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People’s Poker

March 10, 2011

It’s time to reshuffle the deck and play a different hand.

Dealing From The Bottom of the Deck

“So first of all, let me assert my firm belief that the only thing we have to fear is fear itself.”

These words were spoken by Franklin Roosevelt, but not about war, as many think. They came during his inaugural address in 1933 and spoke to an economic situation not unlike the one America faces today. He saw a rigged game and called for a New Deal.

The Great Depression had wracked the country for three years. Unemployment soared and savings in the hands of the middle-class had vanished. In the streets, anger raged as homes were foreclosed and businesses closed their doors. Farmers organized protests and blocked roads. Serious questions were asked about calling in the military to restore order while the denizens of the financial industry tried to figure out how things that were going so great for them could have gone so wrong. The collapse of the stock market had triggered an apocalypse, a radical shift of wealth away from the middle class straight to the top.

Yes, fortunes were lost by the many, but that money hadn’t disappeared, it flowed smoothly into the hands of the very people who had manipulated the economy free from oversight or restraint. Their greed had been rewarded on the backs of working Americans.

You see, money never disappears. It’s like mercury, if you push it here, it pops out somewhere else. It changes forms freely from currency into buildings or precious metals or works of art or yachts. When the banks failed it was because the savings people had entrusted them with had been used by the bank owners and their preferred business customers to leverage their own positions and make fortunes for themselves. They succeeded.

It was a grand Ponzi scheme just like that played over the past 20 years by folks like Bernie Madoff, Wall Street investment banks and the largest insurance company in the world, AIG. Yes, I put AIG and major financial institutions right up there with Bernie Madoff because all of them knew what they were encouraging folks to buy was moose scat wrapped in pretty paper and sold with intentional deception.

I know this. I was there in the 80’s and 90’s in Manhattan offices around large teak and granite tables at catered luncheons where banking leaders discussed lobbying efforts to deregulate the financial industry. To allow them the flexibility to be really effective in their core business: making money. I heard the young men with brand new MBA’s explain tranches and credit default swaps. I sat at dinner in 1992 with Angelo Mozilo, the bright rising star of CountryWide Mortgage (later transmuted to IndyMac), as he explained how even the least credit worthy borrower could own a home, realize the American Dream and return huge profits to the company. His vision was simply to relax federal lending requirements and sell lots of questionable stuff that he would repackage into the portfolios of huge union pension funds. They wouldn’t care about risk as long as the investments were secured not just by the mortgages, but by an insurance policy as well. Brilliant!

More than anyone, Angelo, was the father of the sub-prime mortgage. At one point, CountryWide was responsible for 20% of all mortgages closed in the United States. The Wall Street Journal estimated that in the five years between 2001 and 2006 Angelo’s executive compensation totaled nearly $470 Million dollars.

“It’s called, ‘risk analysis,’ he finished smoothly as dinner ended. I was impressed. I had been fooled.

My traditional bank attorney head didn’t quite understand how the collateral (homes from all over the country) for portfolios containing 100,000 mortgages each could be valued accurately, but I bought into the pitch. After all, the largest insurance companies in the world would issue policies to cover that risk. They were the experts of risk analysis. They made fortunes doing it. There was no downside.

Angelo’s facing some serious charges now, but his fortune’s pretty much intact. That money he and CountryWide scammed wasn’t returned after their collapse to the folks who lost it. It vanished (or rather, flowed silently and smoothly) to other places … other pockets.

Today common folks are on the streets again. The free-market gurus have blundered again, but they’ve rewarded themselves generously for their errors. Angered and desperate to hold families together, many decent people have bought into the spin generated by these brokers of power: Americans were too greedy. Government failed us. The unions brought this on. Lazy freeloaders and entitlements caused this.

It’s called blaming the victim. It works for one reason only: fear. Fear that our neighbors are at fault. Fear that our suffering was caused by our government not in spite of it. And fear that if we don’t cut spending we can’t revive the economy. Illusion is the art of misdirection.

Roosevelt’s New Deal was universally hated by the architects of the Great Depression and loudly condemned by those who still supported Republican Calvin Coolidge’s mantra of smaller government and his belief that the “business of government is business.” Sound familiar? Coolidge was also the fellow who (as Governor of Massachusetts in 1919) had called in 5,000 State Guardsmen to put down the Boston Police Strike which led to the crippling of labor unions and generated the “Red Scare” of the 20’s. Ten years later, under his presidency, America discovered how sound that thinking was.

Watching the news last night, I felt like I was watching a remake of a bad movie my father and grandfather told me about.

I recalled my grandfather telling me that fear is the single most effective tool to control people. The recipe is simply to make the middle class distrust each other by setting up fall guys like unions, the poor and folks of different religions, nationalities and colors.

We see and hear these messages each day now. They are all artfully produced and paid for by dollars that came out of the savings accounts and pension trusts of the working class and small business owners of America. They are proclaimed by outfits with warm fuzzy names like Americas for Prosperity (the Koch Brothers) and Crossroads (Karl Rove). They deliver slogans and images of anger that evoke fear and give us a face to hate.

In 1933, primarily spurred by the vision and actions of F.D.R., this remarkable society turned around the horrors visited upon them by the same cadre of manipulators through a single insight: Government’s job is not to be business friendly, it’s to be people friendly. Big businesses take very good care of themselves. And, by the way, if you own a business that nets less than several million dollars each year, you’re not in the club. You’re just another hard-working sap being told who to fear. It’s precisely that fear that Roosevelt was talking about and his warning is being validated every day.

Isn’t it time to break out a new deck, shuffle the cards and re-deal?

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