More on Frontline’s Astonishing Whitewash of the Crisis

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As readers may know, a recent post, “Frontline’s Astonishing Whitewash of the Crisis,”discussed the first half of the Frontline series, “Money, Power & Wall Street.” Producers Mike Wiser and Martin Smith sent a letter taking issue with this review, and I made an exception to my usual practice and posted their missive.

The major dispute is over whether their series lets the financial services industry off too lightly. The producers contend they attempted to provide “an accurate and informative telling of the crisis,” that they were indeed tough on financial firms, and that I “misunderstood” their program. The bulk of the letter then consists of extracts from the program meant to address specific criticisms.

I’ll deal with their particular claims in due course. But most important, their letter fails to engage the basic issue raised in the initial post: that of the overall message conveyed by this segment. Their assertion is that I misunderstood, when it it the obligation of Frontline to make sure its message is clear. And as we’ll also see, I am far from alone in “misunderstanding” their show.

Any form of storytelling, be it print or televised journalism, fiction, even scholarly work, involves choices as to what material present, how to guide the reader/viewer through the information, and what points to emphasize. Emphasis can take place in numerous ways, including by presenting information early (first impressions stick and are hard to dislodge), repetition, amount of time spent. One major choice is whether to provide a range of points of view and let viewer decide, or supplying a clear perspective. The use of a narrator (and this series had a narrator) signals that the producers intended to provide a perspective.

What happens if you fail to give non-expert viewers sufficient guidance through a complex fact set? The audience not only gets little in the way of illumination, but it also reionforces the idea that the situation is complicated and hard to grasp. That message is bank friendly. We’ve stressed repeatedly that complexity, opacity, and leverage serve the interests of financiers to the detriment of society at large. Treating this evolution as something that just happened is far too kind to the authorities and big banks. It represents a fundamental shift from the financial services industry providing mainly valuable services to becoming increasingly extractive. As we said in our original post:

So thus far, we have some populist decorating of a profoundly pro-Establishment account. Yes, the system got really out of control, but whocoulddanode? It just got SOOO complicated no one could understand it, not even those super well paid top Wall Street executives. There isn’t a single mention of ideas like looting, bogus accounting (remember the fictitious Lehman balance sheet, or Merrill’s CDO-hiding Pyxis, or the $40 billion of Citi CDOs that appeared out of nowhere?) or abuses in other areas (like swaps sold to municipalities all over the world, or rapacious privatizations, the auction rate securities blow up, or chain of title abuses). Nah, it’s just a bunch of fundamentally good ideas taken too far. And they really expect you to believe that.

In fairness, Part 2 does cover the swaps sold to municipalities in some detail, but even then, as we’ll discuss in a later post, this discussion also falls short.

But the most charitable conclusion you can reach is, in the words of a colleague who has taught at the Columbia School of Journalism for over ten years, is that this is “mediocre journalism,” that the producers didn’t recognize that the story they thought they were conveying was different than the one they actually presented.

Various viewers of the program also found that the overall message was favorable to Wall Street. I’m told there were many critical tweets on the first and second program. This assessment came via e-mail:

I happened to watch the two hours in one sitting yesterday as a film and I came away sharing most of Yves’ observations. The overall criticism that it was more a People Magazine expose (well done at that level with its bevy of interviews of key players!) that was heavy on characters and narrative and light on illumination is valid. While the narrative did have some great general quotes like the ‘infectious greed” described by Frank Partnoy, “the greed of Wall Street broke Main Street” by Roy Barnes and Reich’s “Wall Street got away with bank robbery” they were used more as attack lines on the “bad people” on Wall Street rather than the system.

Of course, the proof is simple: What conclusions is the viewer of the first two hours led to? Forget the throwaway lines here and there used for cover. I see three simple ones that were artfully laid out. Obama is smart and capable. The Republicans are stupid and incompetent. The bailout was flawed but necessary.

In other words the Frontline programs provided some great quotes, especially those of Alan Greenspan mumbling his bizarre bible that people in white shirts can be trusted to be more moral and aware than the 99%. The show did not deal with the inherent racist and classist attitude of our plutocrats that the 1% are less criminally inclined than the 99% and do not need the policing that the rabble do when, in fact, they need more because of the perverse economic “incentives” they face.)

And this e-mail reacted to the producers’ letter:

I find the response by Frontline is in denial regarding your criticism of the general tenor and overall effect, which really is what you were saying. In fact, the more I read of their apologia, the more annoyed I get. It’s a long set of excuses, with a few finger-pointings at you for writing overly fast.

Frontline response refused to acknowledge that it WAS bank friendly. It criticize you for pointing out that JP Morgan Chase was trying to solve its OWN problem.

You’re right. The Frontline show GENERALIZED the description, as if economists were trying to solve risk IN GENERAL, not shift their OWN risk somehow onto their own counterparties.

Your points are specific. Without concretizing what is happening, viewers are left with a lack of focus (“solving problems”) as to Cui bono?

Regarding the other “warnings” the Frontline show cites, these are like warning labels on a pack of cigarettes or liquor bottle (“Don’t drink to excess. Be responsible.”) They tend to get lost in the overall spirit of the show.

The Born comment simply got lost. Here was a real boxing match. They somehow glossed it over in a way that ONLY the people who actually had followed the story would know what was being said. It’s like a literal translation of Sumerian cuneiform — so brief that only someone who knows the context can understand what the tablet is all about.

What really is at issue is the importance of how to FRAME a point to highlight and explain it. They SAY that they explained that securitizing junk mortgages was what caused the problem. But this just wasn’t done effectively and straight-forwardly. Again, only the insiders who have been following things will get the message. It’s as astutely buried as cigarette companies bury the cancerous effects of their products. What Frontline did was “UNFRAME” the issue, to coin a verb, where this would really be confrontational with Wall Street. In a more popular word, it was simply wimpy.

I.e., “SOME of these mortgages MAY BE subprime.” “I wanna buy A LITTLE BIT of CDO” C’mon! They reduce it all to technocratic stuff — a problem to be solved, not a plan for a rip-off!

It’s like God drove a steamroller over the earth, flattening out the mountains, so that nothing stands out. Or like a composer of a symphony that had everything mezzoforte, no high points, no focal points. It was … blah.

You’re absolutely right. There didn’t HAVE to be a choice between bailout or “meltdown.” So the bondholders would have lost — the money they doubled as a proportion of US income and wealth 30 years ago. So what?

The Angelides quote implied that Obama DID have to “save the economy.” Not that it was NEEDLESS, as you say.

Bottom line: I’m “baffled” that Mr. Wiser is “baffled” at your comment. Perhaps Frontline needs someone who is NOT baffled!

Let’s now deal with their responses, many of which do not engage the issues raised, but instead seek to cast doubt about the accuracy of the post.

First is their objection to the idea that they “cribbed” from Gillian Tett’s account of the development of the credit default swaps market, Fool’s Gold. In fact, the series starts with the same narrative that Tett used, that of JP Morgan staffers first coming up with the idea of CDS at a corporate retreat, and even has the same hijinks. While people who read Fool’s Gold would see the inclusion of Tett in that part of the documentary as a way of acknowledging her influence, that does not obviate the fealty of Frontline to Tett’s storytelling. While “cribbed” may be deemed to be unduly strong, some readers saw this comment as “the lady doth protest too much.”

The much more important issue with starting with the genesis of credit default swaps is it launches the program on a pro-Wall Street footing (yes, there is the meant-to-rivet-your-attention, “we had a meltdown” juxtaposed with Occupy Wall Street protestors, but that is quickly undercut by various statements by apparent experts as to how complicated this all is, so the criticism is almost immediately diffused).

The producers chose to start with the genesis of the corporate credit default swaps market, which is a bizarre place to begin. Corporate credit default swaps had nothing to do with the crisis. The narrator describes their creation as “innocent” (!). CDS are depicted as an “innovation” repeatedly, with all of its positive overtones (and recall that no less than Paul Volcker begs to differ). They are also presented simply as a way to transfer risk, and that is presented as salutary, as opposed to a way to solve a big problem for JP Morgan and other banks (as the readers above noted, lack of agency is all too common in this broadcast).

The only reason to go that early might be to depict the missed opportunity to regulate them and prevent the creation of a standardized template for CDS on asset-backed securities, which as we described long form in ECONNED, is responsible for the toxic phase of subprime origination (third quarter 2005 to summer 2007). They try to have it both ways in their letter, saying they covered that ground in another Frontline documentary. Sorry, that doesn’t pass muster. A presentation needs to be self contained. And even with hard core Frontline viewers, this also demands that they recall content from an earlier program, when in our information-overloaded society, that is a lot to expect of those who do not follow the finance beat.

The letter continues to argue that the program did cover the notion that corporate credit default swaps were devised to transfer risk, which benefited banks. But this softpedals the motivation, which was set forth in our post: that JP Morgan was carrying more corporate credit risk than it was comfortable with (my recollection is that Fool’s Gold discussed specifically that JPM’s growth would be constrained). And recall in the viewer quotes above, that they also found that the issue of “cui bono” from the creation of CDS was skipped over. (I also have to note that one of the people they quoted in this section is Mark Brickell, identified in the program as a former JP Morgan employee. Most viewers would assume that that means he would give an unbiased take. In fact, Brickell is an uber financial services and even shows up twice in Frank Partnoy’s Infectious Greed as a bad guy of sorts).

Next, they shift to arguing that their discussion of CDS did cover the idea that they were tantamount to unregulated insurance. But merely citing text where CDS are referred to by various interviewees as insurance is inadequate for a generalist audience.

Contractually, a financial product cannot be both a “derivative” (price or payoff defined in terms of a readily priced underlying instrument) and “insurance” (payoff when an event of loss takes place). The JP Morgan misbranding of CDS as derivatives has been remarkably effective.

If you look at the transcript, the CDS are referred to a full 22 times as “derivatives” and there are three additional mentions of general concerns about derivatives that in context before you even hear the word “insurance”. These include seven separate comments by the narrator, some of which use the word “derivative” multiple times with reference to CDS, starting with this one:

NARRATOR: Credit default swaps, a kind of derivative that insures a loan against default.

This was a very new concept. Traditionally, derivatives were a way to bet on the future value of something. For hundreds of years, farmers have traded derivatives to protect themselves against fluctuating crop prices. It is this type of derivative that has been traded on the Commodities Exchange in Chicago, along with the futures of fuels, currencies and precious metals.

In Boca Raton, the JP Morgan team realized that they could use credit derivatives to trade their loan risks.

So get this: the narrator, the proxy for the producers, defines credit default swaps as a derivative, and presents them as being part of a proud history of derivatives. And how does the booming narrator first use the word “insurance” in the CDS discussion?

NARRATOR: Others wanted them to be regulated like insurance.

In other words, this is presented as a minority view, well after “CDS = derivatives” is well cemented in the viewer’s mind, and not adequately explained. Even before getting to the way CDS are described in the documentary, given the common lumping of CDS with true derivatives, it would take a clear statement that CDS are tantamount to insurance, likely with some factual support, to overcome the sloppy use of terms.

In context, the narrator comment presents “CDS are insurance” as a minority position. Yet the implications of it being economically equivalent to insurance are fundamental to understanding why the product blew all the major guarantors up. Insurers receive money up front. They may not take enough money (they underestimate the risk and price it too low) and/or they don’t husband it well (among other things, they pay too much in bonuses and dividends, leaving too little for policyholders). If that happens on a big enough scale, they go bust when the payments come due (or alternatively, engage in all sorts of fraud to escape payment on legitimate claims). Satyajit Das, who was interviewed for this program, and others have stressed that if you required protection-writers to post enough margin to allow for jump to default risk, CDS would be uneconomical. Pretty much no one would buy it. Underpriced insurance produces over time losses to insurers, and insurers who write enough are pretty certain to hit the wall, eventually. And that is pretty much what happened.

So we have the show coming out firmly behind industry PR, yet denying it when challenged.

The next new charge they turn to is our remark:

Similarly, the account hews to conventional lines in making Goldman out to be the poster villain in the CDO market, yet merely in passing, has Deutsche Bank CEO Joseph Ackermann admitting to being one of the banks that stuffed Landesbanken like IKB full of toxic debt. Crisis junkies know that Deutsche Bank trader Greg Lippmann was the most aggressive middleman in helping subprime shorts like John Paulson create and sell CDOs designed to fail (and they had their own program, Start, which was a synthetic CDO series just like Goldman’s better known Abacus trades).

They argue that they thought this oversight was OK because Goldman made “millions” while Deutsche lost “billions.”

That isn’t true. Goldman lost $1.2 billion on mortgage securities. It appears to have made boatloads of money on a net short position 2007, but the subprime short traders at Goldman were eating more than half the firm’s total risk exposure, and Blankfein and senior management told them to cover their short. They appear to have traded the February 2008 swoon and March rally in subprime well, but they went into the worst of the crisis net long and took losses that more than offset their earlier short gains (admittedly, they were behaving badly in 2008 in scrambling to offload risk, but they had lots of company in that exercise).

The producers next turn to this charge:

The segment provides anecdotes of the crazed subprime lending, but fails to explain how mortgage backed securities and CDOs were linked to lending (or most important, that CDOs came to drive demand for RMBS, which in turn drove demand to the worst loans).

They next quote a former Georgia governor stating that mortgage loans were securitized tranche and a “feeding frenzy” resulted. That is not an explanation.

The next bit they quote was one I had pointedly avoided addressing because it so embarrassingly wrong and hate criticizing Chris Whalen, who is very sound when it comes to traditional banking:

Chris Whalen (Tangent Capital Partners): Let’s say I have a pool of mortgages– I have a thousand mortgages from California and I want to package these up. But I decide, “Well some of these mortgages may be subprime and I wanna buy a little bit of credit default insurance.
Martin Smith: And by doing that, you improve the profile—
Chris Whalen: In theory, yes.
Martin Smith: –of your CDO—
Chris Whalen: That’s right.
Martin Smith: So you can sell it better.
Chris Whalen: And I can go get a rating for it, too. I could go to Moody’s and say, “Look. I have laid off 2% of the risk on this portfolio. Shouldn’t I get a better rating than if I just sold the pool as it was?”
Martin Smith: So you take a lot of crap—
Chris Whalen: That’s right.
Martin Smith:–a lot of mortgages that are—
Chris Whalen: Hi– hideous crap.
Martin Smith: But you insure it and the credit agency says, “Hey. That’s a good idea.”
Chris Whalen: Yes. Yes.

I’m sure Chris knows the difference between a mortgage-backed security and a CDO, but listening to this, you’d have no idea they were two different beasts. And he is completely wrong about CDS being used within any CDOs (and only an extremely limited basis in RMBS in the late 1990s) to lay off risk and get a better rating (there are such things as synthetic and hybrid CDOs, where all or most of the assets are credit default swaps, but that bears no resemblance to what Chris is discussing).

There’s no excuse for including this garbled bit of an interview. I know Frontline spoke at length to at least one serious CDO expert who could have prevented misinformation like this being conveyed.

They also quote Gillian Tett saying that “many investors” took more risk (RMBS risk? CDO risk?) because they thought they had laid most of it off with CDS. I beg to differ. “Investors” ex hedge funds rarely use CDS. The reason is that it typically requires the creation of a unit that can post collateral and that in turn requires regulatory approvals for most fiduciaries.

And the use of the term “investors” obscures which player were the biggest holders of CDOs and users of CDS to reduce the risk: the banks themselves. We described in ECONNED The “investors” that did that in a serious way weren’t what viewers would consider to be investors. It was Eurobanks who (remarkably) retained or in some cases even bought AAA tranches of CDOs, then hedged the risk with CDS, which their firms treated as “freeing up capital” which was tantamount to discounting all the future profit of the trade (interest from the CDO less hedge and funding cost) and booking it in the current period. This was system gaming on a massive scale, and was one of the big culprits in the crisis (US firms like Merrill and Cit wound up in similar positions through different mechanisms).

So let me repeat: the program never makes clear the relationship between RMBS and CDOs, and it fails to explain that CDOs kept the subprime party going well beyond its sell by date, and were directly responsible for driving demand to the very worst mortgages.

The discussion of the second hour contains a remarkable display of cognitive blindness. We pointed out, as did many readers, that the program set up the false dichotomy of “bailout versus disaster”. In any complex situation, there are always alternatives besides taking a specific course of action and doing nothing. There was robust debate before the crisis of various options for dealing with insolvent banks, including the approaches used by Nordic countries in the early 1990s and forced haircuts of bondholders (Nouriel Roubini was early to argue for this remedy).

Yet remarkably, in trying to defend that the show did not convey that message, Mike Wiser repeats a quote from Phil Angelides, which was particularly prominent by closing April 24 program (emphasis mine):

The real question is, how did it come to be that this nation found itself with two stark, painful choices, one of which was to wade in and commit trillions of dollars to save the financial system, where we still end up losing millions of jobs, millions of people lose their homes, trillions of dollars of wealth is wiped away, and the other choice is to face the risk of total collapse.

I’m gobsmacked that Wiser can’t see that the section he quotes supports my point perfectly. He provides more material from Angelides, Born, and Stiglitz which all talk about how regulators had become lax well before the crisis. And he also boldfaces this bit:

NARRATOR: For three decades, Washington had steadily moved to a hands-off attitude towards Wall Street. And with little oversight, inside these black boxes, Wall Street had created a host of complicated but lucrative financial products.

This is completely besides the “bailout or disaster” message. This accepts and reinforces the meme that by 2008, the authorities’ hands were tied, they had no choice other than rescue the now-terribly-important financiers they had allowed to run wild.

This is nonsense. I’ve said, for instance, that I’m not convinced that Bear was insolvent, as opposed to illiquid (remember how Jamie Dimon kept crowing what a great deal he had gotten, until he seemed to realize that if he kept saying that, any future rescues might not have such generous subsidies?). Bear was initially offered a 28 day loan by the Fed, which, with no explanation ever given, was turned into an overnight loan, enough to carry the beleaguered firm into the weekend. Why no 28 day loan? That would have given the Fed and Treasury a ton more time to look at Bear’s books and make a much better assessment of the impact of a firm failure on the markets, particularly CDS counterparties, and make other provisions for dealing with any fallout if the run on Bear was warranted.

And as we mentioned in our original post, the “we lacked authority” is also bollocks. Regulators have powerful tools. Frontline reported Paulson told Wells Fargo that it would be declared capital insolvent if it didn’t play ball. They could have threatened the investment banks with halting or curtailing their direct access to Fedwire (in simple terms, the Federal Reserve operated payment system used to settle net interbank balances at the end of day and for large payments during the day). The authorities didn’t just lack will. They had been part of the problem and were unable to recognize how disastrous their policies had been until the evidence was undeniable.

I recognize the Frontline producers strove to adopt a polite tone in their letter and they may take umbrage at this reply. But the stakes are too high to allow for courtesy to dilute a message they seem unwilling to hear. This disagreement isn’t a matter of mere aesthetic or reportorial choices. Most people in this country are not very well informed about the financial services industry. As you can tell from the comments on the Frontline website, many take this series to be gospel truth. For Frontline to let the banking industry off easy does the public and the cause of reform a great disservice.

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  1. jsmith

    Yves, you’re to be commended on actually spending the time in rebutting these propagandist fools when all they deserve is derision and scorn.

    However, there comes a time – for the sake of one’s sanity and for actually moving forward – when discussions/debates need to be jettisoned as many times these debates are often continued by the propagandists to further add the semblance of veracity to their fallacious and specious points of view.

    We wouldn’t be engaging in this debate if they didn’t have some validity, now would we?

    Yes, yes, it’s quite a clever and old trick.

    Today in the U.S. propagandosphere, a person can make even the most absurd claims seem “legitimate” as long as there appears to be a “debate” about it.

    As Frontline is one of the premier vehicles of elite propaganda today, one would have to be naive in not thinking that they understand how this ploy works.

    Again, Yves, great job but don’t lend them the respect/credence they don’t deserve.

    1. SR6719


      For what it’s worth, your comments in response to yesterday’s article “Frontline takes issue with our critique, etc” are some of the best comments I’ve read on this blog in a long time.

      1. Warren Celli

        A hearty second to you SR6719!

        The jsmith comments are of a far brighter moral light, especially this one above about validating and legitimizing the immoral and traitorous sell out media shills with your attention. How many times do you really have to hear about the nuances of how severely we have all been gang raped by this current crop of Noble Lie wielding global corporate gangsters? That we the people have been screwed — not only here in America but around the globe — is now blatantly obvious common knowledge.

        This is not at its heart an economic struggle. This is at its heart a moral struggle for the direction of human morality for years to come.

        The same deceptive ploy is used in the bogus electoral process. Your vote validates and legitimizes with your attention and good name those who force your complicity and oppress and murder the spirit of you and your loved ones. Abstention not attention is your savior. We waste valuable time in this oblique complicity.

        Yes, we must move forward, it is well beyond time to shun those who should have been thrown out in yesteryear’s trash, and instead, organize election boycotts and a Constitutional rewrite that will; purge ourselves of these anti-American self anointed elite corporate Noble Liars, reclaim our soiled morality and our stolen wealth, and impose a fair and just system. And all of this should be carried out with an eye on the big picture. Our governments have been co-opted by Noble Lie wielding global corporations who have no allegiance to any Constitutional alliance, but rather only to their own selfish traitorous and secessionist corporate alliance structures. They are like rogue terrorist nation states that roam the planet raping and pillaging at will. Look at their wallets, listen not to their silver tongued words. See the ever-growing millions of homeless in your midst…

        Deception is the strongest political force on the planet.

        1. Mike NotWiser

          Like George W. Bush, the Frontline producers are able to hide behind “mediocrity” to do some really harmful water-carrying for some pretty diabolical people.

          And, like Obama they pretend to be for the people while stabbing them in the back.

          It’s all about morality. I just hope it makes a comeback.

          1. hermanas

            Heard Jimmy Roger’s “Honneycomb” yesterday.
            “It’s a darn good life, and kind of funny”,
            Those who want austerity, have more money.
            ie; We’re not all on the same page.

      2. ChrisPacific

        I actually disagree with this. The problem with outraged, emotional and profanity-laden posts is that they are largely pitched to appeal to those who already agree with the poster, and therefore don’t need convincing.

        Our best hope for achieving real change on all this is for enough people to understand exactly what’s going on and demand change. For every one person that reads NC and has followed the story from the beginning, there are hundreds or thousands out there who have no idea other than what they are being told by politicians and the media. Swearing at banks and calling them fascists won’t do anything to convince these people. To do that you need to lay out the facts and arguments in a reasonable and logical manner, which is what Yves excels at doing in posts like this one.

        I don’t recall ever having changed my opinion on a political subject (for example) due to people swearing at me or appealing to emotion. However, I have sometimes changed my mind in response to a well-reasoned logical argument that raises points I haven’t considered. You don’t need to manufacture outrage – it will happen on its own once people understand what’s going on.

        1. Mike NotWiser

          That’s nice Chris, except for the fact that there was no profanity or appeal to emotion in jsmith’s post.

          1. ChrisPacific

            I was actually responding to SR6719, so the jsmith comments to which I was referring are the ones on yesterday’s article that SR6719 mentioned. Sorry if I wasn’t clear.

        2. jsmith


          Here we f*cking go again!! (That’s just for the scold in you.)

          Is there a course they teach at Technocrat U that we’ve all missed?

          “How to argue about earth-shatteringly disastrous human events and not get saucy.”

          Pre-reqs: sociopathy, blue-blood or equivalent.

          I mean, you make it seem as if I’m actually trying to win people over instead of just being f*cking pissed off?

          Is everythig a competition to you?

          Am I on a debate team I don’t know about?

          Is this a pre-lim interview for a job with the IMF?

          Maybe – I know this is gonna sound crazy so sit tight – it’s not that I’m using anger to appeal to people but that – hold on, now – people are ALREADY angry and I’m just speaking the common tongue?

          Instead, you think we should all self-censor – yes, that IS what you’re talking about – just so we can please some imaginary reasonable audience?

          Let’s review: the propaganda has gotten so badly to Chris here that he doesn’t even feel comfortable expressing himself emotionally anymore.

          Nah, that’s cool though, right?

          The elite don’t like us to be angry, so like chill, bra.

          Does that bother you?

          Does it hurt knowing that the propagandistic strictures of our society have disallowed you to be a human?

          Why would you think that just because you don’t feel that we should act upset about the financial crisis and other sundry events that have literally destroyed the lives of millions of people, we should follow your lead?

          Because you’re like CR and you play canasta with the importants?

          Reasonable troll, please.

          This “debate” – as you like to think about it – is a tad larger than whether you Chris Pacific has his mind changed or not.

          I know. Like wow, huh?

          So to everyone else, thanks for the kind words.

          To Chris, I’m off to bed where I will drift away hoping and praying that you’re really not the 2D person you play here at NC.

          1. Mark BudWiser

            CrisPacific is a pro jsmith. His orientation reveals it: “How do you convince people who aren’t already convinced?” This is what pros think about. Normal people just like letting off steam.

            Also, criticising you for sylistics like profanity and appeal to emotion is a kind of back-handed argument. It itself is an appeal to a kind of emotion–the emotion that emotion should not surface when discussion emotion. Notice how he doesn’t discuss the substance of what you had to say.

            When you post comments on NC expect to swim with the sharks.

          2. ChrisPacific

            “Maybe – I know this is gonna sound crazy so sit tight – it’s not that I’m using anger to appeal to people but that – hold on, now – people are ALREADY angry and I’m just speaking the common tongue?”

            Not nearly enough of them yet, or we’d be seeing changes. As captured as the political process in the US may be, it’s still a democracy, and if the public is sufficiently angry and sufficiently unified in their opinion, politicians ignore them at their peril. This came very close to making a difference with TARP.

            Right now I don’t think that the public in general are really angry (or if they are, it’s about strawman issues like Republicans vs. Democrats) but there seems to be a growing feeling that what they are being told by the government and the media doesn’t square with what they are experiencing. I think they are looking for more information, suspect that their usual sources for it may be compromised or lying to them, and are becoming more willing to consider alternative sources. (I believe this is one reason why Yves has been appearing on radio and TV more and more, after starting out as a pseudonymous blogger back in the early days of NC). They are an important audience, they don’t have the background that we do, and many of them read comments.

            I apologise for calling you out – it wasn’t really my place to do so as this isn’t my blog. I did not mean to suggest you shouldn’t be angry, just that if you want to get other people angry as well (as I hope you do) then there may be better ways to go about it.

          3. jsmith

            Well, Chris, how can we really judge how angry the people are when shows like Frontline and the rest of the MSM propaganda seek to ameliorate said anger by 1) spreading the blame around 2) making it seem that no crimes were committed 3) making it seem that no one is responsible and 4) by never covering any protests or voicing the concerns of the common person?

            I posted this in the Links section but it is really worth your read.

            It’s a nice essay on how reasonable people such as yourself have slowly been helping build the neo-liberal/fascist regime we now currently suffer under by instituting a political climate which never appeals to the emotions/concerns of the common populace.

            Kind of ironic, huh?

            After WWII, the geniuses decided that any politics of a populist bent would lead directly to fascism.

            So what did they do?

            Created a anti-populist political climate that lead directly to fascism.



          4. Up the Ante

            “Is this a pre-lim interview for a job with the IMF? ”

            It appears to be the re-certification process for continued employment in the nuke industry.

        3. chitown2020

          The banksters and the politicians are lucky the only abuse they have received from the 99% so far is verbal. The people were throwing garbage at Herbert Hoover by the end of his pathetic Presidency. I think it was Chris Whalen who said Barrack Obama is walking in Herbert Hoovers shoes. The gangsters terrorized the banksters back in the days of the last manufactured great depression.

          1. chitown2020

            IMHO, the American people have been unbelievably civilized considering we have been putting up with more b.s. and lies by the Governments in the last 10 years than most brains can comprehend. I don’t recall any stock brokers hurling themselves from buildings this go round.

    2. jo6pac

      Well said jsm, thanks Ives for the work you do but they use to do ok work on fl but that stopped a long time ago.

    3. Woody in Florida

      I agree with jsmith, great job Yves, and thank you soooo much for standing up for the people, even when you have to suffer through personal attacks. I rarely watch TV anymore, but I remember that Frontline was supposed to be respectable.

    4. Mark BudWiser

      I don’t think Yves deserves to be commended or that these Frontline people deserve derision or scorn.

      They deserve to be ignored permanently. It’s easy: just turn off your television set. Or in Yves’s case, send their email to the spam folder. Life is too short to waste this kind of time.

  2. JamesW

    Yves is right — the American Propaganda Network:

    FoxFiction — CNN — ABC — CBS — MSNBC — NRP — PBS

    is, as usual, completely propagandistic.

    Really, anybody with at least two neurons to rub together realizes this at this point in time.

    And when that day approaches, which appears to be coming on fast, when all printed media in the US is funded by foundations, then even more millions will pay attention to Yves!

        1. ctct

          HPA = highly paid assholes…

          i know it’s silly… but hell, these npr dipshits have been annoying me for a couple of decades

          1. JamesW

            They annoy me because I keep hearing the same stooges from ten years ago, and twenty years ago, and thirty years ago, and forty years ago — I guess they have jobs-for-life at NPR.

            “…Deutsche lost “billions.”

            That’s interesting, so their Taunus Corporation lost billions? ?

    1. banger

      It is important to realize that these propaganda organs are not a strictly top-down set of institutions–they reflect what the public wants. I claim that the public, in the U.S. at least, want the general narrative they are presented with and deeply resent the truth. People in these networks know and understand this important fact. Americans are suspicious of their oligarchs but will, increasingly, oligarchy as the emergent political/economic landscape for now and the future. People who desire fantasies and illusions and are willing to pay for it day in day out cannot sustain democracy or justice.

      1. cassandravert

        While I acknowledge the existence and strong persistence of cognitive dissonance, I’m not sure why people would rather pay for the theft and fraud of financiers rather than see those financiers exposed as criminals.

        In the 1970s, exposing companies and industries as dishonest made for high-rated TV. People felt it made the overall system stronger, not weaker. I’m not sure what truth you believe the general public is so afraid to face that it would prefer to enable large-scale theft and fraud.

        1. Mark BudWiser

          When Banger says “the public” he’s referring to a handful of shady media billionaires.

        2. Christophe

          The missing piece of the puzzle you are seeking is called the Just-World Fallacy. Many would rather pay for the financiers’ theft to keep intact their belief that the world is a just place. They rationalize that the financiers, who succeeded in becoming wealthy, must deserve that wealth. They desperately want the world to be fair and just, so they pretend it is. Calvinism attempted to turn this fallacy into a virtue, and our new aristocracy hopes to revive that cause.

      2. K Ackermann

        I’ll grant you a little bit of truth in what you say, mainly from specific shows catering to their audience, but lets not forget the media made excuse after excuse for the outrageous bonuses paid to executives of failed banks and were more than happy to trumpet the socialist meme and other dog whistles.

        If they wanted to give the people what they wanted to hear, then Yves, Taibbi, Black, and others would be all over the main networks. You have to be plugged in to hear them now, and that’s a shame because they tell the truth. It’s always the liars that get most airplay.

      3. JamesW

        I claim that the public, in the U.S. at least, want the general narrative they are presented with and deeply resent the truth.

        That ignores some rather obvious and critical facts: the CIA and Pentagon’s involvement in American mass media, dating back before Carl Bernstein’s 1977 or 1978 article in The Rolling Stone, titled, “The Four Hundred” — about the those intel agency paid types at various news stations and newspapers and magazines.

        And that former CIA director who once boasted it was far, far worse than Bernstein’s article detailed.

        Take for instance, Bryan Williams (I believe he’s at MSNBC — I don’t regularly listen to any American media, only the foreign press and I read financial data and government reports), prior to doing commercial news, Williams was a Pentagon PR spokesman — so is he still on their payroll while working at MSNBC? That’s usually the case.

        Ben Bradlee and every managing editor at WaPo — definitely on either CIA’s or Pentagon’s payroll.

        Negative, the media is tightly managed — take for instance, Steve Cole, author of a book on ExxonMobil titled, Private Empire: ExxonMobil and American Power, who is presently on a book tour.

        At every interview not a single interviewer ever inquires as to who owns ExxonMobil — someone or some entity owns the majority block of shares — why should that always be the typical American mystery?

        And yet it always is!

  3. Joseppi

    Frontline’s sophisitcated and dramatic storytelling with lots of interviews with key players fails most of all to express the outrage at the injustice of allowing these perpetrators, both in the financial industry and government, responsible for so much grief and loss of confidence in a financial system – To just continue on their merry money making way.
    Covering up the criminality spawned from greed by coloring it as simply complicated financial innovations that got out of hand will only lead to more of the same.
    Keep on this Yves, and thanks.

  4. Aint No

    I don’t know. I saw that Frontline show. And frankly I watched it as I was doing something else. Having worked on documentaries for twenty years or so, there is a trade-off you have to make between implicit advocacy for one’s own deeply held point of view and leaning over backwards to make sure you’re fair to your subjects.

    And it’s hard, especially if one is a critic of the uh . . ruling elites, their ideas, their predations and the there-is-no-alternative world they’ve made.

    Which is to say that your critique, while entirely valid in your terms, is less so on theirs. The Frontline show should have hit harder, it should have talked about the crisis of Capitalism and Capitalist innovation in the mid 70’s, about Paul Volcker and deregulation in the early 80’s, and about the rise of the boom and bust financial economy as the seeming antidote to American(and British) industrial decline.

    It would have been a been a great show, especially as they could had Volcker justifying his role in deregulation even as he attacked the repeal of Glass-Steagle. There would have been a natural narrative to follow there.

    It would have been a great Public television series, putting that Ken Burns crap to shame, but it is, quite understandably, not the one they made.

    1. Susan the other

      This was an excellent detailed response by Yves. PBS should have been more cautious. They must have thought they could carry off a confrontation. Funny. Or they intentionally wanted to undermine the crap they just broadcasted (ed?). They picked the wrong critic and in doing so they just exposed their twisted bias. They really should pull their pants up. It’s very distracting.

      Gotta admit the banks were on a roll while they got away with purveying their own risk avoidance.

    2. jake chase

      Apparently, being fair to your subjects means letting a bunch of windbags, shills, toadies and bunco artists blow smoke up the public’s derriere. This is what public broadcasting amounts to, and it is probably the price of keeping the funding going, so why bother to watch any of it? When I meet people who think information comes out off the TV set the only response I can make is to tune them out.

    3. EH

      Which is to say that your critique, while entirely valid in your terms, is less so on theirs. The Frontline show should have hit harder, it should have talked about the crisis of Capitalism and Capitalist innovation in the mid 70′s, about Paul Volcker and deregulation in the early 80′s, and about the rise of the boom and bust financial economy as the seeming antidote to American(and British) industrial decline.

      For some reason you left out what you think Frontline’s terms are and skipped right to what you think they should have covered. Are your terms equally off-base as you imply Yves’ are?

  5. Jim Clausen

    I truly would love to hear what Bill Moyers has to say about this piece of propaganda. I have enjoyed this debate and really appreciate your rebuttal.

    Thanks for fighting the good fight.

  6. Ken Burns

    Let’s follow this up with a thorough trashing of 60 Minutes!
    As if that would be necessary. Does anyone take PBS seriously at all anymore? Frontline is simply choosing sides in a predetermined debate, like most of the Inc Media. Attempting to place credibility with horseshit assumptions and taboo subjects is the name of the game – “we ‘report and decide’ for you!”

    1. Jill


      As Yves pointed out, many viewers of “Frontline” treat it as gospel. PBS serves an important function in propagandizing a specific segment of our population. Fox aims at one market, PBS at another. To govt./corporate propagandists would no more leave out PBS viewers than a baker would leave out yeast from bread. You have to use all your ingredients to make the bread smell good! Just so, it is necessary to obfuscate the truth from every part of one’s population. That’s what this program was doing and judging from the comments on its site, the program was successful in its endeavor.

      1. Jill

        I want to amend this to say, when you’re making wonderbread you need all the ingredients (from New Jersey’s chemical fields) to make it smell good!

        1. LeonovaBalletRusse

          Jill, your comments are just. Frontline’s report would have been much more honest, and quite different, if they had used the point of view and direct words of Yves Smith rather than of Gillian Tett. But they dared not do that.

          Yves was quite courteous to provide her painstaking reply to their “missive.”

      2. banger

        Excellent point–but I would add that these institutions are serving each of these constituencies with a convenient narrative. The fact that it is and has been consistently and demonstrably wrong for a long time interests only a single digit percent of the population. People want and need a coherent narrative and are willing to ignore anything we might call the “truth” that calls that narrative into question. Social-science has proven that and the oligarchs know that. Still we must keep trying–it’s a matter of self-respect and we never know when a paradigm shift could occur.

        1. Jill


          I don’t agree with two points you are making. Propagandists are not “serving” the people, they are manipulating us. I do agree they are providing a narrative but it’s serving them, not us. This is the only narrative allowed to have much air time anywhere on the dial. It must be repeated until it has saturated all the markets. In this way, few have access to the truth.

          People I know do understand that something is profoundly wrong. No matter how great we’re told the economy is, people who don’t have jobs know that isn’t true. We may not know what is wrong exactly, but the BS put out by the propagandists isn’t working like it used to. I see the govt./corporations are afraid. I’ve been listening to their coverage of the French and Greek elections. They are scared. Their new watchword is “extremists”. As if they are not the ones who are extremists!

        2. McKillop

          Perhaps ‘serve’ is used in the sense of ‘present’. As in PBS presents a ‘narrative’ that chiefly serves its audience propaganda.
          Consider that those who serve the media are well rewarded with fame and wealth: are they not deluded into thinking their positions make them important? Into thinking that their importance is deserved because their oldest profession gets them rewarded by both the wealth and fame _and also_ by association with big-shots?
          Is the audience itself free of ‘corruption’?
          From the time that we are womb-bound we are deluged with beliefs. We are hard-put to figure things out: even the things that we know are false are hard to dispel with truth. Add ‘marketing’ to the mix.
          And even with truth we have to earn a living, yeh?

    2. lambert strether

      Some still do take NPR very seriously. I have plenty of good “liberal” friends who do. This is not only pernicious with respect to the discussion of the true role of the banksters, it’s pernicious in the ZOMG! The debt!!! discourse.

      NPR plays a key enabling role.

      1. JamesW

        For the first time in thirty or so years I caught some actual content on NPR a few days past; they were actually, and finally, reporting on Darryl Issa’s arrest record, and his past alleged arson and insurance fraud incidents.

        They misled at the end, of course, as they said that Issa and his insurance company “settled out of court” — which inferred there wasn’t any guilt on Issa’s part (after the revealed the extreme circumstantial evidence which would have led to his conviction in a court of law).

        Point of fact: that “out of court settlement” could have just as easily been Issa paying off his insurance company so they wouldn’t turn him over to the police on arson and attempted insurance fraud charges.

        NPR will never tell the story straight — too many foundations and corporations in their financing.

  7. Jack

    Well done, Yves. I was saddened to see the decline of PBS well over a decade ago. Their sham of a reportage is just another mail in their journalistic coffin. Truth is the first casualty….

  8. Diogenes

    I don’t know.

    I guess my expectations were lower than everyone else’s.

    I was happy that at least someone is still talking about the crisis and how it occurred. Because I don’t hear many people discussing it anymore on Main Street.

    It’s a bit like the S&L Crisis. Where’s the anger for all the theft? It’s hard to be angry when you don’t have a clue what happened.

    I watched the whole thing and certainly did not feel like the originators of credit default swaps were innocent. As I watched, I was outraged by the bank bailouts, and although I am a lifelong Dermocrat, I actually found myself agreeing with a couple Republicans speaking in the house against them. I thought the Jefferson County coverage was good, where certain folk came off as thieves. And Obama seemed part of the establishment overall.

    1. reprobate

      But that’s the point. “Don’t have a clue what happened”. The series told people snippets that didn’t threaten the “bailouts were unfortunate but necessary”, “bankers created a Frankenstein that did them in” positioning, which lets everyone off the hook. Did you hear the word fraud or looting? That says it all. This was an exercise in “look tough but stay well away from the hard-hitting questions.”

    2. EH

      Where’s all the anger at the theft? It’s like John Yoo, Jay Bybee and torture: it’s not theft until someone is convicted of theft and the system gives the act a name. Until then it’s just a controversy.

      1. LeonovaBalletRusse

        EH, quite, “just a controversy” over false equivalencies. I guess we’re doomed.

    3. JamesW

      It’s a bit like the S&L Crisis.

      Not really. . .in the aftermath of the S&L crises there were approximately 1,000 convictions with quite a number of banksters actually doing jail time.

      Now we have a faux crat, in reality yet another neocon, President Obama, who continuously stands before the American public and falsely and fraudulently proclaims that the banksters broke no laws — clearly, Obama is actively breaking the law himself by aiding and abetting to millions of felonies and conspiracies to commit crime.

      Quite a difference.

  9. Jerry

    I am not an economist but this is my take. We have a political system beholden to an unethical, globally greedy financial system that has no moral compass. To me there is no legitimate reason to honor either. It is really so sad because we as a country have some really decent people who do the right thing and care about others. So I guess I see two classes..not the 1% and the rest. Rather people you can trust and those you cannot (government and financial). Not much different than say some of the corrupt systems in Central and South America. So what is a person to do…when in Mexico/America, do as the Mexicans….live your life caring about those who care about others and let the others eat each other unti they too come to their senses…

    1. jake chase

      Different in the sense that it relies less on naked force and more on letting young aggressive smart youngsters in on the game, relying on opportunism and competition among those who see life as one grand sporting event until they wake up one morning and realize they have lost and there are no second chances. That is the real value of the propaganda: it keeps enough people believing they can prosper in the system.

    2. Justicia

      Sorry, Jerry, but we’re past the point where a modern economy at the national, let alone global scale can work based on personal relations. What you describe is life at the village scale where everyone knows everybody and there are social structures in place to sanction folks who break trust. Our economic interactions are mostly anonymous and fleeting. (Do you know everyone from the farmer to the cook who had a hand in the burger you ate for lunch at the airport?) What we ultimately trust is that the government will enforce a standard of conduct in the marketplace.

      One of the reasons that U.S. financial markets have been sought out by investors the world over is because they were subject to regulations that that replaced “buyer beware” with the legal obligation to disclose important facts and to tell the truth or suffer the consequences (e.g., triple damages for false or misleading statements in sale of securities, prison for fraud).
      But the business elites have paid off the politicians to take the cops off the regulatory beat. So, now with hamburgers and securities you really can’t trust the system that’s supposed to protect us. We’re being fed ‘pink slime.’

      1. Jerry

        Thanks for your thoughts. I will ponder them…I am fortunate for I REALLY do have people in my life who have moral compasses whom I can trust. It gives me and my family hope!

  10. Jackie Robinstan

    PBS acts as propaganda for not questioning the legality of Wall Street’s conduct and thus, takes on the fundamental assumptions given by the gov’mint. Geithner approved!

  11. Jill

    This is a thoughtful, well written response to a disingenuous program and letter. In each case you cut correctly to the heart of the matter. Thank you!

    I’m glad they wrote you.

    1. Richard Davet

      Another omission……………….more fundamental to understanding it all.

      See my prepared comments to jamie dimon at the 2009 annual shareholders meeting:

      Richard Davet
      2009 JPM Shareholder’s meeting
      Exchange with James Dimon CEO and Chairman

      As you know, for years, the Bank has been and continues to be major players in its mortgage business in what has come to be known as the “Government Sponsored Enterprise (GSE) Business Model”.
      In September of 2008, Treasury Secretary Paulson declared that, and I quote, “these enterprises pose a systemic risk”. Your mortgage business goes 90%+ to Fannie Mae on a daily basis.
      Much has been written about the GSE flawed business model, including a Wall Street op-ed by George Soros which calls the models “hopelessly conflicted” and “it simply doesn’t work”.
      ? 1, When do you and the Board intend to disclose to shareholders the consequences of the Bank’s vigorous involvement with this fatally flawed business model?

      ? 2 Isn’t this business a little like your running a house of ill repute while knowing that all your ladies have aids and what are you doing to your client base?

      ? 3, What would you say to the skeptics that are out there that think that all players involved with the GSE Business Model are engaged in a simple criminal scheme, albeit of a dimension that we have never seen before, that a prosecutor would call “theft by deception” with the American taxpayer as the victim?

      It took JPM officials minutes to strike Davet’s questions and Dimon’s answers.

    2. Mark BudWiser

      Not only is it disingenuous but also to add injury to insult, Yves had to waste some of her precious time listening carefully to this infernal TV show to rebut it.

      It’s almost as if they wanted to punish Yves by making her watch it.

    3. Up the Ante

      “It’s almost as if they wanted to punish Yves by making her watch it. ”

      Continue apace, truth straight ahead.

  12. Veggie Color

    The Democrat majority in the Senate just blocked an attempt to curtail debt peonage for students. Perhaps Frontline can find other topics in need of washing for their base constituency to consume and enjoy. Indentured Servitude 2012!

    1. LucyLulu

      But student loan subsidies, unlike those to oil companies, must be paid for elsewhere by cuts to the working class/poor!

      And realize that “student loan subsidies” are funded directly by the US government now, who is borrowing at 2.5% and would be lending to students at 3.4%.

      1. JamesW

        Good points, but there is a connecting point: securitization, as in S.L.A.B.S., etc. with some of it funneled to senior executives’ retirement plans, etc.

        For a good read on public education, please see Christopher Newfield’s Unmaking the Public University.

  13. ftm

    Excellent response! But I do feel a bit sorry for the front line folks, Wall street can wield complexity to fleece reporters as effectively as they fleece “clients”.

    1. banger

      Everyone that has ever been around MSM knows that you have to tread very carefully around the powerful. I have some sympathy from the Frontline people–they would be crucified if they went out hard against the system it’s not that they wouldn’t want to it’s just that they cannot. The oligarchs have a set of rules and if you want to work you have to follow those rules–the “truth” as such is not important. Furthermore–most publics don’t want the truth at all. All the information Yves talked about exists and has been discussed for years on the internet and elsewhere–but only a few are really interested in finding out the truth–that is more the tragedy than anything PBS does.

      1. Jill


        Here is some of the public that does want the truth. There are many more of us than you think. “Bank of America has hired G4S for its shareholder meeting. According to Wikipedia: “G4S…is the world’s largest security company measured by revenues and has operations in more than 125 countries.

        G4S and its subsidiary Wackenhut have a lengthy criminal record:…(examples given)…”… On June 13, 2010, a video posted on YouTube by documentary filmmaker James Fox showed Wackenhut guards preventing reporters from covering the BP oil spill.[30]…

        The kind souls from G4S, being housed in two downtown hotels by B of A, will be joined by off-duty police hired by B of A, wearing their police uniforms, and empowered to arrest on B of A’s behalf and at the order of B of A security.

        What is this militarized, privatized emergency preparation for? Are foreign armies descending upon the shareholders meeting of the Bank of America? Nope.

        Actually citizens of the Country of America. Newspaper headlines explain: Bank of America braces for protesters onslaught. (

        1. JamesW

          Great points about BofA and G4S. G4S is also the world’s second largest private employer, and seriously involved in the privatization of police forces and judicial systems, around the planet, including in America.

          Their chief lobbyist in Washington, D.C. is Jeffrey Starr (note similar spelling to founder of AIG and the founder’s newphew, trust fund baby, Kenneth Starr, former special prosecutor leading to attempted impeachment of President Clinton); Starr is a former top guy at Defense Intelligence Agency, who then worked at Goldman Sach’s Business Intelligence Group, and eventually ended up with G4S.

          G4S (then G4S Wackenhut, later dropped the Wackenhut from its name) was involved with Gov. Walker (Gov. Wanker? ?) of Wisconsin when he was a county clerk and tried to privatize the court guards with G4S — later overturned by a court (for overstepping his legal powers).

        1. McKillop

          Easy to say, isn’t it?
          Why would anyone call on another to sacrifice well-being for such a worthless cause?
          There are crowds of people who encourage someone else to make a stand. Those people in the crowd will be ‘right behind’ the goat. Or too busy! Or didn’t mean “that”!

  14. fresno dan

    Just today (or maybe yesterday)the Washington Post had a business article about hot it was “everybody” that caused the crisis. Well, all may have sinned, but a few are a LOT more damnable than most…

    It is astounding though, how ?forgiving? ?jaded? ?disspirited? Americans are about people who demonstratably proved that they don’t know how to “bank.” And yet we give them trillions cause “these guys know how the system works!!!”
    It really is about to drive me insane.

  15. Thorstein

    Frontline completely omits mention of the risks to the system coming from the private-equity sector. But read this transcript of the exchange between Lloyd Blankfein and FCIC-investigator Chris Seefer to get a sense of how big & important those risks were.

    This exchange occurs at the 31-minute mark of this interview:

    Chris Seefer: So, describe for us, if you can—when the volatile markets occurred in 07 and 08—what were the areas, in terms of derivatives, the areas of concern to you guys.

    Lloyd Blankfein: It’s a little artificial for me to think about derivatives. I would be thinking of asset classes that are moving. I would say the biggest asset class that I was concerned with for this period — I may be [wrong about the exact time period] . . . . I would say when the credit crunch started, the most important thing for us was our credit business, our leveraged-loan book. Because that was where we had the bulk, we had a much bigger business . . . that was the bulk of our business. . . . You could see how small the mortgage area was for us. The credit exposures [in our leverage-loan book] were much bigger [than our exposures to mortgage-loans].

    [And at the 32:24 minute mark:]

    Lloyd Blankfein: We are one of the biggest firms in M&A. As a consequence of doing M&A, you end up . . . as a result of our investment banking and M&A practice we end doing a lot of [PE-related bridge-loan] financing. Those [bridge-loan] positions lie/reside in our credit business within fixed-income, in that area. And so as a result of that, we had tens of billions of dollars, maybe at that point, over $50 billion of exposures to leveraged loans.

  16. F. Beard

    “Risk-avoidance” is a joke when the system is prone to systemic failure due to:

    1) Counterfeiting – so-called “credit-creation”.
    2) Usury.
    3) Failure to regulate a “not-free-market”.

  17. LucyLulu

    I have a question about CDS for anyone who knows the answer.

    My understanding is that they were also used by lenders to hedge the risk from the time loans were made until the time loans were deposited into the MBS trusts. Is that correct? My other question is who were the counterparties and what risk was being covered in the CDS market that blew up? The one that required the AIG bailout and companies like MBIA to go bust. Was it the European market that Yves referred to? Another market?

    1. Mark BudWiser

      Since they aren’t regulated, you’ll never get an answer to those questions.

    2. Yves Smith Post author

      To the first part of your question, I’ve been told by CDO structurers (and the overwhelming majority of CDS were bid out and put in synthetic CDOs) that about 3/4 were used by shorts and 1/4 by hedgers. And you are correct, the hedgers were mainly “pipeline” players who were holding mortgages to be put into securitizations. My impression is this didn’t start in a big way until late in the cycle (2006?) and even then, they didn’t hedge fully, just part of their exposure.

    3. JamesW

      ” . .to hedge the risk …”

      Truly, a popular mythology. Like the recent CFTC study which found that at least 90% of commodity futures trades weren’t about hedges, but strictly for speculation purposes, there exists no suitable way to comprehensively track all the naked swaps out there and the significant damage they did — and each time another one is purchased, be it covered or uncovered (naked), the disruption of any counterparty structure is complete.

      FYI: Paulson would pay $1.4 million for a CDS on a mortgage CDO, and it would then pay out $100 million (when AIG received those first TARP bailout funds, $1 billion immediately and directly went to Paulson.

  18. jal

    A number of my financial illiterates friends have commented on the program.

    They were amazed to learn that the banks did wrong.

    Its a start of the awakening.

    Its good that you are getting the right details on the record/web

    1. chitown2020

      A very many are still paying underwater mortgages because they don’t believe that there was any fraud by the banks. They are still believing the lies that it was deadbeats who bought homes they couldn’t afford…blah..blah…Millions can’t wrap their heads around this. 20% of the loans were made to people who could not afford their homes. Not enough risk to collapse the global economy. The 1 in 5 bad quality loans the Liars Loans made to people who qualified for better that was the set up to fail. What collapsed the economy was the $1.2 quadrillion dollars in derivatives fraud debt that Wall Street created off of the refis and anything with a revenue flow that caused the collapse. They couldn’t pay their bills on Wall Street …..they owed too much. So they robbed and
      blamed the victims….and we are still paying for it even though their debt can never be repaid…They are all in dishonor.

    2. JamesW

      And that directly tracks back to the crimes of Alan Greenspan when he was at the Fed; this fraud could only come about when Greenspan signed off on the illegal merger (in direct violation of Glass-Steagall) of Travelers and Citigroup — an illegal pre-approved merger in 1998, well before the passage of the Gramm-Leach-Bliley Act to overturn Glass-Steagall.

  19. Jim

    I apologize if this gets posted twice…this documentary was clearly an attempt to make Obama appear more sympathetic. This was their ultimate goal, as a “Citizens United”-type film to try to score political points against the R’s, without creating howls from Fox News. The documentary even used the term “missed opportunity”, in regards to Obama giving bankers a pass, rather than the appropriate ones, “corrupt” & “immoral”.

    As far as PBS is concerned, their demographic is affluent 5%ers who are more concerned about social issues than economic ones, since “they’re doing OK”. Those watching and commenting on are people that had these opinions already; Obama-bots, if you will. The reinforcement of the opinions of those people who are already beyond hope, until the train runs them over, is no big-picture loss. This documentary doesn’t buy any new Obama votes in November, sorry gentlemen.

  20. orionATL

    i have followed this debate last week and this. it has been most interesting and technically very educational for me.

    on the other hand, i’ve been divorced from television/radio reporting for at least a decade, including pbs/npr/cpb – there just is too little coffee and too much sludge in each cup they serve.

    the point i want to make here is that pbs/npr/cpb gave up any serious news or investigative reporting some years back, in response to republican attacks on their funding (bill moyers alone was not muzzled). no one should have any expectation that pbs, for example, would challenge any political power center in our society, e.g., banks.

    this does not mean that yves smith need not have challenged frontline. her challenge was warranted, extremely persuasive, and even necessary, because many others had watched the two programs and may have come away misinformed about the nature and the range of potential remedies for the great financial crisis (they used to be called “panics, remember?).

    so, thumbs up for yves smith for her very disciplined hard work in rebutting what was probably well-camouflaged cowardly journalism.

    thumbs down for frontline for, at best, a major dumbing-down of a powerful story, not yet well-told by teevee.

  21. DWoolley

    The onus is on Frontline. Due to their historically creditable work the damage from the two episodes cannot be undone. Today the public has few sources of hard news available on television; it is troublesome to lose Frontline to the Kardashian era (visions of Messrs. Wiser and Smith stumbling for a place among the paparazzi “Kim! Kim!”). Equally troublesome is the “look back” perspective given, those in the know realize we’re somewhere in the middle game. Just this week Sandy Weill was wondering out loud why we can’t “move on”? Ah, explain that to a family of four living in their parent’s basement with no reversal of fortunes in sight.

    Frontline, damage done. I will relegate myself to watching the Brooksley Born “The Warning” reruns, dreaming of what could have been.

    1. JamesW

      Weils’ comments are dishonestly hilarious given that it will take at least 20 to 30 years of deleveraging thanks to their criminal peddling of trillions of dollars of credit derivatives having no value.

  22. Klassy!

    I did not watch the show and it appears you have done a fine job of critiquing their critique (your turn Frontline–critique the critique of the critique.) but I mean, if they presented it as “the bailout was inevitable”– well, that is all I need to know. Banker friendly!

  23. tesla

    Commercial television is inherently propogandizing, this is why the internet is being shut down.

    there are no indepedent sources of cheap truth. the indepedent presses were bled dry by television. magazines are dead. dailys are dead. the only cheap news you get in new york papers is the freebie bench wipers known as amdaily and metro ny.

    if the internet is what’s left, the last source of dissident opinions about what’s really going on, then rest assured, theyre coming after it.

    1. Capo Regime

      True. As I got on today I was informed that Vidal Sasoon died at 84. Forget an economy and millions of people destroyed by crony capitalism! It is me or the world going crazy?

      1. JamesW

        Hey there! Sasoon is a member of the Rothschild family.

        (Also Bloomingdales, and a few other well-known names, including a guy named Sandy Weil — oh wonder of wonders?)

  24. scraping_by

    The Frontline shell game has one optimistic side. If their TINA narrative of bailouts vs chaos still needs to be pounded into people’s brains, it means that significant numbers of people know better.

    While hiding behind the “all viewpoints equally valid” wheeze, reality gets shuffled off to the back. I can see the lack of nationalization or other resolution being hard to narrate, since the Washington Consensus is by nature limits the acceptable range of reality, turning it into theatre. Much of the justification of the bailout were code phrases for keeping their place in society, but it’s time and trouble to decipher. Just film the prepared surface and they please important people.

    It takes time and money to propagandize in the public media, even such a cheap venue as PBS. The fact they’re still spending means the lie isn’t accepted truth, that there are still those who aren’t lying down and letting it all go away.

  25. Guy Fawkes

    Frontline did a fabulous job with “The Warning.” This one, not so much….I kept thinking, “If Obama knew about the whole mess and was updated daily, he sure blew it upon gaining access to the Whitehouse. So really who gives a crap if he was briefed daily if he took the wrong path and screwed all the homeowners that this fraud has used as collateral damage.”

    PBS – two thumbs down on this one.

  26. Capo Regime

    Great job Ives! Reading this and living in D.C. and being acquainted with some the stenographers posing as journalists you daily confirm my suspicions.

    As an aside, the doings of the current administration and the means and friends Obama used to ascend to power make Nixon look like a boy scout. Looking at what the Obama admin SOP is today the crimes that led to Nixon’s resignation look downright quaint. Some bag money, bugging an office, lying…..boy talk about defining deviancy down. Goodness, even Spiro T Agnew is a ethical giant compared to the crew at 1600. Guess when the elites don’t like you and you end wars you are toast…

  27. Capo Regime

    Will any “major” media figures even admit there is a “crisis” or just a hiccup to be sorted out?

  28. freedomny

    Y – have to hand it to you for your dissection of the Frontline program. Haven’t seen the program but looking forward to watching.…/plutonomy-and-the-precari_b_1499246...

    For anyone interested who hasn’t read, above is a link that was on HP – post by N. Chomsky, who I don’t often read…but when I do, he manages to scare the chamomille tea right out of me.

    Plutonomy and the Precariat – Yikes – unless there is change, it will come to its fruition very soon.

  29. toschek

    I have not seen this yet except for the last 20 minutes of part one, but it seems on par with most Martin Smith produced Frontline episodes based on your description; namely power worshipping, victim blaming claptrap dressed up as serious discourse.

    I tend to tune his episodes out and only watch the ones produced by Lowell Bergman, who is a real journalist and a great human being as well.

  30. Murky

    Well, I’ve watched the two Frontline’s programs and read Yves’ and readers comments. I have a couple points to make, and I’ll be concise:

    The element of criminality is not explored in any serious manner in the Frontline programs.

    Yves’ characterization of these Frontline programs as ‘whitewash’ struck me as a perfect one-word summary of content.

    If Frontline continues to ditch the issue of criminality, then they become an exculpatory agent, legitimizing the proclaimed innocence of Wall Streeters, without crooks, looting, or any responsibility for the financial crisis.

    Frontline’s response to Yves’ critique was to bury us in a thousand words. This is obfuscation. A truly honest response from Frontline would have to include a vastly more concise and readable statement than the one given.

    1. Doug Terpstra

      “If Frontline continues to ditch the issue of criminality, then they become an exculpatory agent, legitimizing the proclaimed innocence of Wall Streeters, without crooks, looting, or any responsibility for the financial crisis.”

      Nothing murky about that. It’s collaboration, aiding and abetting. Lambert and ‘reprobate’ also asked if the word “fraud” appears anywhere in the program. It does not, not once; nor do the words “crime” or “prosecution”. That’s why this really does amount to a whitewash and a campaign piece for Obama; it tap dances all around with complex gyrations, but never gets to the crux of it. There were manifest crimes from the beginning, from predatory subprime liar loans, to designed-to-fail securitizations, fraudulent ratings, forgery and perjury in foreclosures, toxic assets dishonestly foisted on Fannie and Freddie, egregious violations of Sarbanes-Oxley, and so on. Not even mentioning fraud in this unmitigated disaster is blatant malpractice. And so the bribery, fraud, and looting go on and on, mestastasizing throughout the global economy until it finally reaches a terminal stage, beyond treatment. pBS does not acquit itself well here at all.

      1. Warren Celli

        Good comments here, but the crime has already been committed.

        There is no doubt in my mind that this vile Frontline propaganda is a whitewash indeed and stands as blatant; “collaboration, aiding and abetting” of what will come to be known as the crime of the century.

        I am sure many of you know personally the victims involved and the results of the grossly immoral financial fraud so meticulously documented for so long now on this Naked Capitalism web site; friends, family, and acquaintances, that have suffered hard ship, confiscation of the fruits of their hard work, denied opportunity, fixed low wages, homelessness, lost retirement, early deaths, suicides, break up of families, forced to live in tent cities, bogus imprisonment, etc., and the resultant similar effects in other nation states around the world.

        These horrendous degrading societal results in their totality attest to the extremely serious nature of the crimes committed.

        That Frontline can legitimize the secessionist, anti-American, global corporate gangsters involved here, that have purchased and now control our government, and at the same time position them as simply well meaning but bumbling good guys, not only makes them complicit aiding and abetting collaborators but it also makes them anti-American traitors of the highest order.

        Deception is the strongest political force on the planet.

  31. MichaelC

    It seems that everyone (sans Yves) missed the opening line of Episode 1:

    “The following is a special 2012 election event”

    As a “crisis junkie” I can’t find a misplaced word or a weak argument in this piece.

    It’s a simple story with a lot of moving parts that Frontline is simply too lazy to elucidate.

    Which is odd since Pulitzer ignored Yves reporting on Magnetar, yet rewarded PBS affiliate ProPublica for the same central story. Yet that bit never shows up in their narrative.

    Per Yves:

    “The only reason to go that early might be to depict the missed opportunity to regulate them and prevent the creation of a standardized template for CDS on asset-backed securities, which as we described long form in ECONNED, is responsible for the toxic phase of subprime origination (third quarter 2005 to summer 2007). They try to have it both ways in their letter, saying they covered that ground in another Frontline documentary. Sorry, that doesn’t pass muster. A presentation needs to be self contained. And even with hard core Frontline viewers, this also demands that they recall content from an earlier program, when in our information-overloaded society, that is a lot to expect of those who do not follow the finance beat.”

    This is the arcane bit the crisis hinges on.

    Most of the rest is noise.

    Someone at Frontline gets it.(Martin Smith acknowledged it in the intro paragraph in his response to Yves initial critique).

    This is an (self proclaimed) election event, not a documentary.

    We all should have turned off the TV after the initial alert. Shame on us for wasting 4 hours. But woe to PBS for trying the con us in an OWS sensitive election year.

    Well done Ms Smith.

  32. Philip Pilkington

    Very good. Totally agree. Just repeat my journalistic point in case the producers read the comments:

    Trying to have a ‘balanced dialogue’ when the System is rotten will only produce Pravda-like news. Most institutions allow for a balanced approach to reporting, but the US investment banking industry does not. They are above the law and not subject to any outside pressure. Attempts at balanced reporting only plays into their hand.

    I can appreciate that, as journalists, you’re not used to this sort of situation. But this is the reality today. And unless you want to continue to get kickback from the likes of Yves, you’d better learn to appreciate it — even if it does cause you to have to take another look at what a journalist’s fundamental job is in today’s world.

    1. Capo Regime

      Probably the job of a journalist is now really that of state and corporate stenographer and propagandist? Brian Williams or “columnist” Ezra Klein seem to me deserving of either praise or approbium–depending on how the job is defined….

  33. PaulArt

    The moral of the story is to end all complexity in the area of finance. The other very serious omission Frontline made is to treat with kid gloves all the politicians who were involved in the financial deregulation. Chris Dodd stalks through the program blame free. Very infuriating.

  34. Mike

    I watched the Frontline show.

    I think a lot of people who post here know a lot more than most Americans, AND have very strong leanings to the left.

    To the person who said all the information is out there on the web, for people who want to look. There’s a LOT of information on the web, and it’s not easy to know what’s true, and what isn’t. EVERYBODY can find people to support them, in their current beliefs.

    To the person who said we SHOULD be angry, I agree with your opponent. MOST people want facts. Angry rants just sound like all the other angry rants, coming from all positions on the dial. One more doesn’t help anybody. You basically preach to the choir, instead of growing it.

    To the people who say that most of us WANT to be lied to. What I find is, I see LOTS of stuff telling me we’re being screwed, left and right. For some reason, the fact that major media outlets aren’t telling us the same thing confuses me. I basically have to accept, from the left perspective, that they’re all bought and paid for by the elite. I.E., they’re pretty much out-and-out lying to us.

    One idea that Yves presented to me was striking: the reason there were so many predatory mortgages given was because there was a huge demand for them by the banks which were packaging them, buying a few CDSs on them, and then selling them to investors. I’d had the idea that dishonest brokers were a cause, and not so much of an effect.

    But, overall, I came away from Frontline thinking that it was the lack of transparency, and the lack of regulation, pretty much bought and paid for by the elite, that created the fiasco. I have the idea that not much has really changed, because they’re still buying off the government, to keep any real regulatory changes from occurring.

    Ok, I also got the idea that it all got a lot more complicated than regulators could understand. I didn’t get the idea that CEOs were pretty much looting the system for their own gain.

    One last thing that made the banks look bad. AFTER they were bailed out, they had little use to even show up to listen to what Obama had to say, at a later Wall St. speech. It looked like he saved them from the torch and pitchfork crowd, and then they didn’t much need him anymore.

    1. Capo Regime

      How is it that people who are against crony capitalism, against corruption, for a functioning media, for actual enforcement of laws are characterized as “having strong leanings to the left”? How is that leftist? If anything the administration purpoted to be leftist is frequently (and justifiably) skewered in this blog and by most posters. I cannot recall Yves ever advocating anything leftist or rightist for that matter. If anything, you can probably characterize posters and Yves as supporters of law enforcement, transparent and truly markets, honesty, and a functional government. I take it supporters of redistribution of tax payer money to millionaire bankers have strong right leaning views? Do tell how the views expressed here are in any way leftist?

    2. JamesW

      ” I’d had the idea that dishonest brokers were a cause..”

      If you studied further, especially where JP Morgan Chase is concerned, you would realize that is where the collateralized housing mortgage model originated, including the CDO variants involved, and (thanks to Blythe Masters) the creation of the requisite credit default swap.

      Sell the house, securitize the mortgage, sell it off, perform fraudclosure (especially thanks to MERS), then be almost fully compensated if it’s a Federal Home Loan, next begina again — and its profit times 50 or 100 or 1,000….

  35. Pkragt

    Two of your sentences:
    The use of a narrator (and this series had a narrator) signals that the producers intended to provide a perspective.

    What happens if you fail to give non-expert viewers sufficient guidance through a complex fact set? The audience not only gets little in the way of illumination, but it also reionforces the idea that the situation is complicated and hard to grasp.

    As someone who would like (that is, has not been able) to produce more educational and expert-opinion-centric video, my comment would be that what you are critiquing here is a strong present-day convention in doc making: docs nowadays must always be experiential, non judgmental, and lead though not explicitly provide the viewer with conclusions. But like reality-TV this is something of a fad. Docs in the 30’s had a very different and didactic mode, another convention. But if anyone, Frontline might/should be able to get above the usual conventionality.
    But one thought which came to me while watching the initial 15 minutes, was that PBS may be making political calculations: this being an election year, Be fair to both parties! But such (silly) carefulness would be misplaced, when the objective should be truth and accuracy, explanation of complexities, historical perspective if possible.
    I found my 15 minutes of content interesting but lightweight. I noticed that the packaging and insurance notions were described, yes, but soon after the narrator made a vague statement which demonstrated to me that he had then mixed/confused the two. But I also found myself wishing to express again a pet peeve re: CDSs. Does it really matter why or who first created these contracts..? Young men poolside, young female financiers, a group of workers in a Mexican restaurant brainstorming during their break time. If the contracts are in fact insurance then this raises a philosophical (!) question for me as to their validity within the (that is, our) ongoing legal-commercial framework. But a question such as this one is even less allowable in terms of mass market viewing – though not yet a problem for blogging.

  36. emptyfull

    Well, I just watched the first two hours and can see it from both perspectives. The producers included a number of brief, but provocative (for a mainstream audience) statements that alluded to the basic injustices of the system. For people who have not been following the financial crisis carefully, they might well view these comments as rendering the documentary “left-leaning.” The inclusion of a number of hand-wringing insiders seems not too obviously propaganda-ish, even if they do somehow manage to interview John Thain without mentioning his famous office redesign…. In other words, this could have been much much worse. It could have bowed to political pressure to blame it all on Fannie and Freddie, etc.

    But I do think that Yves critique mostly stands. When the documentary gets down to details, they almost always seem to support a whocouldanode narrative. Banks were perhaps slightly devious in preventing any regulation, but overall it was ignorance and erroneous assumptions that led us into crisis, rather than overt corruption. Frontline, in other words, spent a lot of time promoting “stupid” rather than “evil” in its detailed narrative, but did include some punchy phrases here and there that point to a possibly deeper critique.

    Maybe as compensation for its pulled punches, Frontline could do a show on the brazen destruction of US property law and massive fraud on the court system that the banks (with administration support) have pulled off these past few years?

  37. psychohistorian

    Thanks for your ongoing deconstruction of the propaganda that Frontline is putting out.

    The blatant misrepresentation of fact by media organizations in support of criminality in the financial industry shows how malignant our social organization has become.

    It is way past time to get beyond the global inherited rich controlling our world. They need to be removed from control, inheritance limited to non-forever accumulation and their ill gotten gains returned to the public commons.

  38. rob hollander

    Maybe economists saw the documentary differently from lay viewers like me. I saw it as an extended indictment of the culture of finance and the failure of government to regulate. It painted a picture of the banks as insatiable, destructive and, though clever, even self-destructive animals without restraint. The last word — or the ones I most remember — were the comprehensive analysis of Cathy O’Neil’s, and she has written for Naked Capitalism. The message of the documentary was: demand better regulation, don’t let the bankers off scotfree.

    I did find it lacking in one point: it didn’t give the impression that many CEO’s should be put behind bars. In fact, it made a point that one banker, LeCroy, is in prison, which implied that the justice system is working satisfactorily. For many reasons, I don’t expect Frontline to accuse publicly anyone of a crime. But I would like to have seen them interview Bill Black answering that implication.

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