Monday, January 17, 2011

Remembering Mortgage Derivatives in Response to Tucson

The right-wing extremists have been extending beyond the attacks on Obama during the 2008 elections.  The Tucson shooting this passed  Saturday, Jan. 15, shows how the violent attitudes of the right-wing have not taken long to bubble over .  Frankly, the violence of corporate economic activity and influence makes this no surprise to many of us.  See Global Witness´ website as they extend the fine traditions of Amnesty International, Oxfam, Greenpeace, and others to new levels.  However, besides recommending revisiting the great documentaries in the Michael Moore tradition including Bowling for Columbine, I simply want to mention here a series of strong articles about the 2008 mortgage derivatives market crisis which have gotten to little attention and promotion.  The turmoil resulted from the stock market sales of mortgage assets, and resulted shockingly in the September, 2008 bankruptcy of financial giant Lehman Brothers and the sale of Merrill Lynch.  Far from an unforeseeable result of Adam Smith’s so-called “invisible hand,” the collapse shows the results of unsound deregulation of government financial industry legislation established during the 1930´s New Deal hearings and the Glass-Steagall Act.  The influence of financial industry executives on academic theory and political policy creates a triangle of causal agents.  Among a series of political events, three provide an essential and illustrative outline of this triangle of influence.  First, the 1997 harassment of the Commodities Futures Trading Commission by government ideologues.  Second, the 1999 Gramm-Leach-Bliley legislation which then finally repealed the New Deal protections of the Glass-Steagall Act, and third the 2000 Commodity Futures Modernization Act which opened possibilities for abuses of derivatives and mortgages. 
Such policymaking is directly related first to financial influences, and secondarily to supportive justifications by means of economic philosophy.  Politicians received millions from the financial industry throughout the 1990’s.  Yet, one conservative economist explains the crisis without reference to the divergent policies evident and the impacts of the legislation.  Instead, the government´s Federal Reserve Interest rates are identified as the primary cause, and the convenient rationale of mystification stemming from “the inherent difficulty in assessing risk due to the complexity.”  This type of convenient logic does not examine the range of facts and causes and effects. In addition to the influences of ideology and regulatory legislation, the impacts of the private sector on political policy are not unknowable and   can be traced.  Other views relying on markets justify their “brutally Darwinian” ways.  They blame grassroots, “left-wing” advocates like ACORN and legislation like the Community Reinvestment Act which forced the hapless bankers to assist poor and minorities.  IMF staff views reflect a more courageous recognition of  interactions between economic and political regulatory processes, but not the specific efforts of the industry and its academics which created the architecture of financial instability.  A high-level European report leaves out any specific references, but identifies the failure of U.S. derivatives regulation.  The U.N. Conference on Trade and Development (UNCTAD) report makes a strongly worded reference to the relevant ideology and its associated practices.  The non-profit Center for Responsive Politics has recently been providing analysis of this dimension during the follow-up investigations. An early panel questioning former Treasury Secretary Henry Paulson was examined and found to contain two representatives considered to have received significant funding from the financial industry.  Moreover, the subsequent inquiry commission was found to contain large campaign contributors and those who have ties to Wall St.  Theorists and apologists of various schools often fail to address the cause and effect reality of these kinds of political and economic connections.
Nevertheless, the interactions are captured in the phrase to describe discrepancies between market behavior and theory, “market inefficiencies” one type of which involves inequality among participants in markets, their “asymmetries”.  In the case of the recent mortgage-based derivatives crisis, the derivative instruments were politically deregulated and created by large financial firms, reflecting their asymmetric political influence and volume of business.  Along with the dimension of “disclosure,” since many purchasers like pension funds were not aware of their purchasing derivatives, asymmetry then lead to the most resounding of market inefficiencies, the collapse of the derivates market.  On the other hand, smaller credit unions and community banks, and European cooperative banks were often spared any impacts of the speculative and specious assets.  The 2008 mortgage derivatives market crisis represents a sophisticated and hidden form of violence in its subtle elimination of social responsibility by disguising and converting obligations into false hopes of excess profit.  The widespread impacts of 2008 events can be viewed in combination with insightful works like Louis Uchitelle´s book The Disposable American and Marjorie Kelly´s The Divine Rights of Capital, which provide additional information on the psychological and socioeconomic links between the behavior and beliefs of corporate executives, the Tucson shooting, moreover, along with right-wing extremists and much of society´s violence in general and their origins in socioeconomic inequalities and abuse of power.       
A. R. Sorkin, “Lehman Files for Bankruptcy, Merrill is Sold,”  The New York Times, Sept. 14, 2008; 
W. Greider, “Establishment Disorder,” The Nation, Oct. 29, 2008;  P. S. Goodman, “The Reckoning: Taking a Hard New Look at a Greenspan Legacy,” The New York Times, Oct. 8, 2008; 
F. Partnoy, “Danger in Wall St.´s Shadows,” The New York Times, May 15, 2009;
 D. Leonhardt, “Reconsideration: Washington’s Invisible Hand,” The New York Times, Sept. 26, 2008; 
J. B. Taylor, “How Government Created the Financial Crisis,” The Wall St. Journal, Feb. 9, 2009; 
Editors, “Villain Phil,” NRO: The National Review Online, Sept. 22, 2008,;  
Leach, J. A., “Regulatory Reform: Did Gramm-Leach-Bliley Contribute to Crisis?” Northwestern Financial Review, Oct. 15-31, 2008; 
L. Kodres, “A Crisis of Confidence…and a Lot More,” Finance and Development, 45:2, June, 2008; 
J. de Larosiere et al., Report of the High-Level Group on Financial Supervision in the EU, European Commission, 25 Feb. 2009; 
E. Lipton and S. Sabaton, “The Reckoning: Deregulator Looks Back, Unswayed,” The New York Times, Nov. 16, 2008;      
UNCTAD, The Global Economic Crisis: Systemic Failures and Multilateral Remedies, UNCTAD Secretariat Task Force on Systemic Issues and Economic Cooperation, 2009; 
J. D. McKinnon, “Panel Probing Financial Crisis Has Wall St. Ties,” The Wall St. Journal, July 18, 2009; 
A. Kiersch, “Henry Paulson´s Questioners Are Not Bankers´ Favorites,” The Center for Responsive Politics - July 16, 2009; 
R. Nader, “How Credit Unions Survived the Crash,”, Feb. 23, 2009; 
A. Serwer, “Banks as Heroes,” American Prospect, June 30, 2009; 
P. Capella, “Cooperative Banks Club Together and Thrive in Crisis,”, Oct. 17, 2008;

No comments:

Post a Comment