JANET BAGNALL
The Gazette
Wednesday, November 26, 2008
My brain feels like it's going to explode from the effort of trying to understand why bad housing loans in the U.S. have led to global financial meltdown.
Loans made to people who could not afford to buy a house should, I think, affect those people and the people who lent them money. The lenders did this knowing they were doing business with people with no jobs, assets or income and would never see their money again.
It's not something you or I would get involved in, but it wasn't our problem. Why should the whole world - from guava farmers in Malaysia to textile-makers in Italy - be affected? What do any of us have to do with the U.S. housing market?
In another context, this global interconnectness might be one of those beautiful, we're-all-in-this-together moments. Instead, it's an ugly and unexpected moment in which we are forced to contemplate - apparently for many months to come - the consequences of greed and stupidity on a worldwide scale.
Helpfully for my head, the global financial crisis got top billing this year from the American non-profit organization that publishes an annual list of the Top 10 Worst Corporations. Essential Action, a non-profit group started by Ralph Nader, every year rakes over the corporations it considers the worst culprits of "corporate crime, negligence and dastardly behaviour."
In the latest issue of the group's online publication, Multinational Monitor, executive-director Robert Weissman provides a primer on the corporate and government failings that have led to today's debacle:
Political influence used for corporate gain. Weissman argues that corporations used their political power to get rid of annoying regulations. He cites the Financial Services Modernization Act of 1999, which allowed the merger of depository banks with risk-taking investment banks.
Elsewhere in the magazine, financial journalist Nomi Prins explains that when the two types of banks were allowed to merge, sometimes with other financial institutions, it became both "more difficult to see what they were doing" and "it enabled banks to use their deposits as collateral for making risky bets."
Lack of enforcement. Rules against predatory lending were not enforced, according to Weissman. Regulators who tried to exert their authority were stopped by what Weissman calls finance-friendly figures in the Clinton administration and the U.S. Congress.
Bonuses first. Weissman believes that some Wall St. players must have known they were in the midst of a housing bubble. They ignored inconvenient truths, preferring to concentrate instead on their own stratospheric bonuses, he wrote.
Financial vs. real economy. Weissman said the financial sector has been taking over the real economy, with its profits accounting for more than 35 per cent of the overall U.S. corporate profits yearly, between 2005 and 2007.
Absence of social purpose. Although Wall St. insisted that financial derivatives and other financial innovations helped improve economic efficiency, Weissman wrote, in fact, these innovations "served no socially useful purpose."
Other people pay. Money was made at the expense of others, Weissman said. Workers who lost their jobs, homeowners who couldn't pay for inflated mortgages and today, the public around the world.
AIG, the (until-recently) giant insurance company with more than 100,000 employees around the world and $1 trillion in assets, was the first up on the Top 10 Worst Corporations this year. (The list is alphabetical.) Its exposure on a truly massive scale to credit default swaps meant it was on the verge of bankruptcy when the U.S. government pumped $100 billion of taxpayers' money into its coffers.
After AIG's spectacularly expensive government bailout, two fascinating facts emerged: It did not know exactly what it had insured. It also had no idea how divorced it had become from the normal world. Less than a week after the bailout was announced, AIG executives and insurance agents went on a $1,000-a-night retreat at an exclusive resort in California.
Does the word scam come to mind? Yes, it does, to Lynn Turner, who was chief accountant of the Securities and Exchange Commission from 1998 to 2001. In an interview with Multinational Monitor, Turner said that the ability to hide financing, whether by banks or companies, is "nothing more than just a scam to keep things away from investors."
Transparency: Something we all need to insist on, because we are all involved. Up to the hilt.
jbagnall@thegazette.canwest.com
© The Gazette (Montreal) 2008
The Gazette
Wednesday, November 26, 2008
My brain feels like it's going to explode from the effort of trying to understand why bad housing loans in the U.S. have led to global financial meltdown.
Loans made to people who could not afford to buy a house should, I think, affect those people and the people who lent them money. The lenders did this knowing they were doing business with people with no jobs, assets or income and would never see their money again.
It's not something you or I would get involved in, but it wasn't our problem. Why should the whole world - from guava farmers in Malaysia to textile-makers in Italy - be affected? What do any of us have to do with the U.S. housing market?
In another context, this global interconnectness might be one of those beautiful, we're-all-in-this-together moments. Instead, it's an ugly and unexpected moment in which we are forced to contemplate - apparently for many months to come - the consequences of greed and stupidity on a worldwide scale.
Helpfully for my head, the global financial crisis got top billing this year from the American non-profit organization that publishes an annual list of the Top 10 Worst Corporations. Essential Action, a non-profit group started by Ralph Nader, every year rakes over the corporations it considers the worst culprits of "corporate crime, negligence and dastardly behaviour."
In the latest issue of the group's online publication, Multinational Monitor, executive-director Robert Weissman provides a primer on the corporate and government failings that have led to today's debacle:
Political influence used for corporate gain. Weissman argues that corporations used their political power to get rid of annoying regulations. He cites the Financial Services Modernization Act of 1999, which allowed the merger of depository banks with risk-taking investment banks.
Elsewhere in the magazine, financial journalist Nomi Prins explains that when the two types of banks were allowed to merge, sometimes with other financial institutions, it became both "more difficult to see what they were doing" and "it enabled banks to use their deposits as collateral for making risky bets."
Lack of enforcement. Rules against predatory lending were not enforced, according to Weissman. Regulators who tried to exert their authority were stopped by what Weissman calls finance-friendly figures in the Clinton administration and the U.S. Congress.
Bonuses first. Weissman believes that some Wall St. players must have known they were in the midst of a housing bubble. They ignored inconvenient truths, preferring to concentrate instead on their own stratospheric bonuses, he wrote.
Financial vs. real economy. Weissman said the financial sector has been taking over the real economy, with its profits accounting for more than 35 per cent of the overall U.S. corporate profits yearly, between 2005 and 2007.
Absence of social purpose. Although Wall St. insisted that financial derivatives and other financial innovations helped improve economic efficiency, Weissman wrote, in fact, these innovations "served no socially useful purpose."
Other people pay. Money was made at the expense of others, Weissman said. Workers who lost their jobs, homeowners who couldn't pay for inflated mortgages and today, the public around the world.
AIG, the (until-recently) giant insurance company with more than 100,000 employees around the world and $1 trillion in assets, was the first up on the Top 10 Worst Corporations this year. (The list is alphabetical.) Its exposure on a truly massive scale to credit default swaps meant it was on the verge of bankruptcy when the U.S. government pumped $100 billion of taxpayers' money into its coffers.
After AIG's spectacularly expensive government bailout, two fascinating facts emerged: It did not know exactly what it had insured. It also had no idea how divorced it had become from the normal world. Less than a week after the bailout was announced, AIG executives and insurance agents went on a $1,000-a-night retreat at an exclusive resort in California.
Does the word scam come to mind? Yes, it does, to Lynn Turner, who was chief accountant of the Securities and Exchange Commission from 1998 to 2001. In an interview with Multinational Monitor, Turner said that the ability to hide financing, whether by banks or companies, is "nothing more than just a scam to keep things away from investors."
Transparency: Something we all need to insist on, because we are all involved. Up to the hilt.
jbagnall@thegazette.canwest.com
© The Gazette (Montreal) 2008
