September 6, 2007
by Carolyn Baker

INTRODUCTION TO TONY SOPRANO ECONOMICS 101

We have only begun to see the reverberations of the mortgage meltdown. They will be as sweeping and mindboggling as global warming or an earthquake measuring 10 on the Richter scale.

I'm an historian, not an economist, so anything about economics-macro, micro-whatever, has been as foreign to me for most of my adult life as soil samples from Mars. But several years ago I had an epiphany that shattered my then-left-liberal/progressive world. I awakened from decades of delusion that I could adequately grasp world and national events without understanding the essential nature of how money works in the capitalist economy in which I live. I realized that until I acquired that understanding, all of the other subjects I preferred to talk about-war, social justice, race, gender, environment, energy depletion, civil liberties, globalization, and many more were inextricably connected with the financial machinations of the imperial beast within whose belly I reside. Today, I do not claim for one moment to be an authority on economic issues, but I have studied the works of some folks who are, such as Catherine Austin Fitts, Michael Panzner, Michael Hudson, John Crudele, Paul Grignon, and Hazel Henderson. 

From them I have learned to more skillfully read the tea leaves of the current economic upheaval that is brewing within the United States and is now rippling into the global financial markets. Furthermore, I have realized that my government and the economy of the United States is being run as a criminal syndicate, and that the most useful way to understand the subprime mortgage meltdown and its implications was to familiarize myself with the economics of Tony Soprano, that infamous main character of the HBO TV series "The Sopranos", Mr. King of New Jersey "waste management" and proprietor of the Bada Bing. 

On Friday morning I opened an email from a friend who sent me an article by an old "leftie" I've admired since my college days, historian Gabriel Kolko, entitled "The Predicted Financial Storm Has Arrived." Writing about the subprime mortgage crisis, Kolko noted that, "What the subprime market did was unleash a far greater maelstrom involving banks in Germany, France, Asia, and throughout the world, calling into question much of the world financial system as it has developed over the past decade." After explaining the international ramifications of the crisis, Kolko concludes: 

We are at an end of an era, living through the worst financial panic in many decades. Now begins global financial instability. It is impossible to speculate how long today's turmoil will last-but there now exists an uncertainty and lack of confidence that has been unparalleled since the 1930s-and this ignorance and fear is itself a crucial factor. The moment of reckoning for bankers and bosses has arrived. What is very clear is that losses are massive and the entire developed world is now experiencing the worst economic crisis since 1945, one in which troubles in one nation compound those in others. 

But later that day, President Bush stepped up to the cameras and declared that the U.S. government would provide assistance to borrowers in the U.S. who had been hit by the subprime crisis. Knowing full well that anything this government promises in the way of "relief" or "assistance" is almost guaranteed to be as "helpful" and "assisting" as that which it provided New Orleans in the throes of Katrina, I wanted to put this so-called bail out under the microscope and comprehend its actual substance.

You Mean This Didn't "Just Happen?"

I started with Catherine Austin Fitts's statement on her Solari site that "As we work to mitigate investment losses in the mortgage market and the harm done to communities through the fraudulent inducement of debt, we are well served to understand what has happened, who is benefiting, and why." And what is fraudulent inducement? Nothing more or less than inducing people who cannot pay their debts to borrow huge sums of money. The subprime crisis has now revealed the myriad "creative" methods used by lenders to make this happen. Tony Soprano would not only be proud of them, but would promote them.

In a CNN Money article "Mortgage Meltdown: Here Come The Judgments" from August 21, a California real estate attorney speaking about the many lawsuits that are resulting from the mortgage meltdown, stated that "Most claims will be against mortgage brokers for putting them into loans where they shouldn't have been." A property law professor at the University of California added that "...overly exuberant brokers and loan officers told clients not to worry about concerns like their ARMs (adjustable rate mortgage) resetting; they could always refinance and, anyway, interest rates were bound to fall." The end result, of course, has been millions of people with houses, which as one Florida real estate law attorney stated, they can't refinance, they can't sell, and they can't afford. For many of those borrowers, class action suits are the only way they can find some sort of remedy for their nightmare. 

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I was now getting clearer on what fraudulent inducement really means and the tragic ramifications for borrowers victimized by it. None of this, obviously, "just happened." Or as Fitts asserts:

Recently, we have seen numerous press accounts of bank and hedge fund losses from sub-prime mortgages. Remarkably, these reports imply that the losses are the result of a market downturn or contracting credit cycle. But there has been no mention of the extraordinary profits that were generated or who reaped them. There is no mention of who is poised to make a fortune on the bubble collapse. Even the most sophisticated commentators of our day are describing this financial coup d'etat as the unintentional consequence of "market forces".

But how exactly did this work? And how exactly does the "bail out" serve the interests of lenders, not borrowers?

My research has led me to conclude that the bail out will unfold in the following manner:

The Federal Reserve is lending money-that is, digital entries into accounts payable to hedge funds based on worthless mortgages, meaning that the these funds can borrow money cheaply in ways that will enable them to make huge profits. This is essentially a back-door subsidy from the Fed. At the same time, the Fed is most likely pumping credit into the market to pull it up because while feigning calm and cool, the Fed is terrified about the markets tanking. As Steven Weisman wrote in the New York Times on August 31, "Despite the assertion that affecting the markets is not the goal, one administration official said concern about Wall Street's reaction did affect the timing of the briefing. He said there was a fear that if the White House announced in the morning that Mr. Bush would be making an announcement on housing, there could be confusion as buyers and sellers of mortgage securities guessed what the announcement would be." As a result of Bush's announcement, of course, the markets spiked.

Or perhaps it wasn't just as a result of the bogus "bail out." After all, John Crudele has been writing profusely about the Wall St. Plunge Protection team, euphemistically referred to as the President's Working Group On Financial Markets which was established on March 18, 1988 by Executive Order 12631. In a June 8, 2006 New York Post article, Crudele stated: 

Back during a stock market crisis in 1989, a guy named Robert Heller - who had just left the Federal Reserve Board - suggested that the government rig the stock market in times of dire emergency. ..... Proposed as an op-ed in the Wall Street Journal, it's a seminal argument that says when a crisis occurs on Wall Street "instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole." Had Heller been any other schmoe who writes op-ed pieces for The Journal this would have been long forgotten. But he had served for three years as a governor at the Fed and this proposal had the look of a trial balloon since stocks had just fallen sharply on Oct. 13, 1989, and memories of the 1987 crash were still fresh. Over the next few years people like me ... suspected that Heller's plan was indeed in effect. Whenever the stock market was in trouble someone seemed to ride to the rescue. Often it was a Wall Street firm that seemed more courageous than fiscally responsible. Often it appeared to be Goldman Sachs, which just happens to be where Paulson and former Clinton Treasury Secretary Robert Rubin worked. ...For a while I thought something called the Currency Stabilization Fund - which actually exists at the U.S. Treasury but is meant for currency stability - was the slush fund used for this venture. I was told by people who claimed to know that this part of the theory wasn't so. 

WWTSD? (What would Tony Soprano do?)

The Bush bail out means that the Federal Housing Administration (FHA) will refinance mortgages in trouble, but this put borrowers in debt-yet again. In addition, it's important to understand that the FHA has two funds: The General Fund and the Mutual Mortgage Insurance Fund which provides insurance for single family homes. Essentially, what the bail out will do is create a huge pool of mortgages guaranteed by the FHA which are eligible to be put into a Ginnie Mae pool which will end up bailing out, not borrowers, but mortgage investors! Investors from hedge and other funds, will buy these mortgages, guaranteed by FHA, resulting in both borrowers and investors being defrauded.

Basically, what we have is a scenario comprised of three players: the borrower, the middleman (mortgage lenders), and the investor. The middle man is fraudulently inducing borrowers to borrow, and investors to invest, but the bail out helps no one except the fraudsters.

Government guarantees have become virtually the only priority for the fraudsters. They care little about anything else. For example, some years ago, Dick Ravitch, Chairman, AFL-CIO Housing Trust, Developer of HUD & Mitchell Lama Housing in NYC, said, "As long as I get government subsidies, what do I care if people have education or jobs?" Is this not the crux of the matter--that fraudsters in government and corporate America care about nothing but profits and are willing to sell our souls and even their own for them?

Michael Panzner, author of Financial Armageddon writes:

Even assuming that some troubled borrowers manage to hang on, the truth is that enabling more of the same kind of bad behavior that got people in trouble in the first place will only make matters worse.

The hair of the dog that bit them isn't a cure. It merely delays the moment of reckoning.

In reality, guaranteeing loans for homeowners who can't afford the payments, encouraging mortgage-holders to hang on until they've been bled dry, and giving false hope to those who would be better off cutting their losses really only benefits one group: The lenders.

Commenting on "the greedy global financiers", The London Observer's Will Hutton states: "Little people's taxes are underwriting the mistakes of big people, who in the process have made riches beyond the dreams of avarice. Globalisation, it is now clear, is run in the interests of a global financial class which has Western governments in its thrall."

Calling the mortgage meltdown exactly what it is, theft, Hutton continues:

The last few days have seen some recovery in the financial markets and some hopes for a return to normality, but what does normal mean? The system that has delivered hundreds of billions of dollars of written-off loans with a global impact can hardly carry on as if nothing has happened. The banks at the epicentre of the crisis should go bust and heads should roll. The hedge funds which bought the debt, traded it and sold it on to banks globally should also be allowed to go bust and be subjected to much closer surveillance and regulation....

Instead, most central banks and governments across the West are straining every muscle to limit the fall-out, assure banks and hedge funds that there is limitless public money on tap and that governments' first aim is to get back to 'normal'. The explanation is obvious. The Western financial system is too important to be allowed to implode; credit is any economic system's life-blood and if the supply lines get gummed up because of a collapse of confidence and severely punctured balance sheets, everybody suffers. Quite right, but at least we can be careful in future about the terms on which supportive cash and potential bail-outs are made, as well as drawing larger conclusions about the nature of the implicit contract between finance and society.

The last thing borrowers need is more debt! Instead of a refinancing arrangement, the borrower needs a higher income and lower expenses which will allow him/her to pay down debt and improve his/her skills.

In the current George W. Bush-Tony Soprano scheme, every time a corporate player commits fraud, he gets to keep the profits, and borrowers have to pay an inflation tax as a result. Eventually, this results in the fraudsters owning more and more of the nation and world economy until they own it all. Money is simply printed out of thin air to bail out the fraudsters which causes all of our expenses to rise because we don't have the rigged income to hedge those costs as the fraudsters do.

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Carolyn Baker, Ph.D. [send her email] is an adjunct professor of history, an author, and former psychotherapist. Read her book, U.S. HISTORY UNCENSORED: What Your High School Textbook Didn't Tell You. See her website at http://www.carolynbaker.net/.