Counterpunch, October 2, 2008
Bailing Out the Casino
Soulmates in Deregulation
By RALPH NADER
The current finger pointing by the deregulation crowd in Congress and
their ideological soul mates in the media reminds me of the 1939 film
classic The Wizard of Oz. It is as though these spin masters want us to
pay no attention to the government officials behind the deregulation
curtain.
Indeed, the right-wing pundits and the revisionists in Congress are
spending an inordinate amount of time falsely claiming that our nation’s
current financial disaster stems from the Community Reinvestment Act, a
law passed by Congress and signed into law by President Jimmy Carter in
1977. The primary purpose of this modest law is to require banks to
report on where and to whom they are making loans. Community
organizations have used the data produced as a result of this law to
determine if banks were meeting their lending obligations in the
minority and lower-income communities in which they do business.
Congress passed this law because too many lenders were discriminating
against minority borrowers. “Redlining” was the name given to the
practice by banks of literally drawing a red line around minority areas
and then proceeding to deny people within the red border home loans –
even if they were otherwise qualified. The law has been in place for 30
years, but the right-wing fringe claims it somehow is responsible for
predatory lending practices that date back just to the beginning of this
decade.
Notice what these revisionists are not mentioning.
No “thank you” to former Senator Phil Gramm for pushing the repeal of
the Glass-Steagall Act.. This law was passed in the wake of the stock
market crash of 1929 - and designed to separate banking from securities
activities. In 1999, when Congress passed the Gramm-Leach-Bliley Act and
in so doing repealed Glass-Steagall the banks strayed into rough waters
by looking for fast money from risky investments in securities and
derivatives.
As predatory lending mushroomed out of control, the regulators -- key
among them, the Federal Reserve and the Office of Comptroller of
Currency -- sat on their hands. The Federal Reserve took exactly three
formal actions against subprime lenders from 2002 to 2007. Bloomberg
news service found that the Office of Comptroller of the Currency, which
has authority over almost 1,800 banks, took three consumer-protection
enforcement actions from 2004 to 2006.
No “tip of the hat” to the Bush Administration for preempting state
regulators and Attorneys General from using state consumer laws to crack
down on predatory and sub-prime lending by national banks.
And, let us not forget the folks at Fannie Mae and Freddie Mac. Imagine
allowing these two government sponsored enterprises--that were weakly
regulated by HUD--to claim they were meeting the national housing goals
by counting the purchase of subprime loans. Back in May of 2000, our
associate Jonathan Brown warned that it would be inappropriate and
counterproductive to encourage Fannie and Freddie to meet the housing
goals by purchasing subprime loans. Too bad our members of Congress and
the regulators at HUD were infected with deregulatory zeal. Former Texas
Senator and current UBS executive Phil Gramm -- would-be President John
McCain's Treasury Secretary-in-waiting -- pushed through the Commodities
Futures Modernization Act of 2000, which deregulated the derivatives
market. With help from his wife, Wendy, the former head of the Commodity
Futures Trading Commission who went on to a post on the Enron board of
directors, Gramm removed the controls on Wall Street so it could
innovate all sorts of exotic financial instruments. Instruments far
riskier than advertised, and now at the core of the financial meltdown.
The SEC, through its "consolidated supervised entities" program, decided
that voluntary regulation would work for the investment banking sector.
Not surprisingly, this was a scheme cooked up by Wall Street itself. The
investment banks were permitted to double, triple and go 20 times (and
more) down on their bets by using lots of borrowed money. They made
minimal disclosures to the SEC about what they were doing, and the SEC
didn't bother to review those disclosures adequately. Too bad for the
investment banks -- and the rest of us -- they made lots of bad bets.
The SEC has now closed the voluntary program, though now there aren't
any major investment banks left (the two remaining ones have converted
themselves into conventional banks).
It is time to start paying very close attention to government officials
behind the deregulation curtain. Let your Members of Congress know you
are not willing to bailout the gamblers on Wall Street with a no-strings
attached pile of taxpayer dollars. The time for regulation is upon us.
Ralph Nader is running for president as an independent.
_______________________________________________
pen-l mailing list
[email protected]
https://lists.csuchico.edu/mailman/listinfo/pen-l
