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The Whistle-Blower They Ignored

Posted on Apr 13, 2010
AP / Dennis Cook

Armando Falcon, director of the Office of Federal Housing Enterprise Oversight, holds a copy of his agency’s report on Fannie Mae in an appearance before the House Financial Services Committee in October 2004. The report criticizes Fannie Mae’s accounting practices and management policies.

There aren’t too many genuine heroes to come out of the banking disaster, but Armando Falcon is one of them. You have probably never heard of him, but his testimony Friday before the Financial Crisis Inquiry Commission, available on the commission’s website, is must reading for anyone trying to figure out why U.S. taxpayers had to bail out companies to the tune of hundreds of billions of dollars.

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Falcon was the chief regulator attempting to bring order to the houses of Fannie Mae and Freddie Mac during the first four years of this decade, and had he been listened to, a significant part of the housing crisis could have been mitigated. Instead his agency was denied serious regulatory power by Democrats in Congress including liberals such as Reps. Barney Frank and Maxine Waters, both of whom assumed he was undermining public support for more affordable housing. 

He wasn’t, and instead was attempting to call attention to the reckless bundling of risky mortgages in which the government-chartered agencies acted like the other too-big-to-fail behemoths that together almost wrecked the entire economy. It was those on the lower end of the income scale who had put their life savings into risky mortgages that were most hurt when the bubble burst.

This is a guy whom Republican congressmen and the Wall Street Journal editorial writers have lionized, and for once they got it right. At least the part about Fannie and Freddie being out of control and their applauding Falcon’s past efforts to rein in the greed of their top executives. Where they go wrong is when they attribute the company’s misbehavior to the alleged liberal do-gooderism of the mostly Democratic Party hacks that ran the enterprises. The reality is that concern for affordable housing goals was simply a convenient mask for unfettered greed.

Conservatives make much of those goals, which both Bill Clinton and George W. Bush endorsed, but objectives of this sort had nothing to do with the sordid behavior of the executives who ran the companies. Asked by the commission to testify on the impact of those goals, Falcon responded:


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“Your letter also asked me about the impact of affordable housing goals on the enterprises’ financial problems. In my opinion, the goals were not the cause of the enterprises’ demise. The firms would not engage in any activity, goal fulfilling or otherwise, unless there was a profit to be made. Fannie and Freddie invested in subprime and Alt A mortgages in order to increase profits and regain market share. Any impact on meeting affordable housing goals was a byproduct of the activity.”

The problem with the so-called government-sponsored but essentially private institutions that the conservatives are so happy to vilify and that liberals feel the need to defend is that they represented the worst of both worlds. Although originally chartered by the government, they had morphed into super for-profit monstrosities run by executives whose huge bonuses depended on the price of the company stock. As Falcon put it in his testimony:

“Ultimately the companies were not unwitting victims of an economic down cycle or flawed products and services of theirs. Their failure was deeply rooted in a culture of arrogance and greed.” 

In short, they behaved like the other financial conglomerates, but the government-sponsored housing enterprises were protected by powerful members of Congress and what turned out to be a strong guarantee that their bad paper would be covered by the taxpayers.

They do deserve considerable blame for the banking disaster that ensued, and while it is hardly the whole story, it gave the free-market conservatives a convenient target. But it also presents them with a contradiction that they refuse to confront. The housing enterprises failed not because they were do-gooder public entities but because they weren’t. Their top executives were driven by the same desire for outlandish profit that their counterparts at AIG and Citigroup had. As Falcon put it referring to then Fannie Mae’s CEO Franklin Raines:

“While all of this political power satisfied the egos of Fannie and Freddie executives, it ultimately served one primary purpose: the speedy accumulation of personal wealth by any means. … In the case of CEO Franklin Raines, he collected over $90 million in total compensation from 1998 to 2003. Of that amount, $52 million was directly tied to achieving earnings-per-share goals. However, the earnings goal turned out to be unachievable without breaking rules and hiding risks.”

It only adds insult to injury to blame the unfettered greed of folks like Raines, and his congressional allies who were lavishly attended to by those agencies, on a concern for the low-income homebuyers who were their main victims. 

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By samosamo, April 18, 2010 at 11:04 am Link to this comment

By RAE, April 18 at 2:36 pm

An author I have really liked to read, Allen W. Eckert and his
books ‘The Frontiersman’ and ‘Wilderness Empire’ present the
beauty of pre-european invasion up to the invasion and the
eventual take over. I just checked him out on amazon and he
seems to have a few more books that pertain to his ‘THE

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RAE's avatar

By RAE, April 18, 2010 at 10:36 am Link to this comment

Whoever blows the whistle on financial institutions these days might as well be using a dog whistle - inaudible to the human ear.

Those who care about the inequities and thefts have no power to remedy the situation.

Those who don’t care have all the power to maintain the status quo (or worse, increase the inequities).

Pretty much end of story.

@samosamo: - In Canada, in the days when the Hudson’s Bay Company owned half the country, the BEAVER PELT was the currency. First Nations and Inuit peoples traded them (and other pelts) for guns, knives and many other things the “white man” had.

Ah… the good old days!

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By samosamo, April 18, 2010 at 9:36 am Link to this comment

By RAE, April 18 at 8:26 am

““I suspect that just as the money “appears” when someone
types in a number in a computer, it disappears when someone
hits the minus sign. It’s way beyond me.”“

Good point because ‘money’ is really a faith based shenanigan,
meaning who has the power or authority to say
$100,000,000.00 and that it belongs to you, him, me, her or
anyone. ‘Precious metals and gems or even oil’ could be
examples of existing materials that have been made to show or
express wealth and to be ruthlessly and fanatically cherished,
pursued and hoarded to give one the ability to own a
‘something’ or hold dominion over others.

Somewhere a system of barter fell prey to a more arbitrary
system of ‘ownership’ via a thing called money which has with
the advent of civilization and societies become so cherished,
that along with the advent of religion, agriculture,
industrialization and the ever expanding human population that
it is rather easy to see how inequitably all this becomes with the
not so peculiar human trait of greed. But the real bottom line is
that if you can’t eat or drink it for sustaining life, what is it really

Besides, ‘faith based’ anything can just disappear with the stroke
of a key on a computer these days and once again something
that would or should be a help to the silly human race is
commandeered by those willing to think up the ways of trying to
control others.

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RAE's avatar

By RAE, April 18, 2010 at 4:26 am Link to this comment

Good question, TedMurphy41. Please suggest some names of people who might know whose answer we could trust?

I suspect that just as the money “appears” when someone types in a number in a computer, it disappears when someone hits the minus sign. It’s way beyond me.

I do remember when I was a kid taking arithmetic. I remember questions such as “How many apples would you have if you already had 4 and a friend gave you 2 more and then you gave one to another friend?”

That kind of arithmetic I understand. Today’s shenanigans with our dollars is a total mystery. I trust no one in the financial industry. I think anyone who does is a complete fool.

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By tedmurphy41, April 18, 2010 at 4:16 am Link to this comment

I would like to know where the money supposedly lost by all these Financial Institutions, and now being covered by the taxpayer, has gone.
Some individuals, somewhere, must now be fabulously rich and this wealth, surely, must be traceable,  don’t you think?

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By doctorand student, April 15, 2010 at 8:54 pm Link to this comment
(Unregistered commenter)

The fed. reserve did it.  Irrational exuberance, imminent threat, bubble and they continued to raise interest rates until the market crashed.  This go round they raised it 17 times in a row and burst the bubble.  They pulled the rug out from underneath all commonwealth, all working class.  All money invested in the, big engine, 401k’s, IRA’s, college funds were lost in a bear run produced by the Fed. and the compliant media.  Henny Penny the sky was falling and we either got out quick or suffered the con-sequences.
Well, the rich now have many buying opportunities in the stock market and real estate because as mentioned above, they raised interest rates making borrowing more difficult, fewer buyers decreased borrowing power, decreased affordability and coupled with fear messages from the fed. and the media decreased values of stocks and houses. 
The money invested by state and fed. government and by other institutions is diminshed and hence their budgets.  Therefore, cutbacks in education, layoffs, furloughs and other clever ways to stimulate the economy. 
Perhaps, like speed limits on our roads, we need regulation to control our human nature to speed or for greed. Given power it’s human tendency to test the limits.

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By samosamo, April 15, 2010 at 5:21 pm Link to this comment

By sharonsj, April 15 at 5:02 pm

Would you believe this is still part of the S & L crisis from the 70s
and then into the 80s when regulatory controls were
compromised and that kind of ‘control fraud’ has been the point
where the whole financial crisis based.

Of course, slick willie clinton became as equally complicit as
ronnie macdonald reagan was in deregulation by gutting the
Glass-Steagall Act of 1932 when he signed in 1999 the act into
law to deregulate controls to prevent another depression which
is what I consider we are once again experiencing.

Read William Black’s book ‘The Best Way to Rob a Bank is to Own

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By sharonsj, April 15, 2010 at 1:02 pm Link to this comment
(Unregistered commenter)

It’s not about personal choices and irresponsibility!  An FBI report says 80% of Lenders committed fraud.  Then you’ve got all the bond ratings companies and the appraisers colluding with the banks and mortgage companies to continue the fraud.  Finally the investment banks took all those mortgages and cut them into tiny pieces, put them together like a jigsaw puzzle, and sold them worldwide.  Each time one of these pieces of paper changes hands, someone collects a fee.  They would have continued this forever, but the bubble burst. 

Now we are in a downward spiral because the Ponzi scheme means millions are out of work.  You can kiss small businesses goodbye as a result.  The situation is more complicated than I’ve presented, but—please, stop blaming the homebuyers.  They are the ones who are completely screwed.

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bonito's avatar

By bonito, April 15, 2010 at 12:28 pm Link to this comment

These same people that worship Wealth, and seize
every opportunity to declare how hard they have
worked in order to accumulate their riches, are the
same that do not want to pay a living wage to the
persons they hire that work even harder to make them

If indeed Hard Work is a precursor to Wealth, than
certainly the workers that pick up our Garbage, work
as laborers on Construction Sites, do the Stoop Labor
in the fields, work on the assembly lines of the few
Factories We still have in this Country, and any
other Job that is considered Back breaking, should
all be Millionaires.  At least long before The Jocks,
Rocks, Movie Stars, T.V. personalities that the only
claim to fame they may possess is their ability to
run off at the Mouth, and or the wall-streeters that
can tell enough lies to convince investors to part
with large sums of their Money so they in turn can
rip off a sizable amount to enrich their own life

The wonderful GOP, is fond of saying that Small
Businesses are the ones that put people to work in
this Country, just maybe that is the problem, usually
without any benefits, such as Health care, Vacation,
Living Wage, or any other Value sought by the public
in their pursuit of Happiness. 

I have no quarrel with Mom & Pop Businesses, or, one
man Contractors, as long as they do all of the work
themselves, pay into Social Security, and do not
depend on the rest of the population to support them
in their old age.

We no longer have viable Unions in this country, not since the GOP in concert with their SAINT RONNIE The RAY-Gun, and the likes of Fixed-News FOX, John Wayne McCain, Sen. Hachet of Utah and all of the rest of the Union Busters have had their way.  The only thing the Poor, Working Poor, and those that are soon to join them have to look forward too, and to Paraphrase Winnie the Poo from England, is Blood Sweat and Tears

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By Psycho Babbler, April 14, 2010 at 2:31 pm Link to this comment
(Unregistered commenter)

Why does this information come so slowly? Someone is protecting these wealth
obsessed morons and I would like to make it their problem.

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By mitchum22, April 14, 2010 at 1:31 pm Link to this comment

Forget this guy, Bob.

Are you still wiping egg off your face for your very silly embrace of Uncle O’s “revolutionary new nuke policy”?


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By prole, April 14, 2010 at 12:17 pm Link to this comment

“This is a guy whom Republican congressmen and the Wall Street Journal editorial writers have lionized, and for once they got it right”…once? Not so long ago Scheer was telling us arch-Republican, Jim Bunning “got it right”. And most of his columns are littered with references to Wall St. Journal droppings. So it’s hardly surprising that Scheer thinks they “got it right” – again. If Armando Falcon “was attempting to call attention to the reckless bundling of risky mortgages in which the government-chartered agencies acted like the other too-big-to-fail behemoths that together almost wrecked the entire economy”…he wasn’t the only one. In fact, he had rather shady company. In late 1999, none other than Larry Summers, then Treasury Secretary and now Obama’s economic czar, whose own culpability in helping bring about the financial crisis is well known,  warned in a speech, “Debates about systemic risk should also now include government sponsored enterprises, which are large and growing rapidly.”  And in March of ’00, Summer’s de-reg crony, and now Obama’s chairman of USCFTC, Gary Gensler, then Treasury’s undersecretary for domestic finance, suggested in a speech that the Treasury should reconsider Fannie and Freddie’s $4.5 billion line of credit. Scheer’s unlikely “hero” Falcon, appointed by Clinton at about the same time, in ’99, was a little late to the party.
  Freddie Mac, one of the two “super for-profit monstrosities” that Falcon’s OFHEO agency was supposed to be regulating had the same accountants as Enron, Arthur Andersen. When Freddie’s new accountants,  PricewaterhouseCoopers went over their books, they discovered Freddie had been overstating their profits for years, resulting in a $5 billion restatement of past results and the mass resignations of exec’s. Problem was, shortly before that, Falcon’ s OFHEO had announced that Freddie’s house controls were “accurate and reliable”  - a massive gaffe. After that, the embarrassed Falcon and his staff morphed into regulatory hawks.  At the same time Alan Greenspan – another de-reg culprit of that time – was also taking aim at the government sponsored mortgage giants. In early 2004, Greenspan told Congress that “to fend off future systemic difficulties, which we assess as likely if GSE [government sponsored enterprise] expansion continues unabated, preventative actions are required sooner rather than later.” And in the wake of the Enron scandal the Bush regime decided to mount a campaign to clean up the GSE’s which they regarded as Democratic strongholds, anyway. So it’s not surprising Republican congressmen or the WSJ, who were equally complicit with reckless Dem’s in de-regulation at the time, should be chiming in now. Falcon was seen as a useful ‘fellow traveler’ by the Bushite’s in reforming the GSE’s then, too. The “serious regulatory power” denied by Democrats in Congress including treacherous liberals such as Reps. Barney Frank and Maxine Waters, began to be taken more seriously by a divergent political aggregation that included but was by no means limited to new found “hero”, Falcon. But having done his bit for mankind, Falcon has moved on to greener pastures. Like many former government hero’s he’s using his public knowledge and contacts for gain. He’s now founder and CEO of Falcon Capital Advisors, another Washington lobby and consulting business, which in its own words,  “We help financial firms identify opportunities and solve problems that arise as markets and government regulations evolve.  Our clients need to understand the direction, details, and reasoning behind regulatory changes.  Through our analysis and consulting services, financial and real estate firms can effectively adapt their business strategies to stay ahead of the competition.” Wonder how many clients, Falcon has among “low-income homebuyers”?  “unfettered greed” runs in many directions.

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By gerard, April 14, 2010 at 10:20 am Link to this comment

Our (perhaps primary) problem is how to get rid of greed.  Sorry to say, it won’t happen under the present economic system which encourages greed.  The greedy in positions of leadership could turn things around with a few “summsit” meetings on how to limit economic “weapons of mass destruction.”  Yes?

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By thebeerdoctor, April 14, 2010 at 10:05 am Link to this comment

re: felicity
How accurate your comments are. Truman (and I am no great fan of Harry) was the last president to understand that being President was to serve, not serve oneself. How ironic that the man responsible for establishing the locked down National Security State (in Gore Vidal’s perception) turns out to be the last president who did not consider the office to be a launching pad for personal economic gain. Thank you for pointing this out.

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By felicity, April 14, 2010 at 9:40 am Link to this comment

thebeerdoctor - Speaking of ‘financial portfolios’ old Harry Truman, according to historians, had only one asset when he died, the house he was living in - and that he inherited from his wife’s mother.

After leaving the presidency, he was of course offered high-paying positions in the corporate/financial sectors but declined saying that they wanted the office of the President, it didn’t belong to him, it belonged to the people, and it wasn’t for sale.

Compare then to now and it kind of makes one sick to one’s stomach.

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By Charley Barcelo, April 14, 2010 at 9:09 am Link to this comment
(Unregistered commenter)

It has been said that when a person lies he is not telling the truth but when a person tells a half truth he doesn’t even know where the truth is.  This observation refers to the comments I have just read.  While most people are not deliberatly lying there are telling part truths thus we can’t really tell where the truth is.  There is a lot on misinformation and not much clear information, most of it is so muddled with personal fantasies that one cannot tell.

Adam Smith postulated that properly educated people would act positively by engaging in actions mptivated by their enlightened self interest.  This advice has been muddied by people acting in their unenlightened self interest while extolling the virtues of enlightened self interest.  Therefore we can’t tell the difference.  This is what is meant by half truth. 

We have been bombarded by 50 years of right wing propaganda until we just don’t know whwt truth is.  The Limbaughs, Becks and Palins are outright lyers while other commentators parrot the trickle down point of view all the time accusing the other side of waging class warfare and death panels etc.

There are those who claim the two party system is corrupy and we need a third party.  Well we have one the, Tea Party which is merely a right wing of the right wing Republican party.  They advocate doing away with social security and everything the Democratic party has passed.

Others call for Proportional Representation which will allow more representation and perhaps reveal more fair representation.  This not an untried system in fact it is used in many American municipalitees plus a number of European Countries.

It is time to explore some alternate method, it certainly cannot be worse than what we have arrived at after 3 deacaes of Republican rule and half truths.

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By jporter, April 14, 2010 at 8:22 am Link to this comment

There would be no problem if only congress would adhere to the Constitution.  No where in this founding document are provisions made for government to be messing around in the mortgage business.  This is a private area and not that of government.  Follow the dictates of the Constitution and our government will be fine.

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By samosamo, April 14, 2010 at 8:11 am Link to this comment

Let me see, since I don’t watch tv I have no way of knowing if
the dumbstream media reporting on the government still has
just one reporter from the major dumbstreams at the white
house and one at the capital and 5 to 8 minutes to report on
what our crooks in office are doing maybe in twice a day
broadcasts from the very lawn of the white house and the steps
of the capital, so word of mouth since no reporter, I rather think,
would be allowed in to see and hear original discussions.

Couple that with the basic premise being any whistle blower is
guilty of revealing classified information, be it government or
corporate, and thus not covered by the dumbstream media or
given a quick piece on how someone was stopped from
revealing classified information that would harm the security of
the U.S. of Corporations. That is how it is worked by ‘hand in

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By balkas, April 14, 2010 at 8:01 am Link to this comment

There are only two structures of society that can be potentially fully developed: an asocialist and an idyllicly socialist one.

US is now more than midway in creating an ideal asocialist [fascist, if u will] structure of society with vast disparity in econo-politico-military powers btwn people.

It is systemic for US to want and labor to widen the gap bwtn people.
On the other hand, several lands appear to be on their respective roads to setting an idyllic society.

Of course, it may take centuries [i’m hoping decades or yrs] to create by popular demand an idyllic society.

It had been said that if one forgets history, one is doomed to go thru it again and again.
People who say that, however, seem to avoid to say that also preplutocratic-stratocratic history shld be taken into account.

Obviously, prior to rise of shamans, sorcerers, magicians, ‘visionaries’ and later priests and ‘patricians’ [read please: mafia], we had been guided or ruled by elders.

We lived in an ideal lawlessness; w.o. army, media, tax collectors, spies. When confering, they sat in a circle. The leader cld be seen daily and one cld even have a smoke with any of the guides.

Later priests replaced elders. Began to write ‘laws’, set up serfdom, slavery, usury, torture, stratocracy, spies, etc.
And to this day!

Once we wld have many idyllic societies and some ideally fascist ones like in US, we wld be in a new coflict: civilized world against an uncivilized world. And, then, what? A war to end all wars btwn the two antipodal systems and possibly end of biota?!

No, probably not! Probably sanity might prevail. tnx

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Leefeller's avatar

By Leefeller, April 14, 2010 at 7:25 am Link to this comment


They is not we. Me, myself and I are are not we!

They are them and those opposed to we is us!

Interesting how ones pet peeves turns out to be the antitheses of another.

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By balkas, April 14, 2010 at 6:53 am Link to this comment

Don’t all pols, priests, MSM collumnists, ‘educators’, generals, plutocrats omit to say that in a much egalitarian or an idyllic society such financial practices that Scheer talks ab wld be illegal?

It is of the system; i.e., legal to amass excessive wealth in US.
And pols and others have proclaimed that US is governed by laws. And also that these laws are eternaly valid!
Constitution being a mere set of laws and being understood only by a few chosen people! tnx

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By Kalpal, April 14, 2010 at 6:22 am Link to this comment
(Unregistered commenter)

One may recall Gordon Gekko in a movie declaiming that “Greed Is Good.” He never explains that it is good for a paltry few and utterly disasterous for the many.

When anyone makes millions by shoving thousands on to the welfare rolls it is not all that wonderful. I know this may be a bone of contention but I am for the many who can’t buy legislation as the wealthy few do in order to maintain their privileges.

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By urscrewed, April 14, 2010 at 6:12 am Link to this comment
(Unregistered commenter)

As much as I despise the socialists I have to give them this one, go to Frontline and watch “The Warning” in that epic story you can see the real villains in the Meltdown. Oh, yes there are more and they are in the Obama’s Admin. the tyrants thieves are still there.

Instead of Ben getting person of the year he should have been arrested with Allan Greenspan etc.

She Miss. Born who was head of an obscure agency. She was the person of the decade and she should have received a Nobel Peace Prize not that other guy.

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By farmertx, April 14, 2010 at 5:44 am Link to this comment

Rather than just Greed, it was unbridled Greed that created many of the financial institutions problems.
By definition, all businessmen are greedy. But in years past, they had a limit to their greed. In some cases it was self imposed; in others the Government imposed the limits.
Much is made of the Housing Crisis being caused by Democrats. Their bill did away with the practice of redlining; the rejection of any loan application made from certain neighborhoods. Nowhere did the law say that banks had to loan money to whoever asked.
Even that great financial mind, the Shrub, said that everyone deserved a home of their own. But he didn’t add, ‘whether they could afford it or not’. That was the lender’s fault and only theirs.
Whistleblowers like Falcon and the guy who warned of Madof’s scandal were ignored by the ‘free market’ policies of the Shrub. It was also the Shrub who had to “abandon free market principles in order to save the free market system”.

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By SoTexGuy, April 14, 2010 at 4:43 am Link to this comment

There’s little to be gained by continuing to try to frame the bail-outs and boondoggles in political terms, IMO. It’s all about personal choices and goals and irresponsibility and a ‘me first’ lack of a sense of community.. Perhaps our politics are in large part what we, as a nation of greedy and fearful people, deserve?

About the financial fiasco.. WBEZ ‘This American Life’ made a program describing the systematic looting of America. It’s online at:

Get the free MP3 and enjoy it at leisure. I strongly recommend it.. there’s a good laugh or two in there as well.


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RAE's avatar

By RAE, April 14, 2010 at 4:26 am Link to this comment

The Whistleblower They Ignored

I keep reading about this “THEY” but almost never do I read who “they” are. “They” get to decide every damned thing about my existence, (or so “they” like to fool themselves into believing), but I rarely have any idea who “they” are.

It doesn’t matter too much, though. I choose to ignore almost everything “they” say and do unless and until their shenanigans start fooling around with my way of life.

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By omygodnotagain, April 14, 2010 at 3:45 am Link to this comment

beer doctor right on the money, we have made saints out of greedy people, we reward scamming not hard work. If the government was to give powers to fight fraud, the way they obsess about terrorism, half of Wall Street and most of K Street would be in high security prisons.

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By thebeerdoctor, April 14, 2010 at 3:29 am Link to this comment

Franklin Raines is a classic example of what it means to be well connected.Bill Clinton’s OMB director who then found the rainbow pot of gold at Fannie Mae. His obscene salary is perfectly acceptable in the universe these folks inhabit. Unfortunately this is one of the main reasons problems can’t be solved, because too many believe that accumulating money is the end-all reason for existence. President Obama’s infamous comment about the banksters being “savvy businessmen” points the way.
In the United States greed is worshiped. The powerfully greedy (Warren Buffett, Bill Gates, Oprah, etc.)are seen as oracles with demigod status, especially for their philanthropic activities. The Ones Who Are Above The Rest Of Us are allowed privileges that those beneath them will never know.

Observe the wealth piled up by the Clintons. Supposedly broke when he left office, the ex-president found new pals like Carlos Slim, to kick back with.
The facade of Washington is to convince those beneath, that these greedy rascals actually care about them.

I wonder what President Obama’s financial portfolio will look like, once he leaves office.

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By Horatio Waldorf, April 14, 2010 at 2:23 am Link to this comment
(Unregistered commenter)

Here’s some handy context, for those who actually need to understand this stuff:

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