The Crisis, the Causes, the Aftermath

Courtesy of Jaime Falcon.

John Titus, who created the movie BAILOUT, contacted me last week to discuss a new project that he is working on. The question he is tackling is, “How is it that 1075 elite executives were imprisoned following the S&L crisis, and not one was even charged following our more recent crisis?”

While the past few months of my life have been dominated by caring for my infant son, the question above is one that I spent enormous time investigating, pondering, and discussing.

John and I are going to speak about this in a few days, but I thought I would write out a brief synopsis of my own conclusions to refresh my memory and to crystallize my thoughts on the matter.

When I initially started writing about the crisis, I was bewildered by what seemed to be a sudden and complete abandonment of rule-of-law in America. After all, it was just a few decades ago, during the Reagan administration, that CEO’s of S&L’s went to prison for almost identical crimes to those committed leading up to our recent crisis.

The more I wrote and the more I studied the history of the American political economy, the more I became convinced that the investigations and prosecutions following the S&L crisis were the aberration. It was a tremendous stroke of luck that William K. Black happened to be a regulator at the time. He and his team fought the Reagan administration to pursue those investigations. And they fought the Keating Five and Alan Greenspan to pursue those investigations. The establishment wanted it swept under the rug. They did everything possible to make that happen. By chance, we had in place a pit bull of a regulator who refused to back down.

This time around we had the opposite of a pit bull; we had a lap dog. Instead of regulators, we had Hank Paulson, Ben Bernanke, and Tim Geithner. Followed by Obama’s team which also included Robert Rubin and Larry Summers. Rubin and Summers had been key players on the architectural team that had created the dynamic that enabled the crisis to come about. There are few people more conflicted and compromised than that team of apologists and enablers. They all sprang into action to accommodate the whims of the banks, doing little to nothing to protect the interests of taxpayers and citizens.

So which was the aberration? The successful prosecutions following the S&L crisis, or the lack of meaningful investigations following the bank-manufactured crisis of 2008?

One thing that is certain is that the cronyism that protected executives this time around has been in place for a very long time – arguably since the very beginning. When James Madison, in 1787, stated that it was necessary to protect the minority of the opulent from the majority, he was arguing for something inherently undemocratic; he was planting the seed for the kind of impunity enjoyed by the most wealthy and powerful in this country.

Anyone who has been involved in our justice system is aware that money changes almost everything. The wealthy are able to float above a system that is tyrannical and oppressive. The lawyers that you can afford largely dictate what the outcome will be. This is true both on the civil law side, and on the criminal law side.

But being able to hire super-attorneys at $1,000 per hour is theoretically available to all. Most people cannot afford it, but it’s available. What’s not available to the vast majority of Americans, is the ability to change laws, determine who is electable, capture regulators, and to use the revolving door in Washington to ensure that individuals friendly to industry are put in key positions in order to effect policy and decide what is pursued and what is not pursued.

This was true during the S&L crisis, but it has become much more pervasive and much more entrenched over the past 30 years. Alan Greenspan and his prodigy are high up in the hierarchy of those responsible for allowing private sector interests to dominate policy, law, and oversight when it comes to our financial system. They have promoted a system that privatizes profit and socializes risk. Greenspan was chosen for his blinders and heavily influenced the evolution of compromised neo-liberal ideology in government and academia in the USA and around the world.

There will, one day, be another bank-led crisis. It will be worse than the last one. And given the current dynamic in Washington DC, those who lead us to crisis will have taken every step necessary to ensure they are not subject to basic legal sanction. In fact, crises are opportunities for elite power circles in this country. When properly harnessed, a serious crisis represent an opportunity to scare citizens and the politicians into accepting policy that would be unpalatable at any other time – policy that makes them more wealthy and more powerful while undermining democracy, rule-of-law, and basic justice, for everyone else.

The powers that be have insulated themselves to the point that change from within is practically impossible. They bankroll politicians, decide what policy is acceptable, write legislation, capture regulators, determine what constitutes mainstream academia, and dictate what message is disseminated by mass media. Citizens must do what they can to exercise their democratic rights. Unfortunately, voting for Democrats or Republicans is not an effective way to do so. The Republican party exists to reinforce corny capitalism. And the Democratic party is not far behind in that regard. Neither of them is interested in fighting the system that keeps them in control of the wealthiest and most powerful country on earth.

Bill Black testifies before the House Financial Services Committee on April 20, 2010:


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