Crashing the Corporate Christmas Party

While Wall Street will ring in the new year with huge bonuses and taxpayer-fueled profits, there is little holiday cheer for the workers whose tax dollars funded the bank bailouts. Although bank stock prices have soared for most of the year, the unemployment rate has steadily climbed and the foreclosure crisis has swelled to epic proportions.

Nomi Prins details the disconnect between Wall Street and the rest of us for AlterNet. The government’s massive giveaways to big banks did not stop with the $700 billion Troubled Asset Relief Program. In fact, earlier this month, the Internal Revenue Service granted Citigroup a $38 billion tax break for, well, nothing. Like every other financial boon the Treasury and the Federal Reserve have granted banks since 2008, this special holiday gift will help boost Citigroup’s profits, but does little to boost lending to small businesses, lower credit card interest rates or help struggling borrowers stay in their homes.

And while many of us have stopped being shocked by stories of subprime mortgage malfeasance by big banks, the economic landscape for homeowners is just as bad as it was when Lehman Brothers collapsed last fall. In a video spot for the Huffington Post Investigative Fund, Amanda Zamora and Lagan Sebert profile Eliseo Guadardo, who is struggling to pay off a subprime mortgage he was given by a subsidiary of Washington Mutual (WaMu).

Like dozens of other lenders, WaMu employed extremely lax lending requirements that encouraged outright fraud by loan officers and mortgage brokers. In Guadardo’s case, his broker falsified his income statement to indicate that he made over $8,700 a month, when in fact, he made less than $2,000. WaMu never checked the broker’s records and Guadardo couldn’t decipher the mortgage paperwork until it was too late. Now he can’t pay his mortgage and his bank has not offered him a permanent mortgage work-out that will allow him to stay in his home.

WaMu’s corporate practices are no accident, as former bank regulator William Black explains in a separate video for the Investigative Fund by Sebert and “>David Heath. Bank executives routinely devise pay practices that reward both executives and employees for fraudulent behavior. The strategy results in massive profits in the short-term, and when the bank eventually goes bust from reckless lending, no one has to give back their bonuses, from the mortgage brokers to the executives themselves.

“The wonderful thing about fraud is that it produces guaranteed record profits,” Black says.

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President Barack Obama doesn’t have to handle the banks with kid gloves, as Greg Kaufmann and Ryan Carpenter explain in a video for The Nation. The Obama administration has significant legal authority and massive public support to make banks answer to the public. It could require banks to rewrite predatory mortgages into loans that borrowers can afford to repay, something community activist groups like the Neighborhood Assistance Corporation of America have been urging Obama to do all year.

Banks weren’t the only companies that scored bogus profits from the housing bubble. Several corporate homebuilders made billions during the boom, often by creating shady arrangements with lenders to sell more houses or even getting into the mortgage business themselves. As Lindsay Beyerstein emphasizes at Working In These Times, the nation’s largest homebuilder, Pulte Homes, profited not only from constructing houses, but from issuing mortgages to the people who would live in them. This created a massive conflict of interest that encouraged Pulte to issue predatory mortgages to sell more homes. The problem became even more severe when Pulte decided to sell its mortgages off to investors, sticking the investor with any losses if the borrower can’t pay back the loan.

As Beyerstein explains, “Pulte has an incentive to build as many houses as possible and lend money to people who might not pay it back—after all, the company gets paid twice over, whether the borrowers default or not.”

During the Great Depression, Congress passed strict laws to prevent exactly this kind of activity. If you built homes, made cars, or sold clothes, you couldn’t be a bank or own a company that engaged in banking. Several loopholes have been punched in the law since the 1980s, however, and the results have been terrible: The banking divisions of both General Motors and General Electric went to the government for massive bailouts over the past year-and-a-half. Beyerstein notes that the Laborers’ International Union of North America is attempting to raise awareness and push for better regulations, recently leading a protest at Pulte’s headquarters.

But Pulte spent a lot of money on Congressional lobbying efforts to maintain its profitable-yet-destructive business model. So far it’s worked. Congress repeatedly approved massive tax breaks to homebuilders as an element of different economic stimulus bills over the past two years. Like the bank bailouts, those tax cuts helped add billions to the price tag for the stimulus legislation, but did nothing to spur productive economic activity or create jobs.

Massive bailouts for Wall Street have helped save the nation’s largest banks from economic catastrophe. But high stock prices for banks will not benefit the rest of the economy unless the government puts the same effort into saving our communities that it put into saving our financiers.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint.   This is a project of The Media Consortium, a network of leading independent media outlets.

by epicharmus via flickr/creative commons

by Zach Carter, The Media Consortium 


Paul Puckett
Paul P8 years ago

Steve Gomer,

Just a tip if you want to make sure you don't own any of these bail-out companies, although as you might guess I am not in the same camp philosophically when it comes to the bail-out firms. I opposed the bail-out, not the firms, but that's just my opinion.

For those that do not want to bank with, or own, these companies, it is important to check your mutual funds, exchange traded funds, and your 401k funds to see what they hold. Bank of America, Citigroup, Wells Fargo, etc., are in most large cap value funds. To avoid them, you will have to do some homework.

Morningstar is one of the best sources for a look at internal holdings, as well as the fund websites, but holdings list are always at least 60-90 days old.

The best way to avoid owning companies that you do not wish to own is to find socially responsible investment funds that match your personal philosophy. There has been an explosion in availability of funds in this category. Check Pax World, Parnassus, Domini, Calvert, etc., or just google socially responsible investing.

I do not believe people should own and invest in companies with which they would never choose to do business.

Steve Gomer
Steve Gomer8 years ago

Actually, the only way to avoid this sort of thing from happening in the future is to (boycot) every bank and insurance firm that received any bailout funds at all. This means don't put your money iin their banks, and never,ever buy their stock. No Money coming in means sooner or later, they go belly up,and the problem is solved. They won't have th emoney to lobby their friends in Congress let alone keep their doors open. The problem with this idea is, many financial firms will keep buying the stocks on hopes of making money in the near future. Your only plan should be to see is your stock broker has your money invested in any of these bailed out companies. If so, you tell them you wish to sell immediately.

No Money coming in? no more crooked banks to worry about.

Paul Puckett
Paul P8 years ago

Speaking of bailout gifts, a little history on CEO pay, Bush, and Obama.

Under Bush, $100 Billion in guarantees for the loans of Freddie and Fannie. Obama doubled that early in 2009 to $200Billion each. Just before year-end, the Obama administration has now given Fannie and Freddie an unlimited government guarantee on all their mortgages. How much is unlimited?

And to CEO pay, which the current administration loves to say they plan to address, see today's Wall Street Journal, story on Care2, here'e the link:

gerlinde p.
gerlinde p8 years ago

all ceo s of banks receiving bailouts,should be forced to return any boni they received.

Rajshree B.
Rajshree B8 years ago

Thanks for the article!

Jim Steve
Jim Steve8 years ago

Here's a good example of "our" Government at work: Someone (David Reilly of Bloomberg) who actually read the Financial Reform Bill just passed by "our" House of Representatives Article is Titled; "Bankers Get $4 Trillion Gift From Barney Frank" full article :

Key quote: "For all its heft, the bill doesn’t once mention the words “too-big-to-fail,” the main issue confronting the financial system.'

'Instead, it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule."

Any question on who runs "our" Government?

Jeff B.
Jeff B8 years ago

Corporate Amerika has boned us. They own the politicians in charge and have stocked the gov't with their former employees.
How much money is enuf, a billion $$? 2 billion? Boycott every corporation you can, avoid the banks and vote 3rd party.

Dhaval M.
Dhaval M8 years ago

the worst part is that the corporations have Congress eating out of the palms of their about representing your own states instead of some street in NYC?

Lynn Miller
Lynn M8 years ago

Corporate America sucks!

Charlene R.
Charlene Rush8 years ago

It gives me no pleasure to say, that Wall Street runs our country. This benefits those, who are wealthy enough to invest. TO HELL WITH THOSE WHO CAN'T.

No position in politics, should be seen as a career. If we do not vote these long-standing politicians out of office, we can only expect, more of the same on Wall Street.