Forum Post: Step 1: Educate the Confused Public That Wall Street Caused the Financial Crisis and Resulting Recession

The reason why many Americans are not holding Wall Street politically accountable for crashing our economy is because they are fairly confused about the causes of the financial crisis. The Right wing propaganda machine, through Fox News, AM talk radio, and their bogus think tanks have very effectively misled many in this country into thinking that Freddie and Fannie Mae, government regulations such as the Community Reinvestment Act caused the crisis. Many self-described independents/moderates who I know have subscribed to this thoroughly debunked view without admittedly knowing the facts. This disinformation campaign is huge political coup by the right as it has diffused the blame and allowed them to continue doing Wall Street’s bidding and opposing even mild regulatory reform. The situation reminds me of the second Iraq war where wasn’t until about 2006 when a clear majority of the public realized that Bush, Fox news, AM Talk radio, etc misled them into supporting the war. So once the clear majority realizes the truth about Wall Street’s clear primary role in the financial crisis that caused the Great Recession, the goals of OWS can be met much more easily. What is needed is very clear and concise education effort to get the truth out. In my opinion, this can be effectively done in two ways. 1) We simply need a clear understandable explanation to the real cause of the financial crisis. This can be a 1 paragraph description with a more detailed 3 or 4 paragraph explanation available as well. I have an attempt at this below. 2) The Right and their media allies need to be challenged at every step whenever the repeat this debunked. Challenge Republican Senators, Fox News Commentators, University of Chicago Professors who repeat these lies at every term. Designate a select panel of experts like Shiela Bair to challenge these liars to public debates. We can do this because the facts are on our side. Once we gain critical mass with the truth about the cause of the financial crisis, the OWS goals and objectives will become much easier to obtain. As I mentioned, one of the problems is that it is hard to find a clear, conscise, accurate but brief description of why Wall Street deserves 90 percent of the blame for this mess. Here is my effort to convey this: In about 2002 a group of prominent Wall Street firm realized that aggressively packaging up individual mortgages into Collateralized Debt Obligations (CDOs) and quickly reselling them to investors would generate tens of billions in revenues. This CDO ponzi scheme required two key players.

1) Independent Mortgage Companies: Wall Street partnered with and funded independent mortgage companies like New Century Mortgage and Option One (who were not FDIC member institutions and thus not subject to many of the federal regulations that prevent predatory and other risky loan practices), or segmented subprime divisions of Savings and Loans such as Countrywide and IndyMac Bank, to issue sub-prime mortgages in order to feed the CDO conveyor belt. These subprime mortgages required the borrower to pay higher interest payments over the long term, which was preferred by investors as they received a higher yield. To create the needed high volume for these CDOs, mortgage brokers were incented to issue subprime loans to basically anyone who walked in the door. Additionally, many borrowers with good credit who would have qualified for traditional prime loans with lower fixed rates were deceptively steered into subprime one as Wall Street paid much higher commissions to the mortgage brokers for subprime paper. As the mortgage brokers and Wall Street made their money on the front end of these transactions and had no intention of holding these loans for any extended period of time, they harbored no concern whether these folks could ultimately repay these loans. According to the FDIC From 2002-2007, the vast majority of problematic subprime loans issued by independent mortgage companies were bought up by Wall Street another investors, not the GSEs. 2) Credit Ratings Agencies. The only way for this Ponzi scheme to work was for Wall Street to essentially buy off the likes of Moodys and Standard and Poor. And that is what they did, resulting in bogus AAA ratings to this toxic soup of CDOs, thereby misleading scores of investors to the tune of trillions of dollars. The credit ratings enjoyed freedom and liberty from the evils of reasonable regulations which allowed for them to crash the global economy in exchange for some short term profits. Eventually of course, the housing market ran out of steam, causing the whole house of cards to come crashing down.