Outside Job: Using the Oscars to legitimize a political theory

I call it "the Berkeley expression."

Whenever I visit Berkeley -- in particular certain upscale areas populated by academics and wealthy intellectuals -- practically everyone I see has this creepy look on his or her face. It's hard to describe, but once you've seen it enough times it's unmistakable: a special kind of conspiratorial smugness, a faint "knowing smile" coupled with a glance that conveys a sense of not just personal superiority, but of mutual superiority. In an instant, the Berkeley expression communicates to everyone in the vicinity, "Isn't it great that you and I and all of us here are morally superior to the rest of the world?"

Once you leave the city limits, you rarely encounter the Berkeley expression anywhere else. Which is why I was momentarily startled when I watching the Academy Awards at a friend's house and the Berkeley expression unexpectedly flashed across the screen. It was radiating from the face of someone named Charles Ferguson, who had just won the Oscar for Best Documentary. Because my friends are all liberals (at best -- some are far to the left of "liberal"), I kept my mouth shut as usual, but I thought to myself, "Wow! That guy, wherever he's from, has really mastered the Berkeley-style smugness." And then he gave his now-famous acceptance speech, which began with the sentence, "I must start by pointing out that three years after a horrific financial crisis caused by fraud, not a single financial executive has gone to jail -- and that's wrong."

His winning documentary was called Inside Job, which traces the history of the financial meltdown of 2008, and places the blame entirely on greedy Wall Street insiders who scammed the world out of trillions of dollars. Every year, the Academy voters feel compelled to make some kind of political statement with an Oscar, and this year they chose Inside Job as their statement. Predictable.

I had pretty much already forgotten about the Oscars when I opened my morning paper yesterday to discover an explanation for Charles Ferguson's instantly identifiable facial expression -- he really is from Berkeley!

At first I simply found it amusing that one can pinpoint someone's hometown simply by their smug expression -- just as Sherlock Holmes could identify the village you came from by the color of the mud splatters on your trouser cuffs -- but as I continued to read the article, my mood took a decidedly political turn when I encountered this passage:

Robert Gnaizda, former president of Berkeley's Greenlining Institute, says some of the responsibility lies with the current White House.

"There's an unwillingness by the Obama administration to effectively criticize 'too big to fail' institutions," said Gnaizda, who is featured in the documentary vainly warning successive Federal Reserve Board chairmen about the kind of doomed-to-fail loans Countrywide Financial and others were making.

Whoa whoa whoa -- stop right there. Am I reading this correctly? The head of the Greenlining Institute is in the film warning against subprime loans???

My head starting spinning. And frankly, it's still spinning. Because way back at the beginning of the financial meltdown, in September of 2008, I wrote a blog post with the following title:

The Greenlining Institute: Does the financial crisis have its origins in Berkeley?

 

This short post not only posits the exact opposite theory than does Inside Job, but it actually points the finger of blame at Robert Gnaizda's Greenlining Institute as the ultimate cause of the problem, rather than as the heroes who tried to prevent the crisis.

I know I'm tilting at windmills here: the budget of my original post was exactly $0, and I'm up against an Academy-Award-winning film with a production budget of $2 million and which took over two years to complete. Furthermore, the narrative pushed by the film is the narrative favored and relentlessly affirmed by almost the entire media and all of academia, and it is therefore the narrative that the general public has come to accept.

But upon re-reading my own post (which even I had half-forgotten about), I was amazed at how still current it remains, and how the points I made two and half years ago seem to have had been written to specifically rebut the thesis of Inside Job, a film which hadn't even been made yet.

Rather than paraphrase my earlier essay, I'll just quote part of it here and let you judge for yourself:

...The Greenlining Institute existed solely to bully banks and financial institutions into giving loans to otherwise unqualified minority borrowers.

...

There's been a lot of finger-pointing on all sides about this financial crisis, but much of it misses the point. The off-topic details about CEO salaries and bond markets and mergers and bailouts and who voted for what all chase the horse after it's already left the barn. The key question is this:

Once upon a time, banks only loaned money to individuals who could qualify for a home mortgage; and then sometime recently, they changed their practices and started loaning money to a lot of people who didn't qualify and could not afford to pay back the loans. And when they started defaulting, and when real estate values starting dropping, the entire industry collapsed, because there was no equity to pay back the loans. The banks lost money, the customers lost money, and it all went down the toilet. Which, of course, many people had predicted. So the question is: Why? Why did banks start making countless risky untenable loans to unqualified customers?

And the answer is: Because they were afraid of being called racists by the legal bullies at the Greenlining Institute and other similar "community organizers."

It all started with The Community Reinvestment Act, a federal law originally passed during the Carter administration and then ramped up during the Clinton years, that was originally designed to prevent racist lending practices by banks who wouldn't loan money to minorities, even if they were qualified. Which was a fine idea. But over time the law was twisted to force banks to make loans to minorities even if they weren't qualified -- which all may sound very peachy keen in Fantasy Utopia Land but which inevitably spells long-term financial suicide for a bank.

The Greenlining Institute's self-appointed role is to identify those banks which by Greenlining's reckoning haven't doled out enough money to underqualified minority borrowers, and then threaten them with lawsuits, protests, and accusations of institutional racism if the banks don't start opening their wallets ASAP. And the banks caved. Greenlining brags that they have unparalleled access to banking boardrooms, and they successfully squeezed $2.4 trillion (yes, trillion) in "CRA commitments" (i.e. loans to unqualified borrowers) out of terrified banks. Nearly every bank and financial institution you've ever heard of seems to kowtow to Greenlining.

According to this 2005 article in The Berkeley Daily Planet:

With a $4 million annual endowment, Greenlining’s interests are larger than Berkeley, stretching from Sacramento to Washington, DC. Started in 1994 by John Gamboa, a co-founder of the consumer interest law firm Public Advocates, and backed by minority business associations, the institute has fought to extend the benefits of capitalism to inner-city neighborhoods that had been traditionally cut off from access to business and home loans.

“Making the unbanked bankable has always been a top objective,” Turner said.

To persuade banks to serve inner-city clients, the institute has opposed high-profile bank mergers, threatening to demand hearings before the Federal Reserve Board if the bank didn’t agree to invest more in inner cities.

Under pressure from Greenlining, Wells Fargo committed $45 billion to community lending and $300 million to philanthropic causes as part of its 1996 acquisition of Los Angeles-based First Interstate Bank. Washington Mutual, also hounded by Greenlining, agreed to provide $120 million in community lending as part of its 2001 merger with Bank United. Similar concessions have been squeezed out of insurance and utility companies. Greenlining issues annual report cards tracking the institutions’ progress in hiring minorities and serving minority communities.

The organization also retains two attorneys to initiate public interest lawsuits against organizations they feel discriminate against minorities.

Although it fights in the name of the poor and disenfranchised, Greenlining’s close relations with corporate donors and its commitment to economic expansion have also drawn enemies on the left.

Our experience with Greenlining is that they often don’t tell the truth and they’re quick to hurl allegations rather than dealing with the facts,” said Bill Magavern, legislative analyst for the Sierra Club. ...

Magavern thinks Greenlining’s environmental policies are rooted in the interests of key donors. “Look at who they take money from,” he said. “Part of their modus operandi is to threaten people until they get paid. We’ve never given them money so that is one of the problems they have with us.”

Tracking down Greenlining’s major contributors isn’t simple. The names of major donors are whited-out on the organization’s federal tax forms. The omission was news to Turner, he said.

He said that corporations accounted for about one-third of the institute’s revenues. The rest, he said, comes from foundation grants and fees from intervening on behalf of the public before the state Public Utilities Commission.

Greenlining faxed the Daily Planet its 2002 tax returns, which listed four contributions, including $250,000 from Washington Mutual, $300,000 from Wells Fargo...[etc.]

Who are these people? And how did they gain so much power, while flying so far under the radar? Their latest push is to force the banks to convert the adjustable rate mortgage loans given to dodgy borrowers into fixed-rate loans, which would further punish the banks financially.

The American Anachronism blog lists some of the other pressure groups who bully banks -- including the now notorious ACORN.

How does this connect to the presidential election? According to this 2007 article in the Chicago Sun-Times, Barack Obama's mysterious years as a "community organizer" were spent doing this exact thing: Accusing banks of racism for not giving loans to underqualified minority borrowers:

Obama represented Calvin Roberson in a 1994 lawsuit against Citibank, charging the bank systematically denied mortgages to African-American applicants and others from minority neighborhoods.

(A case which, by the way, Obama won. Add another risky loan to the pile.)

Now, having read that (and the rest of the essay), reconsider a key detail from Inside Job: Robert Gnaizda, the President of the Greenlining Institute, is depicted in the film as a hero who tried to prevent the financial meltdown by warning banks about risky loan practices.

Say what?

It's impossible for the Greenlining Institute to hide its original mission: The group's very name reveals what they're about. If "redlining" means to deny loans to minority borrowers, then "greenlining" must be to give loans to minority borrowers. But why were banks denying those loans in the first place? Because they were seen as too risky, since in the bad old days, even more so than now, minorities were generally impoverished and had limited income opportunities. The banks' lingering "institutional racism" was partly based on cold hard experience: homes in low-income neighborhoods did not appreciate much in value over time; residents of low-income areas more frequently defaulted on their mortgage payments; so home loans in poor (i.e. minority) neighborhoods were generally too risky for most banks. That was an unfortunate state of affairs, I concede, but not one caused by the banks; nor should it have been the banks' responsibility to rectify it.

But groups like the Greenlining Institute saw the banks as potential agents of economic restructuring: If banks could be forced to grant homeownership to poor people, then that would be the first step for the lower classes to climb out of poverty, since everyone knows that owning one's own home instills a sense of pride, self-worth, and self-reliance.

And so, using the bullying tactics described above (and in the original article which first inspired my post), the Greenlining Institute (and similar groups) twisted the banks' arms to make risky loans, for the purpose of "social justice," to use the activists' own terminology.

Forced into this situation, the banks then went to great lengths to disguise the risk they had foolishly assumed; to fob the bad loans off on unsuspecting other investors, they devised convoluted financial instruments that obscured the danger of the investments; and so on.

It is these after-the-fact shenanigans that Inside Job focuses on. And like any good propaganda, it's effective because it's technically true: Everything shown in the film pretty much did happen as depicted. But here's the key point: It may be true, but it's irrelevant. The filmmakers are focusing on the glorious gory details of the financial explosion caused by the subprime loan crisis, but they aren't showing you who lit the fuse.

The meltdown was not caused by the bankers who mislabeled their risky debt; the economy would have collapsed no matter who was holding the bag when it all went sour. The only crime committed by the villains depicted in Inside Job was to make sure they weren't personally liable when all those bad investments went kablooey.

It's clever to stir up populist outrage against the fatcats who tried to enrich themselves when everyone else went broke. Who doesn't hate devious fatcats? Even I hate them. But in this case I know that they didn't cause the recession: they merely tried to profit from it. Because that's what fatcats do: They try to profit from anything, in any financial climate. That's what makes them fatcats.

If you look at the Greenlining Institute's Web site nowadays, you won't find much mention of redlining and housing discrimination; in recent years, Greenlining has expanded its focus to become a general-purpose left-wing advocacy group, and now advertises its "Leadership Academy" to groom the next generation of behind-the-scenes radical activists, and concentrates on a much broader push to fundamentally alter American society.

But most Americans will never know any of this. Inside Job dominates the headlines, and the thesis it puts forth is the accepted wisdom of an angry nation. Only the few of you reading this essay, plus a handful of researchers and analysts, are aware that there's a different side to the story. I concede my likely defeat in this particular battle from the War of Ideas. But all I can do is call it like I see it, a tiny voice in a hurricane of disinformation blowing in the other direction.

Yet I can take consolation in one fact: At least I don't have that smug expression on my face.