Gordon Gecko For President: Obama and Pop Culture Can Do What Rick Santelli and Sean Hannity Can’t
By, Cedric Muhammad

If I could have gathered an orchestra, I would have had them build up to a crescendo during this portion of President Barack Obama’s Address To Congress: “People bought homes they knew they couldn’t afford from banks and lenders who pushed those bad loans anyway.”

Unfortunately, I would have had to send them home, because the show stopping punch line was never delivered. President Obama never explained why “banks and lenders…pushed those bad loans anyway.”

A few days I presented a blog, “Securitization As Satan,”:

http://www.cedricmuhammad.com/securitization-as-satan/

In it I explain that despite what you may be led to believe by listening only to CNBC’s Rick Santelli (“This is America! How many of you people want to pay for your neighbors’ mortgage that has an extra bathroom and can’t pay their bills? … President Obama, are you listening?”) and Fox’s Sean Hannity (“Government influence and Fannie Mae and Freddie Mac caused this!”), the undisputable truth – which no media outlet will present and no respected economist or financial historian can deny – is that a significant majority of loans in this country were orignated, not because of the primary motivation of a bank or mortgage lender to make money off of interest rate payments, but rather its desire to make more money by selling that loan to a third-party investor: an investment bank, commercial bank, hedge fund, government sponsored entity, pension fund, or insurance company.

The secondary market for mortgage securitization and not the primary market for mortgage lending is more to blame for this mess that we are in.

And the shadow banking industry that purchased these securities became more important than the commercial and mortgage lenders who originated the mortgages they were based upon.

Now, I gather that this truth won’t be popularized until Jay-Z makes a track called ‘Securitized Gangster,’ or, Britney gets the phrase tatooed on her ——; or Michael Douglass can be coaxed into starring in Wall Street II in the role of Lewis Ranieri of Salomon Brothers or Angelo Mozilo of Countrywide.

But it sure would be helpful if our Beloved new POTUS would take a few moments to explain to the American people how we really got into this mess, and the reality that because so many banks sold their mortgages to third parties, he and Congress are really limited in their ability to stimulate the economy or repair the housing market. (Hey Lil Wayne, how’s this for a song - ’A Bank Can’t Change What A Bank Don’t Own.’)

As I have previously blogged, this is why the privately-owned Federal Reserve’s TALF program (designed to revive securitization) is more important to understand than the U.S. Treasury Department’s TARP program (designed to revive commercial bank lending). Credit won’t unfreeze because securitization controls room temperature.

The reason this basic truth is important is because it leads to another – the fact that the American economy became too dependent upon its financial services sector, moving away or taking valuable capital and talent from other sectors like manufacturing, agribusiness, general services, and even information technology, not to mention unknown areas of innovation.

Statistics show that an American economy that had manufacturing as 29.3% as a share of its Gross Domestic Product (GDP) in 1950, with financial services representing 10.9%; by 2005 had eveolved into financial services with a 20.4% share of the American economy and manugacturing down to 12%.

Securitization, which moved beyond mortgages in the 1970s to everything from credit card receivables, student and small business loans, computer leases, and corporate borrowing (even music royalties see ‘Bowie Bonds’) in the 80s and 90s, has become the lifeline of a significant portion of economic activity in America and the world.

In short, if a primary economic activity like a loan, receivable, or revenue stream can’t be bundled and resold as a security in the secondary market, it may not be produced in the first place. It is estimated that without securitization markets $2 trillion in lending is no longer possible.

How important is this?

$4 trillion in total is what was lent to businesses and consumers in 2007.

That’s the real definition of a credit freeze.

Yes, this is the financial version of the tail wagging the dog - a situation where a small part (securitization) is controlling the whole of something (real economic activity).

If the President really hopes to stimulate this economy and save the housing market, he will have to bring balance to an economy that grew to devalue produce from the earth, the entrepreneur with a great idea, a profitable local factory, and even the simple purchase of a home – if it could not be turned into paper profits, over and over again.

If he can’t do it I and we will have no choice but to turn to what Sean Penn, in his Oscar accpetance speech, called the ‘Commie, Homo-loving, sons of guns…’ to get the message across.


Cedric Muhammad’s ‘The Eclectic Economist’ blog is available at Cedricmuhammad.com (http://www.cedricmuhammad.com/)

This entry was posted on Wednesday, February 25th, 2009 at 12:59 PM and is filed under Blog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

By, Wendy Day from Rap Coalition

Mark Curry is my new poster child for Rap Coalition, but he doesn’t know it yet. Not because he has written a tell-all book slamming Puffy’s business practices, not because he takes responsibility for his own bad decisions, but because he tells his firsthand experience about the shadier practices in the entertainment industry that prevail in almost every company. And he tells it loudly, with examples, and from his experiences in the music industry being signed to Bad Boy for more than a decade.

This is a similar story that I have heard over and over and over in my 17 years in this industry. The story hasn’t changed much in 40 years since artists were given fancy new Cadillacs in exchange for their music, nor does my reaction to this and similar stories change (it always depresses me; I am not desensitized to it). When I sit down with most artists, it’s more of “to what degree did you get jerked?” than “did you get jerked?” Obviously they got jerked. Most do. Sadly, it’s the price many creative people are willing to pay for their chance at “getting on” or some primal need for money and fame. Every time I hear this similar story, my first question is always “why did you stay so long?” The answer always floors me: I believed him. We were family. I knew he needed me so he’d have to do right eventually. He said if I would just wait a little longer, all of my dreams would come true. It’s a building process. My turn would come. All I wanted to do was buy my Mom a house, and he was on his fourth Bentley so I knew he’d break bread eventually. Blah, blah, blah.

Mark Curry was signed to Bad Boy Records through a production company that was bought out almost immediately. It is a way for people behind the scenes in the industry to get a quick pay check. Someone finds an artist and brings the artist to the record label (in this case, a well known street dude). The label recognizes the value of that artist and wants that artist in their camp. The label “tests out” the artist’s talent by giving him, or her, an assignment. The assignment is usually to write a song or make a track for another already signed artist who is struggling for a hit record to “help” the family, or company, or team. In Mark Curry’s case, it was P Diddy himself looking to make a hit single for a soundtrack to a Godzilla movie. Mark delivered.

Once the label is convinced the artist has value, it comes time to pull out the paperwork. In Mark’s case, he says Puff gave him a contract to sign with the middleman. When Mark asked why he couldn’t sign directly to Bad Boy instead, he was told because the middleman was Puff’s friend (as an ironic twist, this same friend is the person Puff testified in front of the Grand Jury that he didn’t know his real name—the same crime that sent Lil Kim to prison in a different case) and actually found Mark and brought him to Puff. After Mark balked at the language in the contract that he was unable to understand, he says Puff was kind enough to send him to an attorney (after Puff allegedly asked that famous question, “Don’t you trust me? I thought we were cool?!”). That attorney, Kenny Meiselas, turned out to be one of Puff’s entertainment attorneys at a strong and credible law firm. Conflict of interest? Not exactly, Mark wasn’t exactly signing to Bad Boy. Mark was advised to sign the deal by counsel, so he did. Puffy then bought the contract from the middleman, thereby putting a wad of money--recoupable money from the artist, in the middleman’s pocket and landing Mark Curry on Bad Boy.

That contract, entitled Mark to a $75,000 advance: $25k was a signing bonus (recoupable), $25k was for the rights to half of his publishing (recoupable), and the remaining $25k would be given to him upon release of his debut album (also recoupable)--an album that never came. Since the middleman had taken half of Mark’s publishing off the top, he received that $25k, so all Mark received for signing to Bad Boy was $25,000. He knew it didn’t feel right, but he focused on the future and what other ways there were to make money in this business—touring, endorsement deals, etc. I wonder why we didn’t see this scenario on any episode of The Making Of The Band. It’s all too commonplace in this industry.

As Mark was consistently promised the opportunity to work on his own album, he was side tracked with tours, writing songs for Puff, and teaching Puff how to deliver his rhymes. Basically, he was put on hold to build the artistic career of his boss. Mark went along with that because he saw everyone else in the camp doing so, and figured it was the way things worked. He watched Puff enact sales pitches on the “Bad Boy family” of other artists and producers to get them to do whatever he needed done. He watched Puff get into numerous legal scrapes to emerge victorious. He watched Puff use Biggie’s death to increase his own popularity, fame, income, and fan base. Mark watched one disgruntled artist after another leave Bad Boy. He babysat other artists under the guise of “developing” them at the label. And Mark watched promise after promise fade into dust, even when he was most desperate.

When Mark Curry reflected on why he spent ten years at Bad Boy without ever releasing his own record, he surmised that he had more value to Puff building Puff’s career. He also felt that it was because he was trusting enough to believe his mentor and label president when he spun him by telling him the timing wasn’t right, or that he was busy with the planning of his next party or his clothing company or his world tour…or the most common excuse: we’re waiting for your budget to be approved (a lie that a label accountant finally exposed upon telling Mark that Puff never had submitted a budget for Mark’s project).

In “Dancing With The Devil,” Mark pointed out numerous ways that Bad Boy and Puff, directly, was able to profit from artists. In most Bad Boy contracts there is a clause stating that the artist has to pay Puff for appearances on a record. Since Puff is creating the album, he controls those appearances on all singles and album cuts. At $40,000 per appearance (even if just whispering “Bad Boy! Bad Boy!” in the background), he can make a fortune on appearances on his own artists’ records. Bad Boy artists often record at Daddy’s House, a studio owned by the mogul. If an artist receives a recording budget of $250,000, that fund can easily be spent with Hitmen producers (you guessed it, producers who are signed to the mogul with a stake in the publishing rights) at Daddy’s House studio (rumored to be the current going rate of studio time at $125 an hour in the late 90s). Not only does the production and recording fund go to Bad Boy owned entities, but it is all recoupable from the artists’ budgets—a double win for any company willing to do business this way.

Mark also pointed out that when Mary J Blige was recording at Daddy’s House, for example, she would be billed for 8 hours in the studio, but may have only used 6 hours. Those additional 2 hours would be paid from her MCA recording budget, but would be used by Bad Boy Recording artists to record-- artists with no ties to MCA. Mark also set the record straight about Kirk Burrowes, a former Bad Boy President, who was allegedly threatened into signing away his 25% ownership in Bad Boy, but was strung along long enough (apparently with the promise of money) to miss the statute of limitations deadline to sue for what he claimed was rightfully his. Once he filed suit, he was falsely painted in the media as a disloyal, money-grubbing liar out to gold dig a mogul (for the record, Puff spent more on jewelry for his women than he paid in annual salary for Kirk Burrowes to run the label during the early years of Bad Boy--his argument being that Kirk was a 25% owner of the label and would make money in the long term). The “relationship” that Puff had with his artists and staff seems to have been a powerful hold which kept them around long enough that they couldn’t do anything about it, and close enough that they didn’t want to….until they caught on and it was too late. In which case, either violence allegedly ensued, or images and careers were destroyed.

There are two things I didn’t like about “Dancing With The Devil,” although it’s an amazingly honest, insightful, and brave book. The way Mark listed names of street dudes who were in Puffy’s circle was a bit excessive. Now, I’m not saying he did not tell the truth, but I don’t feel he needed to discuss by name who allegedly shot Tupac in Quad, or who allegedly killed Puff’s bodyguard Wolf, or who allegedly shot Jake that fateful night that is credited with kicking off the East Coast/West Coast beef. Secondly, while there are more artists than not who’ve signed to Bad Boy and eventually cried foul, shady industry tactics are not the sole dominion of Bad Boy. Shady and fraudulent practices exist at many other companies throughout the music business. It doesn’t seem to be a Black or white problem specifically, but a green (money) problem. I realize Mark is speaking from his personal experience, and it is his autobiography, so he is only speaking about what he knows. Bad Boy is NOT the only company, by any means, in this industry that has been accused by its artists of shady business practices. Although it IS one of the most successful, and has been accepted without due diligence by journalists, the media, fans, executives, the industry, star fuckers, hoes, and party goers alike.

All in all, “Dancing With The Devil” was a riveting read, and a must for anyone who takes a career in the music business seriously. Once I started reading it, I couldn’t put it down til I was finished the book. It is available at www.MarkCurryBooks.com.

“I told you that we won’t stop…” –Sean “Puffy" Combs