January 2, 2011

The Triumph of Propaganda

By Nemo Almen

It is not difficult to deprive the vast majority of independent thought. [i]

Does anyone remember what happened on Christmas Eve last year? In one of the most expensive Christmas presents ever, the government removed the $400-billion limit on their Fannie and Freddie guaranty. This act increased taxpayer liabilities by six trillion dollars; however, the news was lost in the holiday cheer. This is one instance in a broader campaign to manipulate the public perception, gradually depriving us of independent thought.

Consider another example: what news story broke on April 16, 2010? Most of us would say the SEC's lawsuit against Goldman Sachs. Goldman is the market leader in "ripping the client's face off"[ii], in this instance creating a worst-of-the-worst pool of securities so Paulson & Co. could bet against it. Many applauded the SEC for this action. Never mind that singling out one vice president (the "Fabulous Fab") and one instance of fraud is like charging Al Capone with tax evasion. The dog was wagged.

Very few caught the real news that day, namely the damning complicity of the SEC in the Stanford Ponzi scheme. Clearly, Stanford was the bigger story, costing thousands of investors billions of dollars while Goldman later settled for half a billion. Worse, the SEC knew about Stanford since 1997, but instead of shutting it down, people left the SEC to work for Stanford. This story should have caused widespread outrage and reform of the SEC; instead, it was buried in the back pages and lost to the public eye.

Lest we think the timing of these was mere coincidence, the Goldman lawsuit was settled on July 15, 2010, the same day the financial reform package passed. The government threw Goldman to the wolves in order to hide its own shame. When the government had its desired financial reforms, it let Goldman settle. These examples demonstrate a clear pattern of manipulation. Unfortunately, our propaganda problem runs far deeper than lawsuits and Ponzi schemes.

Here is a more important question: which companies own half of all subprime and Alt-A (liar loan) bonds? Paul Krugman writes that these companies were "mainly out of the picture during the housing bubble's most feverish period, from 2004 to 2006. As a result, the agencies played only a minor role in the epidemic of bad lending" [iii]. This phrase is stupefying. How can a pair of companies constitute half of a market and yet have no major influence in it? Subprime formed the core of the financial crisis, and Fannie and Freddie (the "agencies") formed the core of the subprime market. They were not "out of the picture" during the subprime explosion; they were the picture. The fact that a respectable Nobel prize-winner flatly denies this is extremely disturbing.

Amazingly, any attempt to hold the government accountable for its role in the subprime meltdown is dismissed as right-wing propaganda. This dismissal is left-wing propaganda. It was the government that initiated securitization as a tool to dispose of RTC assets. Bill Clinton ducks all responsibility, ignoring how his administration imposed arbitrary quotas on any banks looking to merge as Attorney General Janet Reno "threatened legal action against lenders whose racial statistics raised her suspicions" [iv]. Greenspan fueled the rise of subprime derivatives by lowering rates [v], lowering reserves [vi], and beating down reasonable opposition. And at the center of it all were Fannie and Freddie bribing officials, committing fraud, dominating private-sector competition, and expanding to a six-trillion-dollar debacle. The fact that these facts are dismissed as propaganda shows just how divorced from reality our "news" has become. Yes, half of all economists are employed by the government, but this is no reason to flout one's professional responsibility. As a nation, we need to consider all the facts, not just those that are politically expedient.

Today, neither side tells the truth, and everybody suffers. The triumph of propaganda allows oil companies to dictate energy policy [vii], health insurance companies to hamstring much-needed health care reform, and the government to lead a witch hunt against banks while shirking responsibility for the largest financial crisis in our generation. The result is trillions in wasted monies, a nation divided and disillusioned, and worse and worse people coming to power on both sides [viii]. We should all know where this trajectory leads. It leads to one last question: what brand of totalitarianism do you want -- the imperialist megalomania of a Cheney or the impotent welfare state of Obama?

Nemo Almen is the author of The Last Dodo: The Great Recession and our Modern-Day Struggle for Survival.

[i] F. A. Hayek, The Road To Serfdom (London: University of Chicago Press, 2007) 175.

[ii] Frank Partnoy, Fiasco: The Inside Story of a Wall Street Trader (New York: Penguin, 1999).

[iii] Paul Krugman, The Return of Depression Economics (New York: W.W. Norton & Company, 2009) 163.

[iv] Thomas Sowell, The Housing Boom and Bust (New York: Basic Books, 2009) 37.

[v] Greenspan lowered rates to 1.75% to November 2002, 1.25% to August 2004, then 1% to June 2004.

[vi] Gillian Tett, Fool's Gold (New York: Simon & Schuster, 2009) 63.

[vii] Thomas Friedman, Hot, Flat, and Crowded (New York: Farrar, Straus and Giroux, 2008) 378: "In total, the oil companies and their allies reportedly spent close to $100 million on ads and lobbying to kill Proposition 87 (a California per-barrel tax whose revenue would be used for alternative energy). That is almost as much as Bill Clinton spent to become president in 1992."

[viii] See Robert G. Kaiser, So Damn Much Money (New York: Alfred A. Knopf, 2009).