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Tuesday, October 13, 2009

New Study: Bush Blocked Efforts to Stop Predatory Lending

The game really began when John McCain's economic advisor Former Sen Phil Gramm from the great state of Texas proposed a bill to repeal the Glass Steagall Act in 1997 allowing investment bankers like Bear Sterns, Lehmann Bros etc to get into the mortgage and commercial banking business with Collateralized Mortgage bonds and Derivatives. Congress was then controlled by Republicans but Clinton signed the bill so it was a bipartisan effort to deregulate the banking sector. The Glass Steagall was passed early in the great Depression in 1930s to rein in speculation by Wall St Banks which was one of causes of the Great Depression in 1929. The present Wall ST. Bank connivery as we now have learned was one of causes of our current Great Recession. This was all aided and abetted by the free market, easy money policies of Bush and Alan Greenspan.
New Study: Bush Blocked Efforts to Stop Predatory Lending
By Ken Kupchik, Washington Post, Oct 7, 2009
A new report reveals some disturbing information about the Bush administration's handling of predatory mortgage lending practices which played an enormous role in the financial crisis.

The information obtained alleges that not only did the administration fail to enforce existing laws; it specifically weakened the regulatory agency responsible for ensuring compliance.

The study by the University of North Carolina Chapel Hill's Center for Community Capital shows that states with anti-predatory laws that placed more implicit regulations on issuing mortgages had fewer foreclosures. The connection by itself is not surprising, as it merely validates the very existence of such laws. It is the Bush administrations reaction to calls for stricter enforcement that is so appalling.

From The Raw Story

In 2004, the Office of the Currency Comptroller, an obscure regulatory agency tasked with ensuring the fiscal soundness of America's banks, invoked an 1863 law to give itself the power to override state laws against predatory lending. The OCC told states they could not enforce predatory-lending laws, and all banks would be subject only to less-strict federal laws.

This calls into question to what extent the Bush administration appeased powerful interests intent on thwarting attempts at regulation on the state level. Did the administration fully grasp the magnitude of predatory lending and the widespread implications it would have on the entire financial system?

Having spent my first nine months out of college working for a subprime mortgage company, I witnessed firsthand the profit motive of unscrupulous lenders and investors at the expense of unwitting homeowners seeking help with their bills and payments.

The mortgage industry now has strict regulations for documentation of income, assets and down payments, requirements that were not in place during the housing and refinance boom from 2002 through 2006. It is worth noting that these requirements are mostly self-imposed by the industry and market forces, as investors realize that loans not meeting these requirements end up being worthless.

The industry came to grips with some important the facts after subprime mortgages began defaulting at an alarming rate, and in the summer of 2007 abruptly discontinued subprime as fear spread through the markets, triggering the first stages of the global financial collapse.

While the Bush administration was busy ensuring it's banking interests, and continued profiting from endless mortgages repackaged as mortgage-backed securities which were then sold on Wall Street as sound investments, homeowners were swindled out of their homes.

So the question for Bush and his team: How much did you know and when did you know it?

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