Home > Uncategorized > The Sub Prime Meltdown…What A Surprise!

The Sub Prime Meltdown…What A Surprise!

surprise

Not.

The Washington Post reports:

As Subprime Lending Crisis Unfolded, Watchdog Fed Didn’t Bother Barking

The visits had a ritual quality. Three times a year, a coalition of Chicago community groups met with the Federal Reserve and other banking regulators to warn about the growing prevalence of abusive mortgage lending.

They began to present research in 1999 showing that large banking companies including Wells Fargo and Citigroup had created subprime businesses wholly focused on making loans at high interest rates, largely in the black and Hispanic neighborhoods to the south and west of downtown Chicago.

The groups pleaded for regulators to act.

And then the regulators jumped into action and prevented a huge financial crisis that could have affect the whole world.  What?  I was just dreaming?

The evidence eventually led Illinois to file suit against Wells Fargo in July for discrimination and other abuses.

But during the years of the housing boom, the pleas failed to move the Fed, the sole federal regulator with authority over the businesses. Under a policy quietly formalized in 1998, the Fed refused to police lenders’ compliance with federal laws protecting borrowers, despite repeated urging by consumer advocates across the country and even by other government agencies.

A digression:  In fact, Elliot Spencer, before his affairs with hookers brought him down, actually was on top of this issue and he along with every other state attorney general tried getting the Bush administration to intervene.  As this blurb from the New York Service Magazine notes:

But in 2003, the Bush administration stepped in. Regulating national banks is the federal government’s job, it said, invoking the 1863 National Bank Act. All 50 state attorneys general howled in protest, but the Supreme Court upheld the administration’s view in Watters v. Wachovia. Its power affirmed, the administration then did little; it believed financial institutions were their own best regulators. This year Wachovia, crippled by $42 billion in risky loans on its books, sold itself to avoid bankruptcy.

And how did the government do its job?  Quite simply, it didn’t.  Back to the WP piece:

“In the prime market, where we need supervision less, we have lots of it. In the subprime market, where we badly need supervision, a majority of loans are made with very little supervision,” former Fed Governor Edward M. Gramlich, a critic of the hands-off policy, wrote in 2007. “It is like a city with a murder law, but no cops on the beat.”

You can read the piece for the sordid details and how it is being debated whether the Fed should be fired from its duties as a regulator, but the horses are out and the barn has been virtually burned down at this point.   It also appears that the banks, after staying afloat only by massive amounts of tax payer dollars, are back to paying out obscene bonuses, engaging in dangerous lending practices , and generally saying screw you to the tax payers that kept these suits from having to do an honest days work.

I wonder how long it will be before we the people are called on to save these predators and gamblers again.

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