the banks that were supposedly so stunned by this mess, asking them to be more careful, and fair, with the loans they were making and buying. In 1998 I was part of a group from National People’s Action that demonstrated on the front lawn of Andrew Cuomo, President Clinton’s Secretary of HUD, because he wouldn’t meet with us about subprime loans. Eventually he sent a flunky, who promised she would “look into” the common practice by mortgage bankers of faking assessments on sub-standard houses, so that the FHA would ensure a loan even though it was wildly inflated, and the house needed a new roof or furnace. The scam continued, though, and that federal insurance made a lot of bad loans easier to package and securitize.

Remember Roland Arnall? He was one of George W. Bush’s biggest fundraisers, and also the CEO of a company called Ameriquest Mortgage, which paid a fine of $325 million after all 50 state attorneys general went after the company for deceptive marketing practices. Arnall had to put the thing behind him before heading off to the Netherlands, where he represents Americans as our Ambassador. 30 U.S. states passed laws in the past five years to prohibit the worst abuses of Ameriquest, Countrywide Financial, New Century Financial, and other predatory lenders. How did the banks miss that?

Maybe they didn’t. Take a look at the annual reports, or 10-Ks, of some of the most publicized losers in the subprime crisis. Citigroup, losers of $18 billion, bought nine banks, trading platforms, and financial services companies, and pieces of three others, all over the world, for at least $27 billion. Morgan Stanley, losers of $14 billion, only bought three other banks in the past fiscal year, but paid their CEO, John Mack, $43 million. Sound broke?

But still, the U.S. and Europe are in an economic crisis. Government spending will have to be cut, as we all tighten our belts and help out. More public infrastructure will probably have to be sold, if only we can find buyers, like banks, hedge funds and sovereign funds, maybe. Interest rates are going down, which can be a good thing if you’ve already lent out a lot of money at higher, fixed rates like, say, a lot of banks have. Hey, wait a minute…

In Naomi Klein’s great new book, The Shock Doctrine, she quotes fascist fundamentalist Milton Friedman: “Only a crisis—actual or perceived—produces real change.” I don’t mean for this to sound like a some secret conspiracy. They are in charge—it’s policy. Heads up.