Banks Stopped Regulations That Could Have Prevented Financial Meltdown.

( – promoted by buhdydharma )

Well, it’s all coming out now.  The Bush administration was warned about the potential problems with the housing bubble and loans being made, considered regulation, but backed off under pressure from, guess who?  Yes, the very banks being bailed out now.

Accountability means one thing for working people and another for the investment class.

WASHINGTON – The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

Expect fallout, expect foreclosures, expect horror stories,” California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Also on Daily Kos:…

In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.

Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.

Regulators proposed a cap on risky mortgages so a string of defaults wouldn’t be crippling.

Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.

Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.

Those proposals all were stripped from the final rules. None required congressional approval or the president’s signature.

Ideologists promoting market fundamentalism have served the greed and dishonesty of the wealthy for years.  They called themselves economists, but were just peddling snake oil for the wealthy.

The Depression we are in is no accident. It built up over years based on the failures of the elites in this nation to govern in the interest of all, instead of a small, wealthy ruling class.  And now we all pay.

What can be done?

Nobel Laureate Joseph Stiglitz had a suggestion last week that was underreported, at least on Daily Kos.

First, a little about Joseph Stiglitz:

Joseph E. Stiglitz, a professor of economics at Columbia who was chairman of the Council of Economic Advisers from 1995 to 1997 and was awarded the Nobel prize in economics in 2001, is the author, with Linda J. Bilmes, of “The Three Trillion Dollar War.”

A $1 Trillion Answer


Published: November 29, 2008

WHAT President-elect Barack Obama will need to do is horribly complicated but also very clear.


There’s an emerging consensus that that a big – very big – stimulus is needed, at least $600 billion to $1 trillion over two years. Mr. Obama’s announced goal of 2.5 million new jobs by 2011 is too modest. In the next two years, almost four million workers will enter the labor force – or would if there were jobs. Combined with the loss of employment this year, that means we should be striving to create more than five million jobs.


We need to provide health insurance to the unemployed and to the uninsured, and we need to do it quickly, possibly through an expanded and more efficient Medicare.


We also need to stem the flood of foreclosures. If we help poorer homeowners, banks will benefit, too, as foreclosures are reduced. Through tax deductions, the federal government pays as much as 50 percent of the mortgage costs of upper-income Americans. If we treated the poor just as well as we treated the rich, more would find housing affordable.

And we need to change the bankruptcy laws to help homeowners. We have expedited bankruptcy for businesses, to keep them going when they run into financial problems. We should do the same for homeowners. It does no one any good to force poor and middle-income Americans out of their homes. Vacant houses blight neighborhoods. An expedited bankruptcy law would allow the restructuring of the mortgages of millions of Americans who owe more than their houses are worth.


Confidence is important, but it will not be restored if the economy is weak, or if Americans think the system is stacked against them. If the asset program is not changed and if regulations are not imposed to change the behavior of those who got us into this situation – who enriched themselves at the expense of their shareholders – then confidence will not return. Those who got us into this crisis cannot have undue influence in shaping the response.

NY Times, Joseph Stiglitz,  A $1 Trillion Answer

Those who got us into this crisis.  Rubin at Citibank?  There are many who did.  They have forfeited any deference as economists or policy makers.  

I wish Barack Obama had Mr. Stiglitz’s voice among his economic advisors.  Certainly his Nobel Prize in Economics and previous government service in the Clinton administration makes him one of the best and brightest in the field and particularly experienced to help govern.  

So far, however, we have Summers, Goolsbee, Volcker, and Tim Geither.

Stiglitz is a progressive voice that should be heard and should be part of the mix of economic advisors.  I hope Barack Obama listens and adds a progressive economist to the centrists he now has advising him.  Too weak a stimulus could mean a long term Depression.    


Skip to comment form

    • TomP on December 2, 2008 at 12:38 am

    people-centered economics.

    • Edger on December 2, 2008 at 1:23 am

    People-centered economics would be great.

    So would people-centered foreign policies, people-centered defense/miltary policies, people-centered environmental policies, people-centered food and drug regulatory policies, and a people-centered presidency.

    But I guess I need to work on my pragmatism. :-/

  1. Worth noting, too, is an article written by Eliot Spitzer, and published in the Washington Post, on February 14, 2008.

    Predatory Lenders’ Partner in Crime

    How the Bush Administration Stopped the States From Stepping In to Help Consumers

    . . . .In 2003, during the height of the predatory lending crisis, the 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.  . . . .

    Worth reading and, also, the REAL reason Spitzer was “attacked.”

  2. In his environmental policy blog, Peter Bosshard writes in The Problem With Larry Summers” about the disagreements between Stiglitz and Summers.

    The real problem is that he [Summers] has been an uncompromising and dogmatic promoter of deregulation and liberalization throughout his career – often with disastrous results. In the early 1990s, he was instrumental in pushing through an untested system of voucher privatization for Russia’s state-owned enterprises. As more prudent colleagues at the World Bank such as David Ellerman had warned, his policies resulted in economic collapse, widespread misery and the emergence of the current system of crony capitalism in Russia.

    After Summers left the World Bank, he continued promoting financial deregulation throughout the developing world. When this ill-suited approach brought about the East Asian financial crisis in 1997, he moved decisively to benefit from the crisis. As deputy secretary of the US Treasury, he pushed for a hard response which didn’t allow the debtor governments to approve economic stimulus packages or protect their failing industries. Instead, he forced them to accept the sell-out to US investors.

    The US Treasury and Chamber of Commerce used the IMF to impose policy conditions on South Korea and Thailand which allowed an easy take-over of local companies by US competitors. In February 1998, Larry Summers could declare triumphantly: “The IMF has done more to promote America’s trade and investment agenda in East Asia than 30 years of bilateral trade negotiations.”

    Joe Stiglitz, who was the World Bank’s chief economist during the East Asian financial crisis and went on to win the Nobel Prize for Economics, strongly criticized the neoliberal orthodoxy espoused by Larry Summers and the IMF. “Did America – and the IMF – push policies because we, or they, believed the policies would help East Asia,” Stiglitz asked, “or because we believed they would benefit financial interests in the United States and the advanced industrialist world?” Even though Stiglitz had history on his side, Summers did not take his challenge lightly. According to Robert Hunter Wade, he told James Wolfensohn that the US government would only accept him for a second term as the Bank’s President if he fired Joe Stiglitz. And so Wolfensohn did.


    As Mark Ames commented on AlterNet, “hiring Summers to fix the economy makes as much sense as appointing Paul Wolfowitz to oversee the Iraq withdrawal”.

    Yes, TomP.  It would be much better to have Stiglitz than Summers!  Oy g’veh!  Here we go again.

    Let’s hear it for people centered people.


    • dkmich on December 2, 2008 at 11:17 am

    I’ve heard the phrase, but I don’t know what it means.  I think Obama is going to be another Bill Clinton.  That is change I can believe in.  

Comments have been disabled.