by hilzoy
I missed this when it first came out a month ago, on (cough) Valentine's Day. It's an op-ed by Eliot Spitzer on the federal government's attempt to prevent states from responding to what would eventually become the subprime mortgage crisis. Read it and weep.
"Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye. (...)
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation."
Greg Palast linked to that the other day as part of his post that Spitzer's take-down was all part of a bigger plan.
I'm not sure I buy into Palast's conspiracy theory, but there is not question there myriad reasons for Wall Street and 1600 Pennsylvania Ave to want Spitzer's ass as marginalized as possible...I can't think of a better way to get a guy like Spitzer to shut up than to publicly humiliate him.
Posted by: Mr Furious | March 17, 2008 at 12:06 AM
I generally don't do conspiracy theories without some evidence. In this case, the general Bush admin. unwillingness to ever let anything be regulated, even when (as in this case) there are plainly nutty practices that could produce serious systemic risk, seems like a fine explanation, absent further evidence.
Posted by: hilzoy | March 17, 2008 at 12:25 AM
It's all business. Bush bailed out some mortgage holders because he knew the market will correct anyway. if they weren't going to pay they weren't going to pay. Same with the mortgage lenders and the 1% margins for the buyers of the debts. So, Bear has gone down like a penny stock(ya, sure, they're coming back) and Merrill didn't because they found a foreign buyer who hasn't found the market yet. It should be cool when he does.
The problem was not enough debt holders went under, the mortgage never really was that important. People can afford to lose 30% and say they're not paying rent.
Posted by: Rim | March 17, 2008 at 01:16 AM
But if you take into account Scott Horton’s conviction that it was a DOJ takedown, using the same principled approach already established in all their doings, firings, stonewallings, whatever, it’s at least not nonsensical to glimpse directed malevolence at work. It would mark a not previously obvious aspect of their efforts though. It would make it a hit by the direction of industry rather than political hegemony, kind of privatizing the public sector, right on message. Teeny tiny tentacles thick as skyscrapers reaching....
Surely not....? Could they really be, like,...? Nah.
Posted by: felix culpa | March 17, 2008 at 01:28 AM
And the problem is still being described in the mass media as caused by irresponsible borrowers. I swear, sometimes you just despair that people will ever understand what's really going on.
Posted by: Mike Schilling | March 17, 2008 at 01:38 AM
I generally don't do conspiracy theories without some evidence.
Me either.
The bigger takeaway here is the unfortunate downfall of one of the few crusaders on issues like this. Spitzer was right, and saying something, which more than most.
Posted by: Mr Furious | March 17, 2008 at 10:22 AM
What Spitzer conveniently left unmentioned was that his referral to "national banks" only meant federally chartered banks, of which there are very few.
The OCC has no oversight auhtority whatsoever over state-chartered banks, even those that operate nationally (i.e., via the holding company structure).
This was an op-ed in seach of a problem.
Posted by: KipEsquire | March 17, 2008 at 10:41 AM
And the problem is still being described in the mass media as caused by irresponsible borrowers. I swear, sometimes you just despair that people will ever understand what's really going on.
Well, Mike; if you rely on the "MSM" for accurate information, despair is likely to end up as the only logical reaction - since complex economic issues are, well, complex. And have gotten only more complex as time goes by. I think, though, that eventually (and not TOO far in the future) some of the media narrative is going to be re-tooled to foist at least some of blame on "irresponsible lenders" as well. Not that it will do much good - there are a LOT of folks out there with individual problems, and only one "System". Guess which is likelier to have to adapt?
Posted by: Jay C | March 17, 2008 at 11:01 AM