Predatory Lenders' Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers
By Eliot (Can't keep his Dick in his Trousers) Spitzer
Thursday, February 14, 2008; Washington Post
(Remember that Spitzer must have been ruminating / discussing this piece for some time .....)
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.
The OCC is the Office of the Comptroller of the Currency. Chartered in 1863, its purpose is to organize and to administer a system of national banks and a uniform currency....
In his 2003 annual report, J. D. Hawke, Jr., then Comptroller of the
"In response to an appeal by two national banks and after reviewing public comment, the OCC concluded that a Georgia law that imposed severe restrictions on all lenders operating within the state, did not apply to national banks and their subsidiaries. In issuing this preemption determination, the OCC ruled that the Georgia law interfered with national banks’ ability to exercise permissible federal powers and was thus in conflict with Federal law."
A storm was brewing. Many state examiners were concerned that predatory lending practices were on the rise. In 2003, the seeds of the now subprime disaster had been planted....
For example see the Press Release from the CCC NR 20004-3January 7, 2004
"OCC Issues Final Rules on National Bank Preemption and Visitorial Powers;Includes Strong Standard to Keep Predatory Lending out of National Banks
WASHINGTON – The Office of the Comptroller of the Currency issued two final rules today that reflect the federal character of the national banking system. The regulations enhance the ability of national banks to plan their activities with predictability and to operate efficiently, subject to effective and efficient supervision.
The first rule codifies a series of court decisions and OCC interpretations, and establishes symmetry with federal thrifts regarding the types of state laws that apply to national banks, and includes a strong anti-predatory lending standard. The second rule clarifies the scope of the OCC’s visitorial authority under federal law.
The new rules respond to numerous questions the OCC has received in recent years about the extent to which state laws apply to national banks and the authority of state or other agencies to examine or take actions against national banks...“Federal preemption is not a new idea,” Mr. Hawke said. “Its roots lie in the Supremacy Clause of the Constitution, and the courts have repeatedly held that the states cannot restrict the federally-authorized activities of national banks.” . More
Nouriel Roubini of New York University's Stern School of Business quoted by By Martin Wolf ( A Bilderberger) February 20 2008 in the Financial Times ...He first predicted a US recession in July 2006*. At that time, his view was extremely controversial. It is so no longer. Now he states that there is "a rising probability of a 'catastrophic' financial and economic outcome"**. The characteristics of this scenario are, he argues: "A vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe."
Prof Roubini is even fonder of lists than I am. Here are his 12 - yes, 12 - steps to financial disaster.
1. Worst housing recession in US history.
2. More losses, beyond the $250bn-$300bn now estimated, for subprime mortgages.
3. Big losses on unsecured consumer debt: credit cards, auto loans, student loans and so forth.
4. Downgrading of the monoline insurers, which do not deserve the AAA rating on which their business depends.
5. Meltdown of the commercial property market
6. Bankruptcy of a large regional or national bank
7. Big losses on reckless leveraged buy-outs.
8. Wave of corporate defaults.
9. Meltdown in the "shadow financial system".
10. Further collapse in stock prices.
11. Drying-up of liquidity in a range of financial markets, including interbank and money markets.
12."a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices". (Which has really got under way with the Carylale capital Corporation yesterday)
All in all, argues Prof Roubini: "Total losses in the financial system will add up to more than $1,000bn (one Trillion) and the economic recession will become deeper more protracted and severe."...
Is this kind of scenario at least plausible? It is....
Can the Fed head this danger off?
More important - how do you shut Spitzer up ?
Spitzer is deeply disliked for example ...Spitzer's Sins in the Spotlight - His career has always been marked by self-serving hubris.By Jim Copland March 11th National review...
"As New York attorney general, Elliot Spitzer charted a course unprecedented in American history — stretching the bounds of ancient laws and the state-federal prosecutorial divide in his crusade against Wall Street. Spitzer flaunted the federal regulatory scheme ..."