Who Stole the American Dream? (68 page)
Read Who Stole the American Dream? Online
Authors: Hedrick Smith
64
Insider fraud was pervasive
Federal Housing Finance Agency Inspector General Report, 2003, cited in “Fannie Mae Knew Early of Abuses, Report Says,”
The New York Times
, October 4, 2011.
65
The FBI first publicly warned
“FBI Warns of Mortgage Fraud ‘Epidemic,’ ” CNN, September 17, 2004,
http://articles.cnn.com
.
66
Fraud was epidemic
Richard Bitner,
Confessions of a Subprime Lender: An Insider’s Tale of Greed, Fraud, and Ignorance
(Hoboken, NJ: John Wiley & Sons, 2008), 39–72.
67
“More than 70 percent”
Richard Bitner, prepared statement, Financial Crisis Inquiry Commission, April 7, 2010,
http://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2010–0407-Transcript.pdf
.
68
“ ‘Arts and crafts weekends’ ”
William Black, interview, September 26, 2010.
69
“Open invitations to fraudsters”
“Eighth Period Mortgage Fraud Case Report to Mortgage Bankers Association,” Mortgage Assets Research Institute, April 2006.
70
“Fraud or misrepresentation in almost every file”
Fitch Ratings, “The Impact of Poor Underwriting Practices and Fraud in Subprime RMBS Performance,” November 28, 2007.
71
Hedge fund managers
In
The Big Short
, Michael Lewis tells the compelling tale of how each of them doped out the ugly reality beneath the mythic conventional wisdom on Wall Street and in Washington and then took the risk of betting against the crowd, and won.
72
Long Beach Mortgage loans were attractive
Goldman Sachs Flipbook, “Abacus 2007–AC1, $2 Billion Synthetic CDO,” February 26, 2007.
73
Goldman was accused of duplicity
“SEC Accuses Goldman of Fraud in Housing Deal,”
The New York Times
, April 17, 2010; “Goldman Pays $550 Million to Settle Fraud Case,”
The New York Times
, July 16, 2010.
74
Paulson had included
“Profiting from the Crash,”
The Wall Street Journal
, October 31, 2009.
75
Goldman’s double-dealing
Gretchen Morgenson and Louise Story,
“Banks Bundled Bad Debt, Bet Against It, and Won,”
The New York Times
, December 24, 2009.
76
“It makes me ill”
Greg Smith, “Why I Am Leaving Goldman Sachs,”
The New York Times
, March 14, 2012.
77
Goldman executives took issue
“Public Rebuke of Culture at Goldman Opens Debate,”
The New York Times
, March 15, 2012.
78
“Without those AAA ratings”
“Bringing Down Wall Street as Ratings Let Loose Subprime Scourge,” Bloomberg, September 24, 2008,
http://www.bloomberg.com
; and “ ‘Race to Bottom’ at Moody’s, S&P Secured Subprime’s Boom, Bust,” Bloomberg, September 25, 2008,
http://www.bloomberg.com
.
79
A conflict of interest
Eric Kolchinsky, internal Moody’s memo, August 28, 2009.
80
Moody’s earnings from exotic financial vehicles
Elliot Blair Smith, “Bringing Down Wall Street as Rating Let Loose Subprime Scourge,” Bloomberg, September 24, 2008.
81
Bernanke said he saw no threat
Binyamin Appelbaum and David Cho, “Fed’s Approach to Regulation Left Banks Exposed to Crisis,”
The Washington Post
, December 21, 2009; Ben Bernanke, “The Subprime Mortgage Market,” speech, Federal Reserve Bank of Chicago, May 17, 2007,
http://www.federalreserve.gov
.
82
“When the music stops”
“Citigroup Chief Stays Bullish on Buy-Outs,”
Financial Times
, July 9, 2007.
83
Bond-rating agencies turned thumbs down
“Rate Agencies Move Toward Downgrading Some Mortgage Bonds,”
The New York Times
, July 11, 2007; “Ratings Cut Near for Debt Products,”
The New York Times
, July 12, 2007; “Market Shock: AAA Rating May be Junk,”
The New York Times
, July 20, 2007.
84
“Caused hundreds of billions of losses”
Eric Kolchinsky, statement to Financial Crisis Inquiry Commission, June 2, 2010.
85
“Making liars’ loans”
Black, interview, September 26, 2010.
86
Find buyers who didn’t yet know the score
Drew DeSilver, “Reckless Strategies Doomed WaMu,”
Seattle Times
, December 23, 2009; string of Washington Mutual emails, February 14–20, 2007, Exhibit 40b, Levin subcommittee; Dave Beck, testimony given April 13, 2010, Levin subcommittee.
87
The bank swooned
“FDIC Crashes WaMu’s Birthday Bash,” Reuters, September 25, 2008,
http://blogs.reuters.com
.
88
Killinger walked off with more than $100 million
Washington Mutual Securities Litigation, amended class action complaint, U.S. Western District Court, Seattle, WA, June 15, 2009,
http://www.blbglaw.com
.
89
“Clearly criminal in certain cases”
Alan Greenspan, remarks, Federal Reserve Bank of Atlanta, November 6, 2010,
http://www.federalreserve.gov
;
http://dailybail.com/home/bombshell-video-greenspan-admits-to-rampant-fraud-illegal-ac.html
.
90
Did not trigger criminal action
Joe Nocera, “Biggest Fish Face Little Risk of Being Caught,”
The New York Times
, February 26, 2011.
91
Countrywide, an aggressive subprime lender
“Countrywide Will Settle a Bias Suit,”
The New York Times
, December 21, 2011.
92
Angelo Mozilo, agreed
“Lending Magnate Settles Fraud Case,”
The New York Times
, October 15, 2010. In an email in April 2006, Mozilo had told a business colleague that “in all my years in the business, I have never seen a more toxic product” than the subprime loans that Countrywide was then selling.
93
Mozilo’s personal fine
“Big Payday Awaits Chairman After Countrywide Sale,”
The Washington Post
, January 12, 2008.
94
Washington Mutual was targeted
“Feds Sue WaMu Ex-CEO Killinger and Two Others,”
Seattle Times
, March 17, 2011; “F.D.I.C. Sues Ex-Chief of Big Bank That Failed,”
The New York Times
, March 17, 2011.
95
The bank executives scoffed
“WaMu Ex-CEO: Lawsuit ‘Unworthy of the Government,’ ”
The Wall Street Journal
, March 17, 2011.
96
FDIC collected $190 million in damages
Gretchen Morgenson, “Slapped Wrists at WaMu,”
The New York Times
, Sunday financial section, December 18, 2011.
97
“Bank executives can beat the system”
Senator Carl Levin, office press release, “Statement on Settlement of Claims Against Washington Mutual Bank,” December 13, 2011,
http://levin.senate.gov
.
98
The pattern was familiar
Edward Wyatt, “Promises Made, and Remade, in S.E.C. Fraud Cases,”
The New York Times
, November 8, 2011.
99
Going back to multibillion-dollar profits
Zachary A. Goldfarb, “Wall Street’s Resurgent Prosperity Frustrates Its Claims and Obama’s,”
The Washington Post
, November 7, 2011.
100
A foreclosure assembly line
“Only 1 in 4 Got Mortgage Relief,”
The Wall Street Journal
, February 28, 2011.
101
Found themselves stuck
“Banks Amass Glut of Homes, Chilling Sales,”
The New York Times
, May 23, 2011.
102
Banks agreed in February 2012
Nelson D. Schwartz and Sheila Dewan, “States Negotiate $26 Billion Agreement for Homeowners,”
The New York Times
, February 9, 2012, and Nelson D. Schwartz and Julie Creswell, “Mortgage Plan Gives Billions to Homeowners, but with Exceptions,”
The New York Times
, February 10, 2012.
103
Only 894,000 were ultimately helped
Zachary A. Goldfarb, “Obama’s Efforts to Aid Homeowners, Boost Housing Market, Fall Far Short of Goal,”
The Washington Post
, October 23, 2011; “Home Lending Revamp Planned,”
The Wall Street Journal
, October 24, 2011.
104
Compounded the problem by moving slowly
Annie Lowrey, “Treasury Faulted in Effort to Relive Homeowners,”
The New York Times
, April 12, 2012.
105
The banking lobby succeeded
Stephen Labaton, “Ailing Banks Still Field Strong Lobby at Capitol,”
The New York Times
, June 5, 2009.
106
“Hard to believe”
Senator Richard Durbin, interview with Ray Hanania, WJJG, Chicago, April 27, 2009.
107
The experts have come up with ideas
Floyd Norris, “Time to Accelerate
the House Recovery,”
The New York Times
, December 2, 2011; Ezra Klein, “Mass Refinancing: The ‘Biggest Thing’ Obama Can Do Without Congress,”
The Washington Post
, January 10, 2012; “President to Offer Way for Easing Home Debt,”
The New York Times
, January 25, 2012.
108
Give a shot in the arm to the economy
Lawrence Summers, “Why the Housing Burden Stalls America’s Economic Recovery,”
Financial Times
, October 23, 2011,
http://www.ft.com
; Paul Krugman, “It’s Not a Banking Problem,”
The New York Times
blog, May 13, 2011,
http://krugman.blogs.nytimes.com
.
109
“We won’t come back big time until”
Warren Buffett, interview transcript, PBS,
Charlie Rose
, August 17, 2011,
http://www.cnbc.com
.
1
“Wal-Mart and China have”
Excerpt of interview of Gary Gereffi for the
Frontline
program “Is Wal-Mart Good for America?,” September 9, 2004,
http://www.pbs.org/frontline
.
2
“Over the past 8 years”
Dan Slane, “On the U.S.-China Relationship & Manufacturing,” presentation, Ohio State University, October 25, 2010,
http://www.omi.osu.edu
.
3
Rubbermaid made them
“America’s Most Admired Company—It’s Rubbermaid,”
Fortune
, February 7, 1994.
4
“A lot of this stuff”
Excerpt of interview of Larry Ptak for the
Frontline
program “Is Wal-Mart Good for America?,” June 16, 2004,
http://www.pbs.org/frontline
.
5
“ ‘We’re shutting it down’ ”
Excerpt of interview of Harry Frank for the
Frontline
program “Is Wal-Mart Good for America?,” June 16, 2004.
6
“They’re from all over”
Excerpt of interview of Scott Mihalic for the
Frontline
program “Is Wal-Mart Good for America?,” June 16, 2004,
http://www.pbs.org/frontline
.
7
“You could have bought a home for nothing”
Larry Ptak, interview, June 16, 2010.
8
Rubbermaid’s most important customer
Excerpt of interview of Stanley Gault for the
Frontline
program “Is Wal-Mart Good for America?,”
http://www.pbs.org/frontline
.
9
Can also cut a supplier to ribbons
“Rubbermaid Shares Plunge as Rising Raw Material Prices Cut Profits,” Bloomberg Business News-AP,
Milwaukee Journal Sentinel
, September 5, 1996.
10
Rubbermaid was intent
Excerpt of interview of Wolfgang Schmitt for the
Frontline
program “Is Wal-Mart Good for America?,” June 17, 2004,
http://www.pbs.org/frontline
.
11
“We’re just not gonna take it”
Excerpt of interview of Carol Troyer for the
Frontline
program “Is Wal-Mart Good for America?,” June 3, 2004,
http://www.pbs.org/frontline
.
12
“You don’t
understand
”
Excerpt of interview of John Mariotti for the
Frontline
program “Is Wal-Mart Good for America?,” March 25, 2004.
13
“Signs of the decline of Rubbermaid”
Ibid.
14
Pivotal shift of power in American business
In a series of studies on U.S. job losses to China, Robert E. Scott, senior economist at the Economic Policy Institute, calculated a loss of 2.4 million jobs from 2001 to 2008, another 500,000 jobs in 2010, and a cumulative job loss of 3.5 million to 3.6 million from the 1990s through 2010. Robert E. Scott, “Unfair China Trade Costs Local Jobs: 2.4 Million Jobs Lost, Thousands Displaced in Every U.S. Congressional District,” EPI Briefing Paper 260, March 23, 2010, Economic Policy Institute,
http://www.epi.org
; Scott, “Rising China Trade Deficit Will Cost One-Half Million U.S. Jobs in 2010,” EPI Briefing Paper 283, September 20, 2010, Economic Policy Institute,
http://www.epi.org
. Per Scott interview, January 21, 2011, cumulative job losses are 3.5 million to 3.6 million from 1990s to end of 2010.
15
Time for Wal-Mart to build muscle
“Walmart 2011 Annual Report,” April 18, 2011, 4,
http://www.walmartstores.com
.
16
Cut America’s overall inflation
Global Insight, “The Price Impact of Wal-Mart: An Update Through 2006,” February 4, 2007,
http://www.ihsglobalinsight.com
.
17
“In the nineteenth century”
Excerpt of interview of Nelson Lichtenstein for the
Frontline
program “Is Wal-Mart Good for America?,” June 9, 2004.
18
“It tells me the sales price”
Excerpt of interview of Linda Dillman for the
Frontline
program “Is Wal-Mart Good for America?,” September 17, 2004,
http://www.pbs.org/frontline
.
19
“A can of 9Lives cat food”
Jon Lehman, interview, October 7, 2004.
20
“Wal-Mart, as an efficiency machine”
Gary Gereffi, interview excerpt from
Frontline
, “Is Wal-Mart Good for America?”
21
“The push system involved manufacturers”
Excerpt of interview of Edna Bonacich for the
Frontline
program “Is Wal-Mart Good for America?,” June 9, 2004,
http://www.pbs.org/frontline
.
22
“Buyers who overdrive”
Wolfgang Schmitt, interview excerpt from
Frontline
, “Is Wal-Mart Good for America?”
23
“It’s very one-sided”
Excerpt of interview of Jon Lehman for the
Frontline
program “Is Wal-Mart Good for America?,” October 7, 2004,
http://www.pbs.org/frontline
.
24
Its “opening price point”
Bob Ortega,
In Sam We Trust: The Untold Story of Sam Walton and Wal-Mart, the World’s Most Powerful Retailer
(New York: Random House, 1998), 54–59.
25
“The heart of Wal-Mart’s pricing strategy”
Lehman, interview, “Is Wal-Mart Good for America?”
26
“China, practically speaking, is
it
”
Excerpt of interview of Bill Nichol for the
Frontline
program “Is Wal-Mart Good for America?,” September 16, 2004,
http://www.pbs.org/frontline
.
27
“We will open those facilities”
Ibid.
28
“They were selling at prices”
Excerpt of interview of Ray Strutz for the
Frontline
program “Is Wal-Mart Good for America?,” June 6, 2004,
http://www.pbs.org/frontline
.
29
That put a crunch on the
Thomson plant Excerpt of interview of Roy Wunsch for the
Frontline
program “Is Wal-Mart Good for America?,” June 14, 2004,
http://www.pbs.org/frontline
.
30
Shenzhen shot up
Orville Schell,
Mandate of Heaven: The Legacy of Tiananmen Square and the Next Generation of China’s Leaders
(New York: Simon & Schuster, 1994), 331–57.
31
“A joint venture”
Gary Gereffi, interview excerpt from
Frontline
, “Is Wal-Mart Good for America?”
32
“Wal-Mart … are very shrewd people”
Excerpt of interview of Kenneth Chan for the
Frontline
program “Is Wal-Mart Good for America?,” July 26, 2004,
http://www.pbs.org/frontline
.
33
“There’s always going to be”
Ibid.
34
“I saw this as a store manager”
Jon Lehman, interview excerpt from
Frontline
, “Is Wal-Mart Good for America?”
35
“Wal-Mart sources a huge”
Kenneth K. T. Tse, general manager, Yantian Port Terminal, Shenzhen, interview, May 14, 2004.
36
“Wal-Mart is providing a gateway”
Gary Gereffi, interview excerpt from
Frontline
, “Is Wal-Mart Good for America?”
37
More than $30 billion
Excerpt of interview of Ray Bracy for the
Frontline
program “Is Wal-Mart Good for America?,” November 16, 2004,
http://www.pbs.org/frontline
.
38
“They’re all carrying Chinese cargo”
Excerpt of interview of Yvonne Smith for the
Frontline
program “Is Wal-Mart Good for America?,” June 8, 2004,
http://www.pbs.org/frontline
.
39
Apple’s longtime CEO, Steve Jobs
Governor Mitch Daniels, “Republican Address to the Nation,” January 24, 2012; press release, Office of House Speaker John Boehner,
http://www.speaker.gov
.
40
Apple overlooked sweatshop conditions
Charles Duhigg and Keith Bradsher, “How the U.S. Lost Out on iPhone Work,”
The New York Times
, January 22, 2012; Charles Duhigg and David Barboza, “In China, Human Costs Are Built into an iPad,”
The New York Times
, January 26, 2012; Paul Krugman, “Jobs, Jobs and Cars,”
The New York Times
, January 25, 2012.
41
Illegal labor practices, confirmed
Jessica E. Vascellaro, “Audit Faults Apple Supplier,”
The Wall Street Journal
, March 30, 2012. Auditors from the Fair Labor Association found that Foxcomm, or Hon Hai Precision Industry Company, as it is formally known, has been working its employes
an average of more than sixty hours
a week, in violation not only of Apple’s stated standards, but of China’s legal limit of forty hours per week with a maximum of thirty-six hours. Apple pledged to shorten working hours and raise pay inside Chinese plants making its products, as reported by Charles Duhigg and Steven Greenhouse, “Electronic Giant Vowing Reforms in China Plants,”
The New York Times
, March 30, 2012.
42
“The speed and flexibility”
Charles Duhigg and Keith Bradsher, “How the U.S. Lost Out on iPhone Work,”
The New York Times
, January 22, 2012; Charles Duhigg and David Barboza, “In China, Human Costs Are Built into an iPad,”
The New York Times
, January 26, 2012; Paul Krugman, “Jobs, Jobs and Cars,”
The New York Times
, January 25, 2012.
43
America’s record $273 billion trade deficit
U.S. Census Bureau, “U.S. Trade in Goods with China,” June 6, 2011,
http://www.census.gov
.
44
Bought $1.928 trillion more
in goods
Scott, interview, January 21, 2011.
45
Topping $3.2 trillion
Trade imbalance: Prestowitz,
Betrayal of American Prosperity
, 142. Financial reserves: “China Says It’s Unable to Easily Aid Europe,”
The New York Times
, December 5, 2011.
46
“Open China’s markets”
President Clinton, remarks, “House Passage of Permanent Normal Trade Relations with China,” May 24, 2000,
http://Clinton6.nara.gov
.
47
“Help export American values”
Eric Schmitt, “Opening to China: Overview: Senate Votes to Lift Curbs on U.S. Trade with China; Strong Bipartisan Support,”
The New York Times
, September 20, 2000.
48
“The potential is explosive”
“Final Passage of Bill to Normalize U.S. Ties Is Approved, 83 to 15,”
The New York Times
, September 20, 2000; “Rallying Round the China Bill, Hungrily,”
The New York Times
, May 21, 2000.
49
“The most dynamic international market”
“Opening to China: Overview,”
The New York Times
, September 20, 2000.
50
Trade deficit with China was already $83 billion
U.S. Census Bureau, “Trade in Goods with China,” accessed April 11, 2012,
http://www.census.gov/foreign-trade/balance/c5700.html
.
51
“They looked at China like a super-Mexico”
Alan Tonelson, interview, January 12, 2011.
52
Adding to the U.S. trade deficits
Alan Tonelson, “Wake Up Call: What a Tangled Web,” U.S. Business and Industry Council Educational Foundation, December 3, 2009,
http://www.americaneconomicalert.org
.
53
$172 billion
Alan Tonelson, email, January 11, 2011. The data showed $596 billion in exports, $768 billion in imports.
54
“Argument is that trade deficits don’t matter”
Tonelson, interview, January 12, 2011.
55
In the last twenty years
Scott, interview, January 21, 2011.
56
Think Scott has understated
Mike Wessel, interview, January 19, 2011.
57
Dispute the notion
David Ricardo,
On the Principles of Political Economy and Taxation
(London: John Murray, 1817).
58
“Putting these jobs overseas is”
Jagdish Bhagwati, “Why Your Job Isn’t Moving to Bangalore,”
The New York Times
, February 15, 2004.
59
“Trade policy or trade flows”
Excerpt of interview of Brink Lindsey for the
Frontline
program “Is Wal-Mart Good for America?,” October 7, 2004,
http://www.pbs.org/frontline
.
60
Dispute the old orthodox argument
Prestowitz,
Betrayal of American Prosperity
, 2.
61
“A shift in productive capability”
Ralph Gomory, testimony, House Committee on Science and Technology, June 12, 2007,
http://science.house.gov
.
62
He challenged the contention
“An Elder Challenges Outsourcing’s Orthodoxy,”
The New York Times
, September 9, 2004.
63
“It is dead wrong”
Paul A. Samuelson, “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization,”
Journal of Economic Perspectives
18, no. 3 (Summer 2004); “An Elder Challenges Outsourcing’s Orthodoxy.”
64
Ignoring the “drastic change”
Samuelson, “Ricardo and Mill.”
65
“Most people have been losers from trade”
Excerpt of interview of Larry Mishel for the Frontline program “Is Wal-Mart Good for America?,” September 9, 2004,
http://www.pbs.org/frontline
.