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A Free Market for Financial Criminals

Where’s the Outrage?

by ALAN FARAGO

On the Wall Street Journal OPED page, James Grant– of the outstanding Grant’s Interest Rate Observer– writes, "Through history, outrageous financial behavior has been met with outrage. But today Wall Street’s damaging recklessness has been met with near-silence, from a too-tolerant populace." ("Why No Outrage", WSJ, July 19, 2008)

Grant is right, notwithstanding the near constant drumbeat from Counterpunch. If you live in Florida and have a sentient molecule in your brain, outrage can’t be buried too deep. Few, for instance, could have been surprised by the devastating critique in the recent Time Magazine cover story, "Florida, The Sunset State?" (Time, July 10, 2008).

Why no outrage? I suppose the best answer is that Americans have become resigned to passivity, allowing themselves to be dominated by elites in ways both subtle and dramatic.

Consider for instance how the Miami-Dade County Commission– the base layer of government in Florida’s most populous county– last week rejected out of hand, a year’s worth of effort by dedicated citizens appointed to review the Charter that guides the operations of the county. The more important recommendations had to do with tempering the extent to which local government has deformed its purpose; from protecting the health, welfare and safety of citizens and taxpayers into a permitting mill for real estate speculators. (To watch the performance of the county commission on webcast is shocking.)

There has been no shortage of outrage about the conduct of local county commissioners and a status quo as fortified as a ten foot concrete bunker in North Korea. The permanent incumbency is buttressed by a campaign finance system dominated by real estate interests– the same interests who prodded government collusion with Wall Street—whose principal accomplishment, beyond wrecking the US economy, is turning representative democracy into a charade.

On the local Miami Dade county commission, career politicians like Javier Souto regularly rant about Cuban spies and dark conspiracies but participate in an unreformable majority that is dictatorial in key respects, immune and insulated from change.

Within Miami-Dade County, there is a further example of the nested mess: the City of Homestead.

For decades, Homestead and its adjacent municipality, Florida City, represented the last outlying rural area in Southeastern Florida. Its location, adjacent to two national parks and within striking distance of Florida Bay, the coral reef, and a national marine sanctuary, made the area a principal battle ground in Florida between real estate speculators and a host of civic activists; from neighborhood groups trying to preserve their quality of life to conservationists.

A major battle in Homestead– for the future of the Homestead Air Force Base– engaged along these lines over a period of time in which the housing boom mobilized, wrapping up politics– from local yokels now moved on to run amusement parks to the 2000 candidates for the presidency of the United States. Civic activists won the Air Force base battle, highly publicized as it was, and lost the war: the area was swamped by low cost housing, ratty subdivisions.

Homestead was the pride of lobbyists, political insiders like Miami-Dade mayor Alex Penelas– the one Democrat who could have kept the 2000 presidential recount alive–and local bankers and developers from the Latin Builders Association. They shoved the subdivisions in the face of environmentalists and other "do-good’ers" and even in the midst of the housing bust, there is no sign of them stopping.

The Miami Daily Business Review reported on the carnage:</a> "One Homestead ZIP code — 33033 — leads Miami-Dade County with 263 homes in different stages of foreclosure. And 109 homes in that ZIP code have already been taken back by lenders, according to foreclosure.com. “In Homestead, 30 to 40 percent of the sales are distressed,” said David Dabby, president of the Dabby Group, a real estate advisory and valuation company in Coral Gables. “Homestead cannot recover until most of the foreclosure activity works its way through the system. At this point, we are in the middle of it.” Since 2002, almost 10,000 single-family homes, townhouses and condo units have been built, and 3,500 more are in the pipeline, including hundreds already under construction. Many are in cookie-cutter subdivisions that grew from agricultural fields east of Florida’s Turnpike near Campbell Drive.

So, where is the outrage?

Actually, there is an outstanding example of the outrage: it is a citizen’s movement to change the Florida Constitution called Florida Hometown Democracy that seeks to allow voters the choice about changes to local "growth management plans" instead of allowing real estate dominated legislatures to rubber stamp them.

The initiative is inching forward on the backs of a few highly motivated individuals who have managed to collect all but a few thousand of the 611,000 signatures necessary to qualify for a state-wide ballot. It has engendered the wrath and anger of Florida’s entire chain of interests related to real estate development, from the Chamber of Commerce to Associated Industries, from Farm Bureaus to builders throughout the state. These elites have pledged to spend “whatever it takes” to defeat the ballot initiative and made a shambles of the lawful right of citizens to petition their own government.

But aside from Sierra Club, for the most part state-wide conservation groups have shied away from joining the outrage; reading from the same laundry list of objections as the developers. That, for instance, the measure would not solve Florida’s development ‘problems’, that it wouldn’t level the playing field so much as create further opportunities for well financed insiders to bend the public interest to their will.

These examples lead to a certain refinement of James Grant’s question: there is plenty of outrage, but why so much defeatism?

Why are conservation groups so beaten down, for instance, that they cannot understand or seize the opportunity to bring these issues to a head? Why, the timidity?

The usual response: political pragmatism. Under this rubric, conservationists acquiesce to insiders deemed to be savvy enough to play the game: if there is only one seat at the table, you better grab it and you better not bite the hand that feeds you. To get along, you have to go along.

Under such rationalizations, Florida Bay—one of the most unique shallow water wilderness areas in the world—has been turned into a floating cesspool for nutrient runoff from Big Sugar, other agriculture, and cities fringing the Everglades. Macroalgae chokes the coral reef. Those are just two examples.

Under the wisdom of the prevailing elite—crystallized by former two-term Governor Jeb Bush—only a strong economy can protect the environment. But look what happened under the claims of a strong and vibrant Florida economy: thievery pure and simple.

The Daily Business Review: "Homestead homeowners — many facing foreclosure or watching the value of their houses crater— are well aware of the crisis. Ten repossessed houses sit vacant on Alex Hernandez’s tree-lined street in a new gated subdivision 31 miles south of downtown Miami. “When those houses sell, the value of my house will drop, no doubt about it,” said Hernandez, standing in the driveway of his home looking out on the for-sale signs dotting his block in Pebblebrook II.

Three months ago, an independent real estate appraiser valued his five-bedroom home at $390,000, up from the $327,000 it cost him in December 2005, he said. But he fears the foreclosed properties will wipe out the equity he had in his home, Hernandez said. Foreclosures are pushing prices down more than 50 percent of what they sold at during the height of the housing boom, said real estate broker Hagen Hendrix. He markets repossessed homes in Homestead for lenders. One of his lender clients dropped the price of a two-bedroom town house from $189,000 to $60,000, he said."

An outstanding investigation by The Miami Herald on mortgage fraud reports, "… more than 10,000 criminals have been allowed to peddle home loans in Florida since 2000. Among them are bank burglars, cocaine traffickers and identity thieves who have gone on to commit at least $85 million in mortgage fraud."

10,000 criminals participating in the “free market”.

So, why are Americans defeatist in the face of the quick buck mentality that has shifted billions in wealth from the middle class to the Wall Street elite, buttressed by real estate-dominated legislatures and backed by criminals?

In large part, the corporatization of the mainstream media has deprived Americans of the dialogue and debate about the integrity of our democracy, subverted by powerful elites who co-opted executive suites of newspapers. In part, newspapers themselves have been hapless victims of a corporate conspiracy to wield advertising revenues as a way to suppress dissent.

For example, in The Miami Herald there is only one place to go for an honest reckoning of the damage done to the public interest by real estate speculators and developers: Jim Morin’s cartoons on the editorial page. What does this say?

For one, that a picture is worth a thousand words especially when you lack the courage to print the 1000 words.

Or, that outrage is funny and belongs in graphic representations, not tough reporting in a daily battle with the assorted bums, crooks and lobbyists, some of whom dress as highly paid lawyers and cloak themselves in good civic works for local hospitals, charities, and the United Way.

But the "TV made me do it" excuse, only goes so far. Our pretense of progress is sustained by a mountain of debt.

As a culture, we are immune to insanity of leverage because everyone– well, almost everyone– has been doing it. Avoiding the meaning of fiscal and economic co-dependency is perhaps the signature feature of the past decade.

Consider, for instance, it took eight years for George W. Bush to say that "our nation is addicted to oil" and to admit to the man-made costs of global warming. Yet, in both cases White House policies are marked by fierce denial, redactions, and blood in the Mideast.

Certainly, the mainstream media must play a role in reversal, or, should. But how to extract or extrapolate, when so much of society is mired in the illusion of moving forward by driving backward and looking in the rear view mirror?

The American Way, built on assets and wealth created from manufacturing, dissolved in the past thirty years to an economy feeding its own services and housing stock, based on incredible flights of debt.

From Wall Street to Main Street, our defeatism is based on the fact it has been very profitable to be passive. Since outrage is the contra-indicator of passivity, it is in very short supply.

This is the phenomenon James Grant observes: "For every dollar of equity capital, a well-financed regional bank holds perhaps $10 in loans or securities. Wall Street’s biggest broker-dealers could hardly bear to look themselves in the mirror if they didn’t extend themselves three times further. At the end of 2007, Goldman Sachs had $26 of assets for every dollar of equity. Merrill Lynch had $32, Bear Stearns $34, Morgan Stanley $33 and Lehman Brothers $31. On average, then, about $3 in equity capital per $100 of assets. "Leverage," as the laying-on of debt is known in the trade, is the Hamburger Helper of finance. It makes a little capital go a long way, often much farther than it safely should. Managing balance sheets as highly leveraged as Wall Street’s requires a keen eye and superb judgment. The rub is that human beings err."

And err, we have, measured by a debased currency valued in the trillions. The only ones who have gotten off scott-free are the smallest fraction of wage earners, paid in vast quantities of debased dollars.

ALAN FARAGO writes on the environment, the economy and politics from Coral Gables, FL. He can be reached at:  alanfarago@yahoo.com