I assume that many people have been somewhat enraged and confused by the current economic crisis in the US. How do we make sense of the crisis and the factors that contributed to the massive economic fraud and recent government bailout of those who committed the fraud? If you listen to the media pundits or the financial experts that have been paraded out on the TV screen, we are told not to panic and to consult a financial expert before we make any drastic decisions. But why should we trust the opinions of the very people who have been promoting the deregulated practices that have led to the current crisis?
Media critic Danny Schecter offers some of the most refreshing analysis in his new book Plunder: Investigating Our Economic Calamity and the Subprime Scandal. It is ironic in some ways that what led Schecter to investigate the economic crisis was what he discovered in working on a documentary beginning in 2005 that took a critical look at the problems with credit and debt in the US. Schetcher’s documentary, In Debt We Trust, exposes the predatory practices of credit card companies and their influence in Congress in writing legislation that is favorable to their interests and the public’s expense. Schecter discovered that the practices of the credit card industry is a microcosm of what the financial sector has been engaging in for years.
Plunder is written in a style that combines investigative journalism and daily diary. Schecter looks at the “subprime scandal” as a systemic problem that not only involves the major financial institutions in the country, but their friends in Washington as well. What is interesting about Schecter’s findings is the sheer arrogance that the financial sector displays with what they do. In February of 2008, a powerful lobby called the American Securitization Forum held its annual conference in, of all places, Las Vegas. Some 6,500 financial advisors got together in what the New York Times called a “predators ball.” Schecter says that financial practices these sectors engage in could all be considered predatory.
Here is a sampling of what they do:
* Target persons who are perceived to be less financially sophisticated or otherwise vulnerable to abusive lending practices.
* They engage in inadequate disclosure of the true costs and risks of loan transactions
* Padding/Packing – charging customers unearned, concealed or unwarranted fees.
* Flipping – frequent and multiple refinancing, usually of mortgage loans, requiring additional fees that strip equity from the borrower.
* One way referrals – a prime lender refers the public to its subprime subsidiary (predatory lenders) but never the other way around.
* Significant differences in then proportion of loans made in predominantly minority geographic areas between the prime lender and the subprime subsidiary.
* Home improvement scams in which the service provided is worth far less than the mortgage taken.
* Paying off low interest mortgages with low monthly payment and high interest loans.
* Force placed insurance that adds to borrower’s cost when insurance lapses.
These financial institutions then engage in aggressive marketing practices by targeting vulnerable audiences through ads convincing them to take these loans. Schecter states, “Mortgage lenders have spent more than $3 billion on TV, radio and print advertising since 2000.” Much of this advertising is deceptive and misleading, but news outlets generally don’t challenge the claims made in the ads since they profit heavily off the ads themselves.
The US government, Schecter says, has been in collusion with the financial sector when it comes to this type of predatory behavior. Some analysts blame deregulation, but that is only part of the problem. The bigger problem is the power that these financial institutions have in crafting the policies that the government adopts. One example that Schecter cites is the bankruptcy legislation that was passed in 2005, legislation that was crafted by the banking industry.
Schecter also points out that the crisis that the US is now facing is a global one and has much more of a devastating impact on the Third World. Schecter writes that the speculative interests of the financial sectors have placed more emphasis on commodities like oil, gas, rice and wheat in recent years, which he believes is the number one factor in soaring prices. The soaring prices have much more of a deadly impact on poor people throughout the world than they do in the US.
The other major component of the book that Schecter looks at is the complete failure of the US news media to investigate the “crisis.” The author states that this failure is due in part to the laziness of the journalistic community, but more importantly “many reporters themselves are entrench in and have invested in the stock market.” The other factor that contributes to such poor news coverage around economic issues is that most news agencies are part of large corporate structures that do not want to investigate a system which they are intricately part of.
Plunder ends with some recommendations, particularly the need for activists to make this issue central to their organizing work. Schecter believes that we have to de-mystify the economic world and make it relevant to the work that activists do, whether that is anti-war, anti-racism or environmental work. Schecter even provides some interesting web links that provide some ongoing critique of the financial crisis, such as www.deepcapture.com, www.stopthesqueeze.org, www.itulip.com, and www.creditcardnation.com.
Plunder, is a great place to start when trying to make sense of the current financial mess, without having to speak the financial jargon.
Danny Schechter, Plunder: Investigating Our Economic Calamity and the Subprime Scandal, (Cosimo Books, 2008).