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50 states tried to stop predatory lending, Bush shut them down, now it's a crisis

post #1 of 15
9/25/08 at 2:23pm
Thread Starter 
With Bush in such a hurry to get unchecked wads of cash to his friends in the financial sector, it's appropriate to look back and see how he not only nurtured this emergency, he shut down anyone who tried to thwart it.

Quote:
In February 2008, [Eliot] Spitzer, who was still governor at the time, published an article in The Washington Post entitled “Predatory Lenders’ Partner in Crime: How the Bush Administration Stopped the States From Stepping In to Help Consumers.” In this article, Spitzer claimed that – for years – consumer protection agencies have been trying to curb the shady lending practices of many mortgage lenders.

Apparently, many banks were (are?) luring in unsuspecting consumers by “misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, [and] making loans with deceptive "teaser" rates that later ballooned astronomically.” When Eliot “Ness” Spitzer and his band of freedom-fighting consumer rights advocates attempted to intervene, the Bush administration curbed their efforts.

From the article:

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… Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response?

[…] 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.

As Americans presently find themselves in a national financial crisis, it appears Spitzer was on to something – something that could have possibly prevented the current economic downturn and exposed the corruption of the Bush administration.

But -- less than a month after the publication of his pseudo-expose, Spitzer found himself in the middle of a prostitution scandal that would ultimately lead to his removal from office.

Is it merely a coincidence? Perhaps, but the sequence of events, as well as the fact that the discovery of Spitzer’s involvement with the prostitution service Emperors Club VIP came from federal wiretapping, suggests otherwise.

Still, even if the tin foil brigade are reaching with their latest accusatory theory, it doesn’t make the conclusion to Spitzer’s article any less chilling, haunting or prophetic:

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.
Source.

What isn't mentioned in this piece is that a key component of the Spitzer sting was a red flag from a bank for his withdrawals of $4000, well below the federal limit for reporting. A bank.
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post #2 of 15
9/25/08 at 2:48pm
You know, I know that you're going to climb up my ass for this, but it does take two to tango. When I was trying to get a loan for my house, they offered all kinds of shit to me. Loan amounts that I knew I wasn't going to be able to pay back.

This is terrible shit, but I think you may be laying a little too much blame here. These people should know the basic math that says that they can't afford to pay the shit back, regardless of what the loan guy promised. These people made the wrong decision to get into something that they couldn't afford. That's really the end of the story and the part of the story that no one wants to talk about. They are always "innocent" Americans. They should have had some sense like a lot of other people out there and knew that they couldn't pay back the loan, regardless of what someone is telling you.

They are dumb asses and wanted something they couldn't afford, but they wanted it, so they were going to get it no matter what. These people are as much to blame for this as the banks are.
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post #3 of 15
9/25/08 at 2:51pm
Thread Starter 
Electrichead, fifty attorneys general in all 50 states joined this effort. What does that tell you about any gray area that may or may not exist in predatory lending?

I am utterly incapable of understanding why you would try to make a case that I'm "laying a little too much blame here."

Seriously, do you think all 50 attorneys general had an agenda other than enforcing the law and protecting the citizens of this country?
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post #4 of 15
9/25/08 at 3:00pm
Quote:
Originally Posted by Electrichead View Post
You know, I know that you're going to climb up my ass for this, but it does take two to tango. When I was trying to get a loan for my house, they offered all kinds of shit to me. Loan amounts that I knew I wasn't going to be able to pay back.

This is terrible shit, but I think you may be laying a little too much blame here. These people should know the basic math that says that they can't afford to pay the shit back, regardless of what the loan guy promised. These people made the wrong decision to get into something that they couldn't afford. That's really the end of the story and the part of the story that no one wants to talk about. They are always "innocent" Americans. They should have had some sense like a lot of other people out there and knew that they couldn't pay back the loan, regardless of what someone is telling you.

They are dumb asses and wanted something they couldn't afford, but they wanted it, so they were going to get it no matter what. These people are as much to blame for this as the banks are.
Yes, the general public are idiots when it comes to finances. That's why you have professionals whose job is to tell them that they can't afford what they're asking. And the only way to force banks to do this is to have regulations in place. Banks won't say no to more money if they're not forced to and you eventually get to a mess like the one going on today.
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post #5 of 15
9/25/08 at 3:10pm
I think the public bears a lot of responsibility (which many are ignoring), but you can't ignore that this amounted to "malpractice".

Imagine if your doctor keeps telling you that it is OK to smoke, because all his family does it and nobody has gotten lung cancer. Now, you should know as an informed citizen that smoking is not healthy at all, however a doctor is an authority in the field so obviously people will tend to give more credence to what he/she says.

Same for loans. The bank does a credit check on you, asks you about your salary, assets, etc. They tell you you can loan 250K with minimal to no down playment. They also tell you, hey, you'll have equity in no time, the house prices will never go down.

I don't think it is unreasonable to see a person fall for that and take the loan, after all, why would they think the bank has an interest in giving you money if they know you can't pay it back?

That doesn't mean we should reward stupidity and ignorance. My mother was offered a huge loan, and she was smart enough to say "no thanks". But then again, she was a budget officer for the federal government. Not everybody has that experience with money.

So I think this is "financial malpractice" and we need to punish those who abused the consumers. We also need to figure out a way to educate our citizens better about finances and money in general.
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post #6 of 15
9/25/08 at 3:13pm
Quote:
Originally Posted by stelios View Post
Yes, the general public are idiots when it comes to finances. That's why you have professionals whose job is to tell them that they can't afford what they're asking. And the only way to force banks to do this is to have regulations in place. Banks won't say no to more money if they're not forced to and you eventually get to a mess like the one going on today.
Exactly! It's not a simple matter of people not understanding math or budgeting, and perpetuating that idea is far to lenient on the lenders. People trusted what their lenders told them because they had no reason not to, and now they're fucked.
Quote:
Originally Posted by ElCapitanAmerica View Post
My mother was offered a huge loan, and she was smart enough to say "no thanks". But then again, she was a budget officer for the federal government. Not everybody has that experience with money.
Change this to almost no one has that kind of experience with money. That's why they rely on the advice of professionals......most of whom were misleading them.
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post #7 of 15
9/25/08 at 3:19pm
I wouldn't say comparing this knowledge to the knowledge of "smoking is bad" is the same thing. Loans are a COMPLICATED thing. I've bought two houses and refinanced once so far in my life. I still can't make heads or tails on everything I'm signing. I doubt more than a small percentage of people do. I haven't put myself in a dangerous position, but I can understand how a little crookedness can go a long way. I'm siding with the common man here.
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post #8 of 15
9/25/08 at 3:19pm
Well, I was beat to the punch there.
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post #9 of 15
9/25/08 at 3:40pm
Quote:
Originally Posted by ElCapitanAmerica View Post
We also need to figure out a way to educate our citizens better about finances and money in general.
Another problem to pile on the rapidly deteriorating and yet curiously ignored American education system, yay!
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post #10 of 15
9/25/08 at 3:44pm
Thread Starter 
Look, we're all regular people trying to figure this out and having opinions one way or the other.

The fact remains that Spitzer and the other attorneys general -- people who devote their lives to study and execution of the law -- acted to end this practice ... and Bush blocked their efforts with an obscure law that hasn't been used since the 19th century. Now, he's holding the country hostage to a nearly $1 trillion bailout as a result of his own c*ck-block.
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post #11 of 15
9/25/08 at 3:47pm
Look, just because a guy works at a bank or mortgage doesn't make them a professional. They learn a sales job. Those people were there to sell you something, end of story. They probably only know the correct sales line to tell you when you hesitate to get you to sign on the line that is dotted. They are closers.

I am not saying that people were not trying to screw you. I knew a lot of these monkeys, and their goals were to sell mortgages, nothing more. They were not all concerned about the person. Yeah they were predators, I'm not denying that, but the people still agreed to the terms. No one can understand what those fucking loan docs are about, but you should be able to understand that if you make Y, then you cannot afford Z.

Granted most people don't know, but if they don't know, get a second opinion. They will question a doctor all day long, but some guy in a suit behind a desk is the end all. Get a second opinion, talk to someone you might know who may know more about it than you. These people wanted the house/car/boat or whatever, and a little thing like not being able to afford it wasn't going to stop them. They need to shoulder part of the blame, they wanted to get something for nothing and they shouldn't be allowed to have their mortgage paid off or get other money because they were not paying attention to what they were doing.

Some of these people may have been victims, but not all of them.
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post #12 of 15
9/25/08 at 3:52pm
Thread Starter 
Is that seriously how you see this????

Electrichead, please use your head (no pun intended). When one loan officer gives a couple of bad loans to a couple of flakes, it's just as you describe. When it's an epidemic enabled by loopholes handed to a shadow banking sector in a gamble that brings this country to the brink of financial catastrophe while giving 400 billionaires a nearly $1 trillion boom in income, it's more than a handful of bad borrowers and a handful of bad loan officers.
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post #13 of 15
9/25/08 at 4:08pm
Quote:
Originally Posted by yt View Post
Is that seriously how you see this????

When one loan officer gives a couple of bad loans to a couple of flakes, it's just as you describe. When it's an epidemic enabled by loopholes handed to a shadow banking sector in a gamble that brings this country to the brink of financial catastrophe while giving 400 billionaires a nearly $1 trillion boom in income, it's more than a handful of bad borrowers and a handful of bad loan officers.
Is that seriously how you see this????

Look, I don't believe that there is always a "shadow" company/group/person behind everything that ever happens. I ran into a quite a few people that decided to get into the mortgage game because it was easy money. Something that they could learn at a seminar over a weekend and get to making the money the next week.

We both believe that it is a result of greedy people, I just don't believe that Bush woke up one morning and decided that he was going to rob thousands of people of their homes and plunge the country into financial ruin so that he and his "shadow" group can rake in the cash. I can't buy that argument 100%, sorry. I don't believe that because Bush is cool, I just don't think that shit like that happens.

I still think that the people signing for the loans still need to take part of the blame. If you lose your house because you lose your job or something like that, then that is a big problem, but if you knowlingly sign up for getting screwed a few years down the road because the suit said everything would work out, then you may have to shoulder some of the blame.

We all make financial decisions everyday. Not on this scale, but we all have enough sense to know when you can't afford to buy something. If I am at a store and they have a big sale, so I buy a lot of shit, but I use a credit card, and I don't have the money to pay it back, but it is on sale, so I can get it at a reduced rate for a short time. I know that I don't have the money, so is it my fault? Is it the store's fault for having the sale? Is it the credit cards fault for giving me the card? Whos fault is it when I default on my credit card, my credit is screwed and so on.
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post #14 of 15
9/25/08 at 4:18pm
Thread Starter 
Electrichead, when I say "shadow financial sector" I'm talking about the "credit default swaps" and all these unregulated speculations going on -- using these bad loans as highly profitable fodder -- with zero oversight. To gain perspective on how this happened, I beg you to read this article about how these loopholes were opened.
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post #15 of 15
9/27/08 at 9:19pm
Thread Starter 
In terms of "irresponsible" borrowers, how about this select quote from a speech Bush gave in 2002:

Quote:
And of course, one of the larger obstacles to minority ownership is financing. Fannie Mae and Freddie Mac have committed to provide more money for lenders, they've committed to meet the shortage of capital available for minority homebuyers. Freddie Mac recently began twenty-five initiatives around the country to dismantle barriers and create greater opportunities for home ownership. One of the programs is designed to help deserving families who have bad credit histories to qualify for home ownership loans. You don't have to have a lousy home for first-time home buyers. You put your mind to it, these first-time home buyers, or low income home buyer, can have just as nice a house as anybody else.
Also, I've been trying to get to the bottom of what kinds of reforms on Fannie and Freddie Bush and McCain were trying to enact, and what it looks like it boils down to is to shift oversight to an "independent" agency, i.e. privatized body. In other words, to further eliminate federal oversight.

In looking for info about this, I ran across this work-in-progress timeline of the money meltdown over at Texas Chaos.:

1982

* John McCain enters senate
* Garn-St. Germain Depository Institutions Act
o initiative of Reagan administration
o authored largely by lobbyists for S&L Industry
o allowed S&Ls to compete with banks without banking regulations
* Real Estate Boom - fueled by greed, S&L's cheap mortgages and risky investments


1985

* Federal Home Loan Bank Board sees potential for disaster due to deregulation and sets rules to limit amount & type of investments S&L's could carry.
* Alan Greenspan argues against rules
* Many S&L's ignore rules including a company run by Charles Keating, Lincoln Savings & Loan Association of Irvine, CA
* Reagan appoints Keating pal to loan board
* McCain & 4 other senators meet with loan board and management at Lincoln
* McCain and Greenspan enable Lincoln to continue business as usual


1987

* Charles Keating company, Lincoln Savings and Loan Association fails.
o 21,000 investors, mainly elderly and retired lose life savings

John McCain and Charles Keating were close friends for many years. They vacationed together on Keating's private Caribbean property and traveled on Keating's private jet. The Keating 5 Maverick failed to report these trips until he was already under investigation. Keating and members of his company contributed $112,000 to McCain's campaign.

1989

* Resolution Trust Company formed to cover debt of Lincoln and 746 other S&L's
* $125 billion bill was passed on to taxpayers
* Budget deficit causes cuts in other programs
* Real estate boom crashes


1999

* Phil Gramm the "economic guru of Keating 5 Maverick" authors Gramm-Leach-Billey Act which repealed important protections in 1933 Glass-Steagall Act. (Glass-Steagall Act controlled rampant speculation that enabled the banking collapse at the beginning of the Great Depression)
o Removed regulations from banks allowing them to become directly involved in:
+ Stock market
+ bonds
+ insurance

o Promotes bank buyouts and mergers allowing financial institutions to become:


TOO BIG TO FAIL
TXsharon :: Update #2: Money Meltdown Timeline
2000

* Phil Gramm the "economic guru of Keating 5 Maverick" authors Commodity Futures Moderinization Act (CFMA).
o Large parts written by industry lobbyists
o expands scope of futures trading
o creates new speculation vehicles
o shelters certain investments from regulation including Credit Default Swaps
o includes Enron Loophole (written by Phil Gramm and Enron lobbyists) which exempts energy trading from regulation
* Credit Default Swaps - were sheltered by CFMA. "A kind of insurance one bank could exchange with another, credit default swaps supposedly made it safe for banks to take on ever riskier forms of debt." CFMA placed credit default swaps "in a state where they were not only unregulated but almost perfectly opaque. No one could determine their worth. Greenspan said credit default swaps would be the salvation of the industry because they spread the risks around. For a more thorough explanation, see Sup Prime Primer
o banks accept lower and lower down payment on homes
o credit check, salary check and asset checks are skipped
o Even dead people get loans (23 in Ohio)
o market is flooded with easy credit
* Real estate market booms

2003

* Bush Administration recommends regulatory overhaul of housing finance industry.
o This recommendation later was exposed to be a push to privatize regulation which essentially provides no regulation at all. (see legislation below that never made it out of the Republican controlled Congress)

2005

* S. 190 [109th]: Federal Housing Enterprise Regulatory Reform Act of 2005. Sponsor: Sen. Charles Hagel [R-NE]; Co Sponsors: Sen. Elizabeth Dole [R-NC], Sen. John McCain (Keating 5 Maverick) [R-AZ], Sen. John Sununu [R-NH]
* "Federal Housing Enterprise Regulatory Reform Act of 2005 - Amends the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to establish:
(1) in lieu of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development (HUD), an independent Federal Housing Enterprise Regulatory Agency which shall have authority over the Federal Home Loan Bank Finance Corporation, the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac);"
* The bill died at the end of the 109th Republican controlled Congress
* NOTE: This bill was transferring any remaining oversight FROM the government TO an INDEPENDENT Agency! That meant it had NO FEDERAL OVERSIGHT AT ALL! Hat Tip to txag007 for calling my attention to this ah hmmm...oversight

Late 2005-Early 2006 (the following is an assist from McBlogger)

* Loan performance begins to decline
* Inflation picks up and squeezes consumers who haven't had a pay increase since the 1990's
* Consumers bridge with home equity borrowing

2006 - 2007

* Subprime lending industry completely breaks down
* This is quickly followed by Alt - A lending

2008

* All mortgage loans are considered suspect
* Collateral weakens
* Bear Stearns first to fall
* Credit freezes up and spreads between mortgage loans
* Other lending institutions fail
* US Treasuries widen massively
* AIG fails and government bails them out with $85bn loan
* AIG Executive to be Sentenced for Fraud Conviction
* Bush administration proposes $700bn bailout package
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