On the Third Anniversary of the Crash of the Economy: 'Those Were the Days, My Friend. I Thought They'd Never End.' They Haven't

We live in the United States
of Amnesia and selective memory. As we debate the breaking news, we
easily forget the sequence of events that broke the bank and left us

Three years ago, when the idea
of an Obama presidency was sill a fantasy in polite company, a non-seismic
financial earthquake began to rumble in ways we then could barely anticipate.
Buildings didn't fall as they did in Haiti's nightmare, only a financial
system. And, there are still piles of rubble everywhere here, too.

It was August 2007, and I was
blogging about the coming economic collapse even as it appeared that
our economy had nowhere to go but up.

What began
with a few "incidents" -- the collapse of New Century Financial, the
demise of Bear Stearns -- turned into a nonstop month-long drama of economic
convulsion as fear turned into panic with calls for intervention. Slowly,
like an apple being peeled, the truth got more apparent the closer you
got to the core. Suddenly, a crisis that many had warned about or feared
was beginning to erupt. In August, it exploded, ruining many a Hedge
Fund manager's vacation in the Hamptons.

Armies of too
clever by half money managers had been making a fortune feeding off
the housing bubble with practices that are now being characterized as
"outright fraud" by none other than President Bush's chairman
of the Federal Reserve. Most of their wheeling and dealing flew under
the radar of public scrutiny with the press bolstering the rise of the
stock market without examining the precarious "infrastructure" under


A week earlier,
Credit Suisse predicted a big stock market fall in 6 months because
securities were overvalued. The Fed warned of $100 billion in credit
losses. The Guardian reported, "Some analysts said they feared
a broader credit crunch if a collapse in confidence in the US mortgage
market rippled out to other parts of the debt markets." A New York
article suggested that over two TRILLION dollars was at risk.
Of course, all of this was offered as speculative.

Now we know,
all of these estimates understated the calamity, often by a factor of

I went to a
dinner party early in August and met a financial executive who worked
at one of Wall Street's top investment firms. He acknowledged to me
that the people shoveling out those sub prime loans KNEW many of the
borrowers couldn't afford to pay back. They knew what misery they'd
cause, but that didn't stop them.

I asked: "So,
what happened to due diligence?" one of the "market disciplines"
that these bankers are always preaching?

He shrugged,
indicating that there was so much to be made that normal safeguards
and standards were pushed to the side or forgotten. He says there were
many internal investigations underway then. I thought, how can we allow
them to investigate themselves?

And then it
happened, in August, the dog days of summer, when, as if in accord
with the law of gravity, what had gone up started coming down.

AP reported:

"NEW YORK -- Wall Street suffered one of its worst losses of
2007 Thursday, leading a global stock market plunge as investors succumbed
to months of worry about the mortgage and corporate lending markets."

On August 9th, President
Bush met the press to reassure us all was well on the Wall Street front.
He was asked about market "volatility" which is how the meltdown
was then described.

He prattled on, arguing, "the fundamentals of
our economy are strong. I mentioned some of them before. Job creation
is strong. Real after-tax wages are on the rise. Inflation is low. Interestingly
enough, the global economy is strong, which has enabled us to gain more
exports, which helped the second quarter growth numbers to be robust,
at 3.4 percent.

Another factor
one has got to look at is the amount of liquidity in the system. In
other words, is there enough liquidity to enable markets to be able
to correct? And I am told there is enough liquidity in the system
to enable markets to correct."

Note, he repeated
what he "was told." And then he told us.

Few believed

While these
message points rolled off the "decider's" teleprompter, a trader
was commenting on his meandering press conference on the financial website
Ml-Implode in real time:

"He's being
hit with a lot of questions on mortgages, credit crisis, and the economy
... and of course the economy is 'in for a soft landing', he's
been assured by the treasury that 'there is plenty of liquidity,'

"But he is
stumbling over his words more then usual, not making eye contact, not
finishing his sentences ... and when he wanders a bit, he quickly goes
back on script. It is very odd to watch, to say the least."

Historian Carolyn
Baker was one of the few bloggers I read arguing that such double talk
was all too common and that we all must become more engaged with these

She also noticed
that few in the left-liberal end of the political spectrum had a firm
grasp on economic issues "which I suspect comes from a fundamental
polarization between activism and financial intelligence." Baker began
stressing "the role of fraud, theft, and malicious intent in the American
and global financial train wreck which has been exacerbating."

We would see
that word "train wreck" more in the weeks to come.

This account
is from my book PLUNDER: Investigating Our Economic Catastrophe (Cosimo
Books). It couldn't have been more timely but it was largely ignored.
It came out a week before Lehman Brothers collapsed at a time when some
media outlets were forecasting an upswing.

I went on to
investigate the pervasive criminal activities that led to the collapse
for a new film and companion book.

Three years
later, while this issue has been touched on, it is still largely ignored
in most of our media with few bankers and financial manipulators being
prosecuted for the shady deals that sank the economy. The consensus
among those involved is the collapse was the result of a series of "mistakes."

And yet, the
Wall Street Journal just reported that "Gangsters,
drug dealers and money launderers appear to be playing their part in
helping shore up the financial stability of the euro zone." How? By
using high denominated notes. Admits the chief economist at Citigroup,
these high-value bills are "making the euro the currency of choice
for underground and black economies, and for all those who value anonymity
in their financial transactions and investments." How blatant is this?
How pervasive?

Few today want
to go back to that summer, just three years ago, when the financial
spill began with a gusher of anxiety that led to the bailouts that so
many hate now but supported then. Fortune Magazine wrote at the time,
"Wall Street loves to talk about letting financial markets weed out
the weak. But when the Street itself gets in trouble, it sticks out
its little tin cup, asking for help. And gets it."

At the time,
a reader wrote prophetically to the Wall Street Journal, criticizing
its tendency "to emphasize the positive," warning:

"Things will
get worse before they get better...This is a house of cards that our
leaders are trying to segment. It isn't a sub prime problem, it isn't
a foreclosure problem, it isn't a mortgage problem, a bond= market
problem, a hedge fund problem, or a bank problem...This is a= full systematic
collapse of our economy... The problems are masked and hidden throughout
every layer of our economy...being too slow to react will only compound
this problem as it builds momentum ...We have no idea how bad this is
really going to get."

Three years
later, we still don't. The recovery has not recovered. All is "stalled"
to use the phrase du jour. The growth curve is flat. Long-term joblessness
stalks the land and rising as are bankruptcies while foreclosures multiply.
College debt is off the charts. Consumer confidence is down while the
trade deficit is up. (President Obama is desperately boosting sales
of US weapons overseas.) The housing outlook is miserable. Fed-hed
Ben Bernanke is moving from rational explanations to talking about "economic
mysteries." Sounds mystical. The Financial Times says "drivel"
is spreading in the world of finance.

In some ways
the financial crisis is like the BP oil spill. Suddenly all the oil
has disappeared-thanks to the abuse of dispersants. Wrote a friend,
"Same goes for the financial
debacle. Now are being told "everything's fine", as the authorities
have thrown trillions at the problem to shore up our insolvent banking
system. But it's still all toxic below the surface, under a thin veneer
of normalcy."

There has still
not been a real hard-hitting public investigation of the forces behind
this meltdown like the one led by the Pecora Commission during the New
Deal. What we have had is more like an academic inquiry than a Watergate-style
set of hearings.

The media largely
narrows the issues and looks away distracting us with games of celebrity
sensation and partisan ping-pong. The public remains angry, but
in Paul Krugman's word, "unfocused."

Three years
later, in an August like that one, I feel like I am still raving and
ranting about the crimes of Wall Street in films, blogs, commentaries
and books with few paying attention and even fewer organizing to stop
it. Why is that? Perhaps, it's time to give up.

I guess many
still believe that if we close our eyes, it will all go away.

Dream on. I
wonder if that phrase "the silence of the lambs" was prophetic?

Our work is licensed under Creative Commons (CC BY-NC-ND 3.0). Feel free to republish and share widely.