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Thursday, September 25, 2008
Prophetic words: Elliot Spitzer
Just one of the reasons why I love Thom Hartmann's show. Today, he read from an op-ed piece published in the Washington Post on February 14 -- Valentine's Day -- and written by then- New York Governor Elliot Spitzer, about the origins of the mortgage crisis. I'll reprint the entire piece, since it's important that you take in the entire thing:
Predatory Lenders' Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers

By Eliot Spitzer
Thursday, February 14, 2008; A25

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.

Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

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.

Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.
One month later, Spitzer was splashed across the tabloids as "Client 9" in the now notorious prostitution scandal. A sealed affidavit concerning his illicit activities was leaked on March 10. He resigned his governorship on March 12. Even at the time, more than a few people wondered whether Spitzer was being paid back for something he had said or done as governor, or as attorney general of New York. As the Chicago Tribune's "The Swamp" blog surmised:
Is it just me or does the complaint implicating New York Gov. Eliot Spitzer in a frolic with a call girl read like it was written by people with a very large axe to grind with the now former rising star of the Democratic Party?

Charging documents like this one typically contain the absolute minimum necessary to sustain the accusations.

Prosecutors act as though they'd rather be waterboarded than give up anything beyond what they like to call "the four corners of the complaint."

Not to worry. There was journalistic catnip larded throughout the complaint, enough to stoke the media frenzy for days. Of particular note is the heavy involvement of "Kristen", Spitzer' Valentine eve tryst partner. (Helpfully described as "American, petite, very pretty brunette, 5
feet 5 inches, and 105 pounds.)

...Yeah, conceivably there's some value in broadly hinting at kinky predilections in case Spitzer wants to claim that the financial transactions were unconnected to sex. Maybe it's a warning to him that if he struggles too much, the contents of the sock drawer where the sex toys are stored will be strewn on the carpet.

But it also has the feel of a pile-on -- some payback, a come-uppance for a guy who made a lot of enemies in prosecutions of Wall Street crooks and was seen by some to overplay his hand, to needlessly embarrass his quarry.

Another indicator of an "I'll fix your wagon" flavor to L'Affaire Spitzer is the speed at which the whole thing has unfolded.

The charging affidavit which, remember, doesn't refer to Spitzer by time or other even vague identifier like 'prominent government official', was unsealed last Thursday and by 2 p.m. or so on Monday, when the New York Times posted its first story on the scandal and the governor effectively was toast.

And who turned Spitzer in to the feds? Why, his bank. Greg Palast noticed something fishy:

While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.

Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was using ours.

This week, Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.

Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’ bordello: Eliot Spitzer.

Who are they kidding? Spitzer’s lynching and the bankers’ enriching are intimately tied.

Spitzer was, by the way, taken down by the very domestic surveillance powers grabbed by President Bush after 9/11. Coincidence? Maybe.

Hartmann also reminded listeners about President Bush's push in 2002 for the "ownership society" -- and his grandiloquent desire for every American to own their home, their health insurance policy, and on and on. At the time, Bush said that just because a person is low income doesn't mean they shouldn't own a home that's "just as nice as anybody else's." Far from the moves by Andrew Cuomo's HUD agency to reverse redlining, Bush's HUD allowed banks to stretch the boundaries of lending propriety to their limits, and Bush's scandalized HUD secretary, Alphonso Jackson, was one of the administration officials who pushed back against attempts to reign in the industry. Here's how the administration described the home ownership plank of the "ownership society" on the White House website in 2004:
  • Expanding Homeownership. The President believes that homeownership is the cornerstone of America's vibrant communities and benefits individual families by building stability and long-term financial security. In June 2002, President Bush issued America's Homeownership Challenge to the real estate and mortgage finance industries to encourage them to join the effort to close the gap that exists between the homeownership rates of minorities and non-minorities. The President also announced the goal of increasing the number of minority homeowners by at least 5.5 million families before the end of the decade. Under his leadership, the overall U.S. homeownership rate in the second quarter of 2004 was at an all time high of 69.2 percent. Minority homeownership set a new record of 51 percent in the second quarter, up 0.2 percentage point from the first quarter and up 2.1 percentage points from a year ago. President Bush's initiative to dismantle the barriers to homeownership includes:
    • American Dream Downpayment Initiative, which provides down payment assistance to approximately 40,000 low-income families;
    • Affordable Housing. The President has proposed the Single-Family Affordable Housing Tax Credit, which would increase the supply of affordable homes;
    • Helping Families Help Themselves. The President has proposed increasing support for the Self-Help Homeownership Opportunities Program; and
    • Simplifying Homebuying and Increasing Education. The President and HUD want to empower homebuyers by simplifying the home buying process so consumers can better understand and benefit from cost savings. The President also wants to expand financial education efforts so that families can understand what they need to do to become homeowners.
First of all, that doesn't sound much different than the right wing's snide accusations about the "affirmative action lending" programs of the Clinton administration. But it also fails to describe the Bushies' preferred method of achieving success: relaxed lending standards that pushed more "entrepreneurs" into the lending and brokerage market, with ever riskier "financial products" that wound up sold off as securities on Wall Street. Hence, our current problem.

Meanwhile, few would recall that Bush's push for relaxed lending standards was actually fought by the very builders who were profiting from the real estate boom. From CNN Money, back in June 2004:

NEW YORK (CNN/Money) - Home builders, realtors and others are preparing to fight a Bush administration plan that would require Fannie Mae and Freddie Mac to increase financing of homes for low-income people, a home builder group said Thursday.

The National Association of Home Builders, along with the National Association of Realtors and the Mortgage Bankers Association, are drafting a letter to Alphonso Jackson, secretary of the Department of Housing and Urban Development (HUD), arguing that middle-income home buyers are the ones that will get hurt by the proposed plan, the NAHB told CNN/Money.

In April, the HUD proposed new rules that would raise the percentage of loans bought by the two government-sponsored enterprises (GSEs) that finance borrowers whose incomes are at or below the median for their area, according to the Wall Street Journal .

But the groups will warn in the letter that the proposed rules requiring the two GSEs to finance more "affordable housing" may have "unintended consequences," hurting some poor and middle-income people struggling to afford houses, the Journal said.

Fannie and Freddie, which use their ability to borrow cheaply in the government agency bond market to help middle-to-low income people buy homes, would be compelled to provide more funds to low-income home buyers by slashing their financing of middle-income home buyers, David Crowe of the NAHB told the paper.

The points being raised by the groups have also mirrored objections raised by Fannie and Freddie. Both GSEs said they favor more efforts to promote affordable housing, but say HUD has made some unrealistic assumptions about how much more the GSEs can do over the next few years, the Journal said.

The Limbaugh crowd seeking to blame the Clinton administration for the current crisis must be made to answer for the "ownership society," Bush's HUD, and the administration's further relaxation of lending standards (and their promotion of predatory lending) long before we start blaming minorities and the poor for our troubles.

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posted by JReid @ 12:48 PM  
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