Elite Deviance

David Simon

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351668644
• Edition: 11
• Topic: Scienze sociali
• Subtopic: Criminologia

Tracing the causes of elite deviance to the structure of U.S. power and wealth, this book introduces students to theories of elite deviance and covers both criminal and non-criminal elite acts that cause significant harm. This considerably updated, 11th edition enriches its coverage of both historical and contemporary elite deviance. Updates include:

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• New and expanded discussions on history, property, and historical critique from Revolutionary America onward.

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• New analysis on Donald Trump: his cabinet members of the political elite, his relationship with the EPA, and his business connections.

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• Investigation into Caribbean and European tax havens.

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• An extended review on elite deviance and increasing inequalities.

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• Very current information and examples of scandals in international conflicts.

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• The section on changing media patterns.

Chapter 1

The Nature of Elite Deviance

Scandal-Plagued America

In 2007 and 2008 the nation experienced the most devastating economic crisis since the Great Depression of the 1930s, as well as some of the lowest levels of public confidence in government and corporations that have ever been witnessed by pollsters. This confluence is a product of the corrupt influence of corporate lobbying on government, corporate fraud, and the emergence of a political economy wherein those running for office are completely dependent on corporate money for election financing.

The seeds of this crisis were planted during the Reagan era’s ideology of deregulation of business. In 1999, the financial services industry spent a record $417 million to have the Glass–Steagall Act of 1933 overturned. The act prohibited bank-holding companies from owning other financial companies, such as investment banks.

The result was a significant deregulation of the entire financial services industry, including the ability of banks and insurance firms to engage in risky ventures, and a virtual deregulation of the real-estate mortgage industry. This deregulation, along with the easing of credit rules resulted in a whole new series of financial service industry rackets. Stated another way, the financial industry was given a license to steal, and the regulatory agencies were told to look the other way if any irregularities surfaced. The result was an obsession with greed not seen since the 1980s.

Following the September 11, 2001, terrorist attack on the United States, the Bush administration decided that America should become “the ownership society,” and that the American dream of home ownership should become a reality for as many people as possible. The result was a significant lowering of credit rates by Alan Greenspan’s Federal Reserve and a massive $1.3 trillion subprime (not well qualified) mortgage market in which “predatory lending practices” resulted in mortgage loans to consumers who were unable to repay them.

It was not unusual for people making $20,000 a year to be lent $500,000 with no down payment required on their homes. Home buyers of modest means were talked into signing mortgage applications by a group of greedy real-estate brokers and lenders. In some cases, lending practices were so fraudulent that even dead people were given loans. In 500,000 subprime loan cases, credit scores, employment, and income information were fraudulently altered by real-estate brokers in order to gain bank approval, so-called NINJA—No Income, No Job, No Application—loans. Mid-level real-estate brokers, agents, appraisers, and fraudulent lenders were indifferent to inflated housing prices, or the perils of talking consumers into borrowing beyond their means because mortgages were quickly packaged into new security products and sold to various new investors. Homeowners were quickly overwhelmed by unmanageable debt and had their houses taken from them during the foreclosure crisis that now encompasses one in every ten U.S. homes.

These mid-level nonelite deviants also hid high fees and interest rates in mortgage contract details without explaining them to homeowners. Often, lenders were indifferent as to whether a home went into foreclosure or not. The loans had already been purchased as CDOs (see below), and fees pocketed, or phony default provisions were used to foreclose on homes that were worth far more than their owners’ loan balances.

Next, the deregulating of financial services made possible the invention of new investment securities, including $4 trillion in “collateralized debt obligations” (CDOs). CDOs were pooled groups of individual subprime loans, originally rated AAA, and then found to be in serious risk of default. These instruments were sold to cities, school districts, foreign governments and banks, and pension funds.

There was also an additional $1.5 trillion in “liars’ loans” (called ALTE and Option Arm Mortgages) that were made at variable rates and were due to reset at much higher payments in 2009–2010 that caused a second mortgage crisis.¹ These loans were guaranteed by monoline insurance firms, but the insurance on them was worth about as much as the paper their policies were printed on. The small insurance companies that wrote the policies on these loans were highly leveraged (lacked the assets to guarantee the worth of the loans they insured).

An additional Wall Street racket was added with the invention of the credit default swap (CDS).

Credit default swaps are insurance-like contracts that promise to cover losses on certain securities in the event of a default. They typically apply to municipal bonds, corporate debt and mortgage securities and are sold by banks, hedge funds and others. The buyer of the credit default insurance pays premiums over a period of time in return for peace of mind, knowing that losses will be covered if a default happens. It’s supposed to work similarly to someone taking out home insurance to protect against losses from fire and theft. Except that it doesn’t. Banks and insurance companies are regulated; the credit swaps’ market is not. As a result, contracts can be traded—or swapped—from investor to investor without anyone overseeing the trades to ensure the buyer has the resources to cover the losses if the security defaults. The instruments can be bought and sold from both ends—the insured and the insurer.²

The Bailout Rackets

The U.S. economy faced a crisis of unknown proportions. (1) The amount of leveraging to back CDSs is unknown. What is known is that the amount of American CDSs was well over $45 trillion, and could have easily produced an even more serious financial meltdown. The Treasury Department never asked the banks how the money would be spent. The head of the congressionally appointed oversight relief panel, Elizabeth Warren, said her new office didn’t even contain a phone with which to call recipients of TARP funds and ask the most basic questions.

(2) The FBI struggled to find enough agents and resources to investigate all of the financial fraud cases stemming from the failures of the subprime mortgage market, American International Group insurance, Washington Mutual, Countrywide Mortgage, Bear Sterns, Lehman Brothers, Fannie Mae, and Freddie Mac.

In the current economic insanity bank costs are kept secret by their allies at the Federal Reserve. The Fed has never been audited and guards its independence like a dog with a new bone.

By 2010, the public had become outraged that the financial debacle had triggered the worst unemployment crisis since the Great Depression. Total unemployment and underemployment reached 20% of the American workforce by early 2010, before it began a slight decline. A number of the firms involved in the 2008–2009 multibillion-dollar bailouts by the federal government (e.g., Goldman Sachs, J.P. Morgan Chase) initially granted six-figure bonuses that outraged a recession-weary public. Even now,

three out of the four largest banks in America (J.P. Morgan Chase, Bank of America, and Wells Fargo) are now larger than before the bailout. The four largest banks in America have assets equal to more than 50 percent of the entire annual U.S. gross domestic product. These four big banks now issue two-thirds of all credit cards, half of the mortgages and control nearly 40 percent of all bank deposits. Just five American banks (J.P. Morgan Chase, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley) own a staggering 95 percent of the $290 trillion in risky derivatives held at commercial banks.³

At last the myth of the lack of seriousness involved in white-collar crime has been painfully pierced. Sadly, the FBI complains of a shortage of agents to prosecute all the potential fraud cases in the financial crises. The move marked the first time that regulators had taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.

The securities were a key contributor to the financial crisis that peaked in 2008 because many contained risky mortgages. Meanwhile, in March 2010, the Office of Inspector General of the Securities and Exchange Commission revealed that, during the last five years, over 30 regular and contract employees were accused of various ethical violations for watching pornography on the Internet for thousands of hours (while neglecting to regulate the very financial industry that brought about this crisis).⁴ Obsessive greed has come very close to resulting in economic suicide.

Sadly, there are no signs that the global financial crisis will ease anytime soon.⁵

• The central banks of Ireland and Greece were bailed out of bankruptcy by the International Monetary Fund.⁶
• One out of every 34 Americans who earned wages in 2008 had no income—none at all—in 2009, according to dramatic findings uncovered by David Cay Johnston. Wages fell in 2009 for average Americans, median-income Americans, and all Americans except those at the very top, who saw a fivefold leap in their incomes, according to the Social Security data. Johnston blamed the recession, but also pointed to the so-called “free trade,” calling it “nothing more than tax-subsidized mechanisms that encourage American manufacturers...