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How Bush Tried to Stop Predatory Bank Lending

Politics / Credit Crisis 2010 Apr 14, 2010 - 04:18 AM GMT

By: Mike_Whitney


Best Financial Markets Analysis ArticleWhen the Senate Permanent Subcommittee on investigations convenes on Tuesday, they'll be presented with a mountain of evidence showing that Washington Mutual intentionally issued subprime mortgages that they knew would fail, and then bundled the loans into securities so they could be sold to investors. The senate's year-and-a-half long investigation, has strung together hundreds of e mails and other internal documents that will prove beyond a doubt that the now-defunct bank was engaged in industrial-scale fraud. This is from the Los Angeles Times:

"At times, WaMu selected and securitized loans that it had identified as likely to go delinquent or securitized loans in which the company had discovered fraudulent activity, such as misstated income, without disclosing the information to investors, the subcommittee found. The company's pay practices exacerbated the problem by rewarding loan officers and processors based on how many mortgages they could churn out....Its Long Beach unit ‘used shoddy lending practices . . . to make tens of thousands of high-risk home loans that too often contained excessive risk, fraudulent information or errors.’

"‘Washington Mutual built a conveyor belt that dumped toxic mortgage assets into the financial system like a polluter dumping poison into a river,’ Sen. Carl Levin said. ‘Using a toxic mix of high-risk lending, lax controls, and destructive compensation policies, Washington Mutual flooded the market with shoddy loans and securities that went bad . . . As the debate on financial reform begins, it is critical to acknowledge that the financial crisis was not a natural disaster, it was a man-made economic assault.’" ("Washington Mutual created 'mortgage time bomb,' Senate panel finds"  Jim Puzzanghera, Los Angeles Times)

Unfortunately, the facts of the case merely confirm what everyone already knows; that the subprime fiasco was a scam from the get-go and that no one is going to be held accountable. Levin and his senator pals can engage in a bit of harmless grandstanding if they like, but nothing will come of it. After an afternoon of sanctimonious blather, the fraudsters will head to the links for a quick nine-holes before cocktails and high-fives at the country club lounge. In a week's time, the whole thing will blow over.

WaMu is a drop in the bucket anyway.  The entire system is rotten to the marrow. The banks are the worst offenders, but the Fed comes in a close second.  The recently revealed details about the NY Fed's role in helping Lehman mislead investors about their true financial condition, is just the latest example of how bad things have gotten.

There were signs as early as 2003 that high-ranking members of the Kleptocracy were planning a major heist. Consider this speech that President Bush gave in December 2003 at the signing of The American Dream Downpayment Act. Here's an excerpt that explains everything:

George W. Bush: "Thank you all. Thank you for coming. Thanks for the warm welcome...I am here today because we are taking action to bring many thousands of Americans closer to owning a home. Our Government is supporting homeownership because it is good for America; it is good for our families; it is good for our economy.

“One of the biggest hurdles to homeownership is getting money for a downpayment. This administration has recognized that, and so today I'm honored to be here to sign a law that will help many low-income buyers to overcome that hurdle and to achieve an important part of the American Dream....”[Most "no down" mortgage holders ended up with negative equity which is the main driver of  foreclosures. MW]

Bush: "This administration will constantly strive to promote an ‘Ownership Society’ in America...And this is a good time for the American homeowner. Today we received a report that showed that new home construction last month reached its highest level in nearly 20 years. The reason that is so is because there is renewed confidence in our economy. Low interest rates help. They have made owning a home more affordable for those who refinance and for those who buy a home for the first time. Rising home values have added more than $2.5 trillion to the assets of the American families since the start of 2001.”[Prices did soar as the bubble grew. For the first time in over 100 years, housing prices had shot up from their long-term trend adding $8 trillion to their retail value. Bush's admission simply proves that Greenspan must have been aware of the housing bubble even though he denies it. MW]

Bush again: "The rate of homeownership in America now stands at a record high of 68.4 percent. Yet there is room for improvement. The rate of homeownership amongst minorities is below 50 percent. And that's not right, and this country needs to do something about it. We need to close the minority homeownership gap in America so more citizens get the satisfaction and mobility that comes from owning your own home, from owning a piece of the future of America.”  [This quote should be trotted out every time a right wing pundit appears in the media and blames the Community Reinvestment Act for the housing bubble or the problems at Fannie and Freddie.  The bubble was not caused by the policies of liberal "do-goodies", but by massive fraud and colluding government regulators. People of color were targeted in a predatory lending scam. MW]

Bush: "Last year I set a goal to add 5.5 million new minority homeowners in America by the end of the decade. That is an attainable goal; that is an essential goal. And we're making progress toward that goal. In the past 18 months, more than 1 million minority families have become homeowners. And there's more that we can do to achieve the goal. The law I sign today will help us build on this progress in a very practical way.” [Blacks and Latinos were more than twice as likely to get subprime loans even if they had a spotless credit record and could have qualified for prime mortgages.  Bush cleared the way for millions of minorities to get taken to the cleaners. MW]  

Bush: "Many people are able to afford a monthly mortgage payment but are unable to make the downpayment, and so this legislation will authorize $200 million per year in downpayment assistance to at least 40,000 low- income families. These funds will help American families achieve their goals and, at the same time, strengthen our communities.” [Let's get this straight: Bush wants to help minorities, but then, just two years later, deploys Army regulars to herd poor black people into the Superdome at gunpoint during Hurricane Katrina. The truth is, Bush was trying to lure people into homes they couldn't afford so the loans could be bundled and sold to suckers who thought they were buying Triple A securities, no different than WaMu. MW]

Just months after he made this speech, Bush took extraordinary steps to block an effort by New York Governor Eliot Spitzer to save millions of people from predatory lending. Here's a clip from Spitzer's op-ed in the Washington Post (2003) which gives many of the details:

"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 Office of the Comptroller of the Currency (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.

“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." (Eliot Spitzer, “Predator Lenders’ Partner in Crime" Washington Post)

Bush again (with no hint of irony): "Those who apply for mortgages should be warned about predatory lenders who take advantage of inexperienced buyers. So we've doubled the funds for housing counseling services, including those run by faith-based and community groups. We understand that buying a home for the first time is complicated, and we want to simplify the process. We want to help people understand the pros and cons of buying a home. We want people to be fully aware of what it means to buy a home and what it takes. And we want people as best protected as possible from those shysters who would take advantage of first-time buyers."

Less than a year after Bush delivered this speech, the FBI warned of an "epidemic" of mortgage fraud. According to former financial regulator William Black,  "The FBI also reported that lenders initiated 80 per cent  of these frauds.”"

There's no question where the fault lies or what the motives were. Bush acted as a pitchman for the financial industry to attract a larger pool of applicants to keep the securitization flywheel running at full-throttle. It didn't matter to him that the wave of foreclosures would end up devastating black and Latino communities across the country. Here's an excerpt from an article in the New York Times that sums it up:

"The storm has fallen with a special ferocity on black and Latino homeowners... Defaults occur three times as often in mostly minority census tracts as in mostly white ones. Eighty-five per cent of the worst-hit neighborhoods — where the default rate is at least double the regional average — have a majority of black and Latino homeowners.

“And the hardest blows rain down on the backbone of minority neighborhoods: the black middle class....Just four or five years ago, black homeownership was rising sharply, after decades in which discriminatory lending and zoning practices discouraged many blacks from buying. Now, as damage ripples outward, black families in foreclosure lose savings and credit, neighbors see the value of their homes decline, and renters are evicted.” ("Minorities Affected Most as New York Foreclosures Rise", Michael Powell and Janet Roberts, New York Times)

Up to now, Bush has escaped much of the blame for the subprime fiasco, but this puts him squarely at the center of the action. But it wasn't just Bush or Washington Mutual or even Greenspan. The banks, the hedge funds, the ratings agencies, the mortgage lenders, the appraisers, the Fed; they all played a part in the looting operation.

By Mike Whitney


Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2010 Copyright Mike Whitney - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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