Hollywood’s Fraud-Free Fantasies: Entertainment industry fails to explain why the economy collapsed

[marmar]

from In These Times:



Hollywood’s Fraud-Free Fantasies
On the big and small screens, the entertainment industry fails to explain why the U.S. economy collapsed.

BY Chris Lehmann


As protesters continue to provoke fresh real-life confrontations with our financial oligarchy, the American culture industry has followed its own instinctive path, forging heroic narratives about the nation’s financial woes that gravitate into a Neverland of angst-ridden comeuppance and consensus.

This fall’s Serious Hollywood Statement on the 2008 crisis, Margin Call, deployed an armada of scowling method actors to erect a mythical tale of a frenzied market dump of toxic debt. The central action in the film was meant to echo the downfall of Lehman Brothers–itself an abject retreat into Tinseltown fantasy since Lehman was the outlier bank in the great mortgage conflagration–the one investment shop that regulators did not treat as too big to fail.

And this, evidently, is why Margin Call is so afraid to conclude anything about anything–even as it tries to lay out the backdrop to the great financial crime of our century. The film’s final incoherent gesture belongs to Kevin Spacey–whose wounded sense of pride in his vocation resolves ludicrously into elaborate devotions over a dead family pet. Unable to bring this plot to rest on any human-based catharsis or approximation of justice, the movie’s screenwriters reached for the manipulative tear-jerking gambit known in Hollywood as “shooting the puppy.”

Last spring, HBO aired a faux-Homeric account of the global mortgage collapse with Too Big To Fail, a fable about the wholesome protective urges of federal regulators based on the fanciful book of the same name by New York Times financial reporter Andrew Ross Sorkin. ....................(more)

The complete piece is at: http://www.inthesetimes.com/article/12411/hollywoods_fraud_free_fantasies

[xchrom]

1. du rec. nt

[dkf]

2. The basic reason isn't fraud...it's people's willingness to take on debt beyond their means.

In financial institutions that = leverage, in Individuals that means mortgages and credit cards, in governments that means bonds and on and on.

Debt has become so central in everyone's lives that things collapse when access to debt is curtailed. The world economy is dependent on borrowing.

[CJCRANE]

3. Something changed in the 00's...

People are always willing to take on debt beyond their means, that's just a fact of human nature. That's why we have credit rating agencies. I worked for a credit card provider in the 90's and the company was very careful about limiting their exposure to bad debt.

Something happened in the 00's where either the agencies were wrong or the banks decided to ignore them because the banks loaded up on high risk debt.

Think about it, who is the fool...the person who borrows money they can't pay back or the person who lends it? In the normal scheme of things it's the lender (because normally the taxpayer doesn't step in to pay off bad debts).

[dkf]

4. The change probably came with the idea that anyone is credit worthy at a certain interest rate.

The opposite to that is that if you cap interest rates, then lenders wouldn't touch certain people because it isn't worth it to them. Then you cut off access.

[got root]

5. that's only 1/2 the story, the other 1/2 is fraud, on a grand scale

have you heard of liars loans, ninja loans, etc?

interest has nothing to do with it when the amount given can never be paid back, or as you said beyond the means of the borrower.

then to rate that security as AAA, wich allowed to the scam to go forward, was FRAUD.

[ms.smiler]

7. dkf, I don’t agree with you about people’s willingness to take on debt beyond their means.

Americans aren’t known for setting themselves up for failure. We are known for our hard work and prudence with money management. That’s why American homeowners were so appealing to investors in mortgage backed securities.

I can agree with you in this way. If people were unwilling to take on debt, the Wall Street banks wouldn’t have had mortgage loans, credit card debt, and auto & student loans to turn into Collateralized Debt Obligations that the banks could use to defraud investors as well as the debtors.

It’s perplexing, but somehow you missed trillions of dollars in loan origination fraud, ratings fraud, securities fraud, insurance fraud, taxpayer fraud, foreclosure and auction fraud, as well as millions of instances of Perjury and Forgery, all because people apply for and receive loans during their lifetimes.

It is the banks who are dependant upon borrowing.

[TalkingDog]

8. How about.... instead... flat wages over the last 40 years. Credit became a raise substitute.

People were encouraged to take on debt, in part, because it made more money for the banks.


And it meant that people were still able to buy like they had increased wages without "taxing" the corporate persons.

[Skittles]

9. it's actually both

fraud combined with people all to willing to live beyond their means = disaster

[JDPriestly]

10. dkf, how are you defining fraud?

I saw fraud in the mortgage lending end of this crash. I personally saw it.
It did not happen to me, but to people I know. Some were very unsophisticated. Some were well educated -- teachers and people who had thriving businesses or who had worked in high positions for major corporations. (Obviously, I am not going to embarrass the victims of the fraud by telling you who they are or precisely what their positions were.)

Fact is that those selling the subprime mortgages, especially in refinancing debt, concealed the real risks involved. That, in California, is arguably fraud and when done by many mortgage lenders on a routine basis, looks very much like fraud.

It is the responsibility of the mortgage lender who is supposed be trained to calculate risk to deny loans to those who do not qualify. Figuring what percentage of a borrower's earnings will be required to pay back a mortgage at a higher interest rate is a no-brainer.

The mortgage companies incentivized their sales personnel to sell risky mortgages to people who got in way over their heads. They should never have qualified for the loans they got.

The honest borrower who provides accurate information to the mortgage lender reasonably assumes that if a mortgage lender grants a loan, the lender has determined that the borrower is qualified and will be able to pay it back.

Borrowers do not have the information to assess whether a market is in fact a boom. They cannot assess the true value of the house they are buying or whether their income is high enough to make mortgage payments if the interest rates rise.

I have talked to people who told me that they were assured by the mortgage salesperson that they would be able to refinance later on if they needed to. Of course, that is an unenforceable promise. But, when one mortgage sales person after the other makes these false promises, it suggests that the mortgage company was committing fraud.

I have talked to people who were asked to name co-signers. Neither the primary debtor nor the co-signors were properly advised about what they were getting themselves or each other into.

The numbers of foreclosures, the similarities of the stories random people tell about what was said to them, how the mortgage sales personnel handled their loans, the obvious problems with the market -- all of these things suggest that the boom and bust were not accidental. There is a pattern that suggests fraud.

I believe that the authorities do not want to prosecute the fraud because it was so widespread (thanks in part to the many too-big-to-fail-or-compete financial institutions) that no one wants to tackle it. But it was fraud at all levels.

I haven't even mentioned the fraud on the investors who bought the derivatives. Yet another level of the horror -- and the one most likely to eventually be prosecuted.

[fasttense]

11. Perhaps.....

But, we were using debt before the Ronnie Raygun revolution and things did NOT collapse.

It's how the debt is handled that makes it so destructive today.

If you, or I, were to get a huge loan and default, well we would lose everything, or just about everything. If you fail to pay your student loans, guess what? Bankruptcy can not discharge them. Even if you have sold everything you have and you are living on the streets, you still will owe on student loans. If you ever get $2 to rub together you will be hunted down like a mad dog. But when Donald Trump defaults he just renegotiates the loan. If Mitt Romney were to default, the banks would work with him. No bank is willing to work with the little guy. When the baker down the street fails to pay his business loans, his shop is closed down, assets are sold and usually he loses his business. But when Goldman Sachs defaults they get interest free loans, guaranteed by the federal government, to tide them over.

Debt can become coercive when means for discharging the debt are impossible for the average person. That’s where we are right now. The federal government, business and banks all encouraged the little guy to take huge loans. Behind his back, in collusion with the money lenders, the government made discharging his debt tough and tougher. Then the economy collapsed and his job went away. How is he going to pay back the loans now? Corporations that go through bankruptcy can eliminate most ALL their creditors, even debt owed to the government. Not so for the average person.

It's not the debt but the weight it has become on the average person. The mega rich don't have to worry they have a strangle hold on the government. The bankruptcy laws have been written in their favor. But the little guy has to worry because the fat cats have taken his $200,000.00 loan and turned it into $2 million, so he better pay up.

[MisterP]

6. though in all fairness, I must cite "Fun With Dick and Jane" as on-the-nose, especially Baldwin