Saturday, April 24, 2010

The Poor, feed them to the lions

I have written about the Credit Default Swaps (CDS) and how they led to the Great Recession of 2008-2009. Now that Goldman Sachs has been charged with fraud by the Securities and Exchange Commission, it is time to reflect theologically on the economic mess.

A quick review of Goldman Sachs actions. They are being charged with first packaging, bundling and selling Mortgage back bonds and securities, while at the same time using CDSs to profit when those securities failed. They allowed an investor, Henry Paulson who was going to bet against the abacus CDO bond help create that very CDO. Shockingly, the CDO failed bringing Paulson (as well as Golden Sachs) huge profits. Goldman Sachs first shot a defending itself that those that bought the CDO were sophisticated investors, which mean what? They are good at ripping off smart people? While it is questionable how legal Goldman Sachs actions, ethically it is clear. Goldman Sachs action were evil.

They raked in big profits on the failure of the very products they sold. Imagine if we found out that Toyota made obscene insurance profits from the crashes caused the accelerator problem. The public would be rightly outraged. The question is why has the financial sector been given a pass.

The old adage about the victors writing the history seems to be in play here. Wall Street has done a masterful job of creating the narrative that irresponsible poor people caused the Great Recession. The banks were forced to give mortgages to people who could not handle it, the story goes and now the rest of us are paying for it. The narrative basically says that the poor people did it with the help of congress. It does not account for most of the losses, nor does it account for the damage done by CDSs, and it certainly does not factor in the facts, but it does play to class divisions in American Culture. I have heard this explanation given by several friends who work in financial sector, church members, in many major media like the Wall Street Journal.

"Congress has not even held hearings yet in the area where it is most clearly responsible: social engineering through banking by pumping mortgages to unqualified borrowers via Fannie Mae, Freddie Mac and laws that required banks to make bad loans."

The poor people were the problem. I wonder if Paulson and Goldman Sachs will find a way to blame the poor people for their fraud?

It is seductive to blame a group with little power when it gets you off the hook. Reality is seldom considered, even when the narrative makes no sense. (If it was the mortgages that went under and the poor people caused the mess, why was the biggest sellers of CDS like Lehman Brothers and AIG the first to be hit hard, and then be hit the hardest? Why was Commercial Credit frozen if it was the mortgages were the ones that failed?) Where are the tea partiers protesting the root of the problem?

When Roman Emperor Nero facing criticism over the great fire of Rome, blamed it on the Christians, even though it flew in the face of the facts. The Christians were a politically weak and poor. Better blame them and feed a few to the lions than actually take responsibility. The question is where were the execs of Goldman Sachs fiddling when Wall Street was burning? Are the Masters of Universe or Masters of deceit?

No comments: