You Can Bank on It

In John Ford's classic western, Stagecoach, a self-righteous bank president browbeats and berates his fellow travelers while he's in the process of absconding his firm's funds. Ford was a filmmaker with a social conscience and the themes explored in his movies seem more timeless than ever.

Once again, life has been caught imitating art. Bank robbers like Jesse James, Willie Sutton, and Bonnie & Clyde, have long been part of American folklore, but the reality is that the biggest and most audacious bank robberies have invariably been inside jobs. The Savings and Loan crisis of the 1980s proved one observer right; the best way to rob a bank is to own one.

The current crisis in the financial system dwarfs the S&L debacle. Americans have recently woken up to the fact that the country's most hallowed banks and financial institutions are basically insolvent. Many observers single out subprime mortgage defaulters as the main culprits in the current calamity. However, the true causes of the present economic meltdown are far deeper and more insidious than most Americans realize.

There are vested interests, of course, intent on diverting attention away from the real reasons so much hard-earned savings poured into the financial sector, but vanished down the proverbial drain. Here, Rick Santelli's much-publicized faux-populist rant serves his masters in the predatory class well. Santelli, like many of his fellow carnival barkers at CNBC, have served as avid cheerleaders during the inflation of one of the greatest financial bubbles of all-time. Their shtick, which masquerades as objective analysis, has undoubtedly led innumerable credulous investors astray.

Santelli, of course, would have his audience, many of whom have been burned by bad advice they gleaned from CNBC, direct their fury towards the "losers" that bought subprime mortgages they can no longer afford, a group allegedly at the epicenter of the current crisis.

To be sure, the so-called NINJA loans (loans made to borrowers with no income, no credit, and no job) were a recipe for disaster, but the focus on defaulters ignores the other side of a faulty equation. Thanks to Reagan era deregulation, and Bush administration policies aimed at promoting an "ownership society," irresponsible lenders collected lucrative fees but failed to screen the creditworthiness of their clients. As a result of the way they sliced and diced mortgages, these lenders effectively privatized profits but socialized risk.

Santelli and his ilk have an inherent tendency to attack the economically powerless but fawn over the financially powerful. Thus, taxpayer bailouts for financial titans are pardoned as necessarily evils aimed at saving our financial system, but mortgage restructuring and refinancing that would keep subprime borrowers in their homes is condemned as a socialist blasphemy.

Ironically, America's capitalistic financial bubble was underwritten by the People's Republic of China. In effect, a country where the average worker makes $2,000 a years has used its savings rate to subsidize the consumption rate of the most spendthrift nation in the world. Put simply, Easy credit from lenders like China made it possible for Americans to borrow against their homes -- and against the future -- to pay for tax cuts and consumer goodies.

Those days are over. The easy credit binge fueled the housing bubble, propped up the stock market, kept the good times rolling, and made people feel wealthier than they really were. At the same time, the Bush administration and the Republican Congress spent money like drunken sailors, but "investments" like the Iraq War have proven to be money pits with no return. The IOUs have been piling up, and taxpayers are waking up to the fact that they're on the hook for Bush's imprudent fiscal and foreign policies, a myriad of corporate excesses, and the irresponsibility of greedy lenders and borrowers in the subprime sector.

Santelli's rant is typical of the drivel one finds on cable news, a medium that generates much heat but little light. In truth, America's market system, which is supposed to allocate resources rationally and efficiently, was exploited by a predatory class that rigged the system in its favor. Insiders, paying themselves humongous bonuses, while driving their businesses into the ground, are perfect example of what sociologist Thorstein Veblen termed the "predatory class," a ruling elite that feeds at the public trough while contributing nothing to the social welfare. Don't expect Santelli and his ilk to point fingers in that direction; to do so would be to bite the hand that feeds them.

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