How the mortgage crooks created a crisis
BACK WHEN bankers and politicians were assuring us that the sub-prime mortgage crisis would be "contained" and the overall economy would be fine, journalists Leslie and Andrew Cockburn and their film crew got to work. They interviewed not only the victims of crooked mortgage brokers in the poorest sections of Baltimore, but financial industry insiders who explained just how Wall Street created the crisis.
The result of their work is American Casino, an award-winning documentary that's currently being screened in special showings around the U.S. Here, Andrew Cockburn, who co-produced the film with Leslie Cockburn, talks to about why they made the film and the impact that they hope to have.
HOW did you come to make a film about the financial crisis even before the worst of the crash took place?
WE STARTED doing it in January 2008. It was clear that the crisis had started. You can take any number of dates--from when the housing market peaked in '06 when things started to go south, or when you had a sort of crash on Wall Street with the death of two Bear Stearns hedge funds in the summer of '07. We had concluded by the beginning of '08 that this was a massive economic catastrophe we were heading into, and we really thought someone should be making a film about it.
We set out to both explain what had happened and what had caused it, and also to link it to the lives of ordinary people. So we shot on both Wall Street and the city of Baltimore. We wanted to bring out what was clear--that this really had been a massive exercise in predatory lending directed against poor people, particularly African Americans and other minorities. We relate the high level, abstruse machinations of what was going on in those blue screens in the trading rooms of New York to the lives of ordinary people in Baltimore.
Then we take it to California, which was really the epicenter of the whole sub-prime fiasco, and on into the post-apocalyptic world of Riverside, Calif., where disease-bearing mosquitoes spread across the land, thanks to the foreclosed stagnant swimming pools.
THERE HAS been a claim from the financial industry that this was an unforeseeable crisis--and that all they were trying to do is make home ownership more possible. Do you buy that?
ABSOLUTELY NOT. As I think we made clear in American Casino, it all came from the top. It was Wall Street banks who pushed this, it was Wall Street banks who had the relationships with the mortgage companies. It was Wall Street that aggressively competed for the mortgage loans sold by mortgage companies, which could then be packaged into securities--those magical instruments, the CDOs [collateralized debt obligations], CDO-squared and all those other things we've come to know and love.
They were the guilty parties and certainly not--absolutely not--the homeowners who've gotten blamed for this. People at the Wall Street Journal and so forth have been working overtime ever since the crash to say it's all the fault of ordinary people, the poor people who got into loans they couldn't afford, these misguided borrowers, single Black mothers who somehow managed to bring down the global financial system.
In American Casino, we make it clear that it's not like that. Ordinary people were lied to, were conned, were defrauded into these loans. That's what happened. The system did this. In my view--and I think we say in the film American Casino--the system couldn't do anything else. They'd run out of other productive things to invest in. So basically, the option was loan sharking, which is what they did.
OF COURSE, this is a worldwide financial crisis. How does that fit into your framework?
WE DON'T really have time to go into the international context--although my country of origin, Ireland, is right there behind Iceland in terms of economies that have been reduced to total basket cases by this lunacy. But I think it really did start here, because this is the center of the system. In particular, it was the policy of the Federal Reserve in the early part of the 21st Century that you can regard as the starting gun for this. Many other things come into play, but it was then-Federal Reserve Chair Alan Greenspan who, in a panic after the collapse of the dot-com bust, reduced interest rates to 1 percent. That really set this thing into high gear.
THERE WAS a recent story in the New York Times about how sub-prime mortgage lenders are now involved in mortgage-modification companies that rip people off. What's your reaction to that?
TO A very large degree, the whole sub-prime mortgage program was a fraud--in terms of lying and conning people into loans they couldn't afford. And people tend to trust the professional. Just like they trust their doctor, they'll trust the mortgage professional.
A lot of the people who started these mortgage companies had a background in the savings and loan (S&L) business, so you have a chain of crookedness really going back to the S&L scandals of the 1980s. A lot of those companies were reborn as mortgage-lending companies. Now they are being reborn again as mortgage-modification companies, and in no instance can we see any sign of concern for the suffering homeowner.
Mortgage modification itself, I think, is kind of a distraction, because what they do in the end is still lock people into these overpriced loans. It's a way of making it possible for people to just be able to survive in a state of debt peonage. Unless you are able to reduce debt principal--which of course is being viciously resisted by the industry--I don't think mortgage modifications really do much good. In fact, there's good evidence that they don't, even when they're not being a conscious fraud.
WHY HASN'T the Obama administration done more to help victims of this crisis?
MY FAVORITE figure is the $104.7 million that was invested in Washington by the financial services industry in the first quarter of this year alone. It's kind of staggering. We think about the control of the capitalist system--how the financial industry and the banks control policy--and we tell people this. But to see it in such lurid and crude detail, particularly in this administration and the last one, is kind of staggering. The banks and Wall Street have managed to get their own way despite having really caused this incredible catastrophe, and being clearly guilty.
Remember in the beginning of the year it was revealed that AIG--who we've now bailed out, I think, to upwards of $170 billion and rising--was paying themselves big bonuses. There was a lot of outrage, and Obama said this was unconscionable, and the Congress said this was outrageous. They all foamed at the mouth and jumped up and down--and then nothing happened.
More recently, there was an announcement that AIG was paying another round of bonuses. Well, there was no uproar this time, and I heard in Washington that the White House had passed the word quietly to Congress that it would be more helpful if we didn't hear too much fuss over AIG paying itself more bonuses with our money. So that's the power of Wall Street at work.
TELL US about the housing activists you worked with in the film.
THERE ARE a host of organizations. I think the squatting movement is very good--people squatting in foreclosed houses. ACORN's been doing good work. We worked with a very good housing aid agency in Baltimore called St. Ambrose which was very effective in getting loan terms reduced by dealing with lenders. There are certainly encouraging things, and across the country there hundreds of similar groups. We'll be listing them on our Web site AmericanCasinoTheMovie.com, as a guide telling people where to go.
But I still think that's not enough. In Europe--in Ireland, for instance--there's a lot more militant feeling. Some of the leading bankers can't go out in public. One was out playing golf on a fancy golf course the other day and he was advised to leave for his own safety because the employees--anyone carrying a golf club--might let the rage vent. Well we don't see anything like that here yet. I don't see any of those people who ran Citigroup or AIG into the ground getting worried. They're all feeling pretty comfortable and prosperous.
HOW DO you rate the media in covering and analyzing the crisis?
IT'S VERY uneven, but basically terrible. There's been some really good people. In American Casino we feature a very smart financial reporter from Bloomberg, Mark Pittman, who really saw this coming and has been covering it throughout in a very unsparing way. Another business journalist, Gretchen Morgenson in the New York Times, hasn't been bad.
But the overall tone has been like that of CNBC, which people call Bubble Vision. On that network, Jim Kramer said that the stock market had higher to go when it was at 14,000, that it had reached the bottom at 12,000, reached the bottom at 10,000, reached the bottom at 8,000 and so on and so forth. Because their function obviously is to try and keep things rolling along.
I was just looking at the New York Times headline yesterday which said that, "oh hurray, housing prices have finally bottomed and now they're going to pick up, so we'll look back on April 2009 as when things absolutely hit bottom and when things started to get better."
But the house prices are still too high for most people to afford in most parts of the country. It's terrible that one in six, or one in five households in the country are underwater--the houses are worth less than they're paying for them. But we again have this "Bubble Vision" type of coverage, saying, "Okay, everything's over now, house prices are going to go up again, green shoots everywhere."
Is the media being as misleading generally as it has been all along? Yeah.
In American Casino, our bottom line is that they caused it, and we're having to pay big time to save it. At the end of the film we give out in detail the $12 trillion that we, the taxpayers, the working people of America, have committed to pay to bail out Wall Street.
I'm afraid that's the future, unless there's some kind of mass action, some kind of outrage and people rise up and protest. What we're facing is the long-term impoverishment of the majority of the population in order to prop up a system where people at the top can cream off their fees and cream off their very fat incomes.
When you think about the way Wall Street has been working, every time you buy something on your credit card they get to cream off a piece because that credit card loan will have been securitized and someone up there will own the bond. Every time you pay your mortgage someone in Wall Street takes a cut of that and so on down the line. This is a system where there's a tap in the pipeline, and they hold a bucket underneath and take what's ours and make it theirs.
Unfortunately, I think that's the foreseeable future. The system has been under fantastic strain in the last year as people realized what had been happening and got outraged. So [politicians] have worked very hard to bring things back on even keel. Obama was quoted as saying something I thought was very telling earlier this year when he had a bunch of the nation's leading bankers in a meeting at the White House. He said, "My administration is the only thing between you and the pitchforks." We might ask, "Why don't you get out of the way?"
Of course, that didn't happen. But hopefully, American Casino, will remind people what it was that got them angry--or will get them angry again.
For more information about American Casino and screenings in your area, visit AmericanCasinoTheMovie.com.