 Bush meets with his economic team on March 17, 2008. To Bush's
right are Treasury Secretary Henry Paulsen (center) and National
Economic Council Director Keith Hennessey. Photo: Getty Images
An AP headline this morning shows that, surprise! ...okay, no surprise ... the Bush administration was forewarned about the mortgage meltdown, and backed off regulating non-bank and bank profligates anyway. The bottoom line:
WASHINGTON – The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.
"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.
Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.
"These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages," David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.
The warnings were contained in a 2005 set of proposals from banking industry regulators. The recommendations were promptly ignored. A bit more from the AP story:
Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come. Many executives remain in high-paying jobs, even after their assurances were proved false.
In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:
_Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.
_Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.
_Regulators proposed a cap on risky mortgages so a string of defaults wouldn't be crippling.
_Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.
_Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.
Those proposals all were stripped from the final rules. None required congressional approval or the president's signature.
"In hindsight, it was spot on," said Jeffrey Brown, a former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending. So, who will be held accountable for this disaster? Not the banks. They're being paid off for their malfeasance. And not anybody in the Bush administration, either. Democrats in Congress simply don't have the stomach for it, even after the big November win. And I wouldn't hold my breath waiting for the incoming A.G. to start racking up the prosecutions, either. The Obama administration will come into office feeling that it has bigger fish to fry than the old fish stinking from the previous administration. And that's a shame.Labels: banks, Bush administration, financial crisis, Henry Paulson, mortgage crisis, the Bush bailout, worst president ever |
