Reply #11: re CRA Gramm got what he wanted reviews every 5 or 4 yrs is like no review at all. Clinton and Dems

[JohnWxy]

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=109x35162#36677


wanted reviews every 18 months.


TIMELY reviews would have brought action to stop basically fraudulent practices (such as putting fantasy figures for incomes on loan application forms) that predatory lenders were engaging in and which produced mortgages that were bound to default.

CRA was clearly not meant to promote predatory lenders lieing on loan applications and committing other irresponsible and fraudulent acitivities. Many Dems were furious at Clinton for giving in on this. I agree with them to a degree but I give Clinton some slack here as he knew there were other agencies monitoring lenders activities.

Where Clinton was wrong was to not look into the future (perhaps he didn't have a crystal ball) and see that regulators in the future would do NO Regulating - (at the time this act was signed I don't think Clinton knew for sure if the next administration would be Democratic or Republican). Had the CRA been passed in the form the Democrats wanted (but Gramm was adamantly opposed to (close monitoring of lenders practides) the questionable and fraudulent lending practices of predatory lenders would have been spotted (and assuming the following administration wanted to do anything about it) would have been stopped and the mortgages with high default rates never would have been produced. IF THE PREDATORY LENDERS KNEW THEY WERE GOING TO GET REVIEWED THAT IN ITSELF WOULD HAVE HAD THE AFFECT OF STOPPING FRAUDULENT (e.g.putting false statements on loan applications) PRACTICES.


But the Cheney - Rove government not only was disinterested in policing predatory lenders they actually fought those who wanted to take action to reign in Predatory Lenders. The Office of the Comptroller of the Currency actually prevented Attorneys General from all 50 states from using Consumer Protection Laws to stop Predatory Lenders from using questionable even fraudulent practices.

Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.
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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.

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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.

Obviously, something could have been done about predatory lending but the Cheney-Rove government stopped all such actions. And even before Cheney-Rove took over the government, Clinton administration officials tried to get Greenspan to do something about predatory lenders but he blew them off. - (the market would police itself)



THANK YOU FOR BRINGING UP THE COMMODITY FUTURES MODERNIZATION ACT - Phil Gramm's baby - This was added as rider to the Omnibus Spending Bill 2000 (just like these earmarks that are talked about today) - Virtually nobody knew the CFMA (which had not been able to get out of committee) was even added to the 11,000 page OSB and as a Congressional staffer said "Nobody in either chamber had any knowledge of what was going on or what was in it,"

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=109x35162#36674

"But Gramm's most cunning coup on behalf of his friends in the financial services industry—friends who gave him millions over his 24-year congressional career—came on December 15, 2000. It was an especially tense time in Washington. Only two days earlier, the Supreme Court had issued its decision on Bush v. Gore. President Bill Clinton and the Republican-controlled Congress were locked in a budget showdown. It was the perfect moment for a wily senator to game the system. As Congress and the White House were hurriedly hammering out a $384-billion omnibus spending bill, Gramm slipped in a 262-page measure called the Commodity Futures Modernization Act. Written with the help of financial industry lobbyists and cosponsored by Senator Richard Lugar (R-Ind.), the chairman of the agriculture committee, the measure had been considered dead—even by Gramm. Few lawmakers had either the opportunity or inclination to read the version of the bill Gramm inserted. "Nobody in either chamber had any knowledge of what was going on or what was in it," says a congressional aide familiar with the bill's history."

It was the legalization of Credit Default Swaps and making sure they were not regulated that really blew up Wall Street and the entire economy. The banks could sell much more of the high rate (and higer risk) Collateralized Debt Obligations to Institutional Investors with CDSs because they told the Institutional Investors that the CDSs would protect them against default. THis then created a huge demand for high rate CDOs (and sub-prime mortgages) which drove lenders to beat the bushes for anybody they could sign up to a sub-prime mortgage.

From "The Bet that Blew up Wall Street" on 60 Minutes (CBS)

In the early part of the 20th century, the streets of New York and other large cities were lined with gaming establishments called "bucket shops," where people could place wagers on whether the price of stocks would go up or down without actually buying them. This unfettered speculation contributed to the panic and stock market crash of 1907, and state laws all over the country were enacted to ban them.

"Big headlines, huge type. This is the front page of the New York Times," Dinallo explains, holding up a headline that reads "No bucket shops for new law to hit.”

"So they'd already closed up 'cause the law was coming. Here's a picture of one of them. And they were like parlors. See," Dinallo says. "Betting parlors. It was a felony. Well, it was a felony when a law came into effect because it had brought down the market in 1907. And they said, 'We're not gonna let this happen again.' And then 100 years later in 2000, we rolled them all back."

The vehicle for doing this was an obscure but critical piece of federal legislation called the Commodity Futures Modernization Act of 2000. And the bill was a big favorite of the financial industry it would eventually help destroy.

And as they point out on the 60 Minutes report, on the last page of the CFMA is the language that preempts the states from enforcing their anti "bucket-shop" laws against banks engaged in buying and selling Credit Default Swaps.