The Cost of Lost Privacy, Part 3: Google, the Subprime Meltdown and Antitrust Implications

Most people don't think of Google as a key player in the financial debacle that crashed the economy, but like almost every company making billions of dollars in the last decade, a chunk of Google's profits were coming straight from the subprime mortgage lenders.
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This is the third part in a three-part series that is running this week at HuffPost on how lost privacy online drives economic inequality in our economy. The first part looked at the ways lost privacy leads to greater economic inequality in our economy and how Google users are encouraged to give up that personal data without recognizing its real value. Part two looked at why this personal information is so valuable to advertisers and how it empowers what economists call "price discrimination" and just plain old racial discrimination.

All of these issues of price discrimination, behavioral tracking and datamining discussed in the last two parts of this series come together in Google's role in the subprime mortgage meltdown and its aftermath. Most people don't think of Google as a key player in the financial debacle that crashed the economy, but like almost every company making billions of dollars in the last decade, a chunk of Google's profits were coming straight from the subprime mortgage lenders in the form of targeted online advertising using Google to find customers.

Google and the Subprime Mortgatge Meltdown: Back in 2007 as the housing market was beginning to teeter, a range of market analysts noted Google's and other online advertising companies' dependence on the subprime industry. As Jeff Chester of Center for Digital Democracy said at the time, "Many online companies depend for a disproportionate amount of their income on financial services advertising, with subprime in some cases accounting for a large part of it."

To give some sense of its importance, look at this Nielsen/Netratings chart from July 2007 on which online advertisers were spending the most money:

Low Rate Source and Countrywide, the first and fourth company on the list, were both major subprime players -- with Countrywide's bad assets continuing to plague Bank of America, which purchased the company early in 2008 as the company headed for default. The second company on the list, Nextag, had a large role in aggregating online leads for mortgage sellers, while the fifth company on the list, InterActiveCorp owned Lending Tree, a key mortgage lending advertiser, so a chunk of that traffic was no doubt for mortgage-related searches. And Experian, the credit report company, was of prime interest to people pursuing those loans.

So what you had in 2007 was the top five online advertisers involved in the mortgage lending industry to some extent, delivering almost $200 million in monthly revenue to online advertising companies like Google, with literally hundreds of billions of views of those online ads driving the frenzy for refinancing and subprime mortgages with ads like "LowerMyBills" and other online enticements.

Those numbers above are for display ads only, a segment in which Google is a prime player through its Doubleclick purchase. Google does not share data on specific revenue from particular companies on its AdWords and related search advertising, but reports at the time showed the mortgage companies paying top dollar for related keywords like "mortgage" and "refinance" with prices going as high as $20 to $30 for each user click on an ad using those terms.

And the racial aspect of the subprime mortgage crisis was endemic, with the whole fiasco described by some scholars as "reverse redlining," the practice of targeting borrowers of color for loans on unfavorable terms. Companies preyed on the lack of many customers' familiarity with the mortgage market to entice them with unrealistic "teaser rates" -- heavily advertised online - that burdened them with toxic terms and unmanageable obligations that exploded in later years.

Even with the crash of the housing market, the online exploitation of the victims did not end. As the group, Consumer Watchdog, complained in a Feb. 8 letter to the Federal Trade Commission, Google and other search engines continue to profit from deceptive advertisements of fraudulent "loan mortgage modification" services. The companies promise to help families solve their mortgage and credit problems, yet just end up costing consumers thousands of dollars and even their homes.

In their report, Liars and Loans: How Deceptive Advertisers Use Google, Consumer Watchdog details how at least 20 companies were running fraudulent versions of these services and paying Google to run these advertisements, with Google making as much as $8.29 each time someone clicked on a term like "stop foreclosure." Literally millions of people each month are searching for variations on the phrase "loan modification" only to find these fraudulent services advertising on Google's pages, making Google, in Consumer Watchdog's words, a "prominent beneficiary of the national home loan and foreclosure crisis of the past two years."

That makes Google one of the few companies to profit hugely from the mortgage bubble as it expanded and to continue to profit from the housing meltdown aftermath. And it means that the company is still facilitating the continuing transfer of wealth from working families to financial firms that lay at the heart of the housing debacle.

Antitrust, Google and Reversing the Surge in Economic Inequality: In this way, Google continues to be the middleman using its vast reservoirs of data on individual behavior online to help other companies extract money from working families. The reason antitrust investigations of Google are needed is because its business is not search or email or any other visible tool most users see, but the accumulation of vast aggregations of personal data deployed on behalf of its advertising customers.

Former Federal Trade Commissioner Pamela Jones Harbour has argued for a definition of Google's market as encompassing the collection of "data used for behavioral marketing." Domination of such a market inevitably erodes not just individual privacy but, as argued above, helps perpetuate the broader rise in economic inequality in our society. The less our personal data is held by one company like Google, the less our marketing vulnerabilities can be aggregated, packaged, and sold effectively.

We need a broad-based investigation of how Google and related companies use individual data in packaging its services to advertisers, how its dominance allows it to more effectively extract user information, and what are the broader social harms to the public welfare from Google's actions. It is this cost of lost privacy and how behavioral tracking is facilitating the extraction of income from working families to Google's shareholders and the shareholders of its advertisers that need the most scrutiny.

No one would argue that many of its tools like its search engine or Gmail don't benefit average users, but many commentators continue to operate under the illusion that those tools are Google's business.

They're not. Google makes its money from data accumulation and selling that data to advertisers. It's that business of selling user privacy to advertisers where the social harm is occurring and where antitrust action is needed.

And because this violation of privacy lies at the heart of the antitrust problem, solutions by the Federal Trade Commission (FTC) can address much of the problem by changing Google's use of user data. Stronger privacy protection for individuals using Google tools would blunt many of the data-mining driven problems created by the company's dominance. Other countries are pioneering rules that block the tracking of online activity without explicit consent, give individuals the ability to remove personal data from Google's databases, and create public alternatives to products like Google maps which do not require the disclosure of personal data in order to use them.

This won't necessarily change the operation of most of Google's consumer tools -- something that some Google defenders seem to fear and may drive their reflexive defense of the company. The most important changes in Google's behavior under any antitrust decree should be largely invisible to the average Google user -- although would be dramatic for the corporate advertisers who currently exploit Google's datamining in their marketing efforts.

Restoring a degree of control by individuals of what personal data is shared online can eliminate some of the information inequality in modern marketplaces that itself helps drive greater overall economic inequality. And the FTC antitrust investigation of Google can itself be a chance for a much broader public debate on the abuses of datamining online and how to make all markets work more fairly for average working families.

This full series can be viewed here.

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