If the Senate releases a 650-page report on the causes of the 2008 financial crisis and the media doesn’t talk about it, does it make a sound?
Last week the Senate Permanent Subcommittee on Investigations released the conclusion of its two-year investigation into the causes of the financial crisis that has decimated the U.S. economy. The report finds that “the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies and the market itself to rein in the excesses of Wall Street.”
The investigation, headed by Sen. Carl Levin (D-Mich.) and Sen. Tom Coburn (R-Okla.), focuses primarily on three areas: Washington Mutual and the Office of Thrift Supervision that failed to regulate it; Moody’s and Standard & Poor’s, the country’s two largest credit rating agencies; and Goldman Sachs and Deutsche Bank, two investment banks that worsened the crisis through the promotion of questionable financial products.
I’ll summarize each of these areas as concisely as I can, but feel free to skim or skip any of these conclusions if you are already familiar with them.
The investigation found that in 2004 the previously stable Washington Mutual Bank decided it wanted to make more money, so it started doling out high-risk loans hand over fist. Between 2003 and 2006 these high-risk loans — which (along with a few other shitty financial products) the report termed “the fuel that ignited the financial crisis” — grew from 19 percent of WaMu’s loan originations to 55 percent. The danger of this reckless new strategy was exacerbated by the Office of Thrift Supervision, the regulatory organization that identified over 500 deficiencies at WaMu from 2004 to 2008 but never took significant action to make the bank change its practices.
These high-risk home loans eventually found their way into complex financial securities that were somehow given AAA credit ratings by Moody’s and Standard & Poor’s — meaning that the investments had less than a one-percent probability of defaulting. Of course this was a lie, resulting in an enormous loss for everyone involved when the loan defaults started piling up and the two rating agencies began downgrading these high risk securities en masse in 2007 — which triggered the start of the financial crisis “perhaps more than any single event,” according to the report. The report also concluded that these inaccurate credit ratings were the result of “the inherent conflict of interest arising from the system used to pay for credit ratings.” Basically, Moody’s and S&P make their money off the Wall Street firms that rely on their ratings, which resulted in a system where “the rating agencies weakened their standards as each competed to provide the most favorable rating to win business and greater market share.”
Finally, the report reinforces what we already knew about Goldman — that it was running a fairly simple con where it pushed its clients toward buying inaccurately AAA-rated toxic assets, then turning around and betting that these loans would default. In addition, the report details how Deutsche Bank trader Greg Lippmann recognized his own bank’s marketing of toxic assets as a “ponzi scheme,” but was allowed to bet against these toxic assets, netting the bank $1.5 billion in profits.
These findings are striking, and depict a crisis that was both avoidable and a direct result of financial sector recklessness and regulatory inadequacy.
Yet in the week since the report was released, the media has responded with a baffling lack of coverage. I realize finance stories are absent of the sex and violence that constitute front-page news, but how is this not a bigger story?
The Senate released an in-depth study on exactly what factors contributed to the financial crisis that has affected every aspect of American life, and no one seems to want to talk about it. There is not one American outside the Privileged Two Percent who has not lost something since 2008 — whether it be their job, their house, their savings, their retirement, their health insurance, their ability to pay for college, their beloved Department of Theatre, Film and Dance. So how is there such little interest in the root causes of those losses? Why has this report been greeted with such an underwhelming shrug?
Take The New York Times — the self-professed beacon of meaningful journalism in the darkness of opinion-based media — which has written just one printed piece on the report, an April 14 news story that failed to make the front page. In lieu of discussing Senators Levin and Coburn’s report, The Times’ op-ed page has printed no less than four columns that focus on the oversimplified, easily digestible, narrative-satisfying Rand Paul v. Barack Obama “budget wars.” And even more indefensibly, David Brooks chose to fill his valuable column space Tuesday with a bunch of dumb, pointless, pseudo-psychological bullshit about how Donald Trump satisfies the public’s “hunger for the ultimate blowhard who can lead us through dark times.”
Like it or not, the mass media play a significant role in determining what is prominent in the public consciousness. The fact that our most cherished journalistic institution is more focused on declaring winners and losers of the “budget wars” than on assessing the impact of the Levin-Coburn report is detrimental to us all.
The report ends its introduction with a simple conclusion, “While this Report does not attempt to examine every key moment, or analyze every important cause of the crisis, it provides new, detailed and compelling evidence of what happened. In so doing, we hope the Report leads to solutions that prevent it from happening again.”
But so long as the American people are distracted from the causes of the financial crisis that has left many of us in such dire straits, the solutions and regulations designed to prevent another crisis will never be realized.
In addition to pinpointing culprits, this report is about the ways in which the financial crisis was avoidable, and how we can succeed in averting another such economic meltdown. Yet no one cares.
Tony Manfred is a senior in the College of Arts and Sciences. He may be contacted at firstname.lastname@example.org. The Absurdity Exhibition appears alternate Wednesdays this semester.