Last week New York governor Eliot Spitzer wrote an editorial in the Washington Post about the predatory lending practices of some large US banks beginning in 2003, and about the Bush administration’s part in allowing them.
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.
The tool they used for this, Spitzer says, was the obscure Office of the Comptroller of Currency:
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.
The result, as everyone knows, is economic instability in America and thousands of lost homes. Of course, the blame for this lies in a number of places: the banks offering these predatory loans, the buyers whose eyes were bigger than their wallets, the investors who made sub-prime debt part of their portfolio and those who sold it to them, and on and on. I won’t debate who’s most to blame. What got my attention is the new light in which I see stories like this.
I’m no fan of the Bush administration, nor do I tend to agree with Republican policies*, be they social or fiscal. I tend to be very cynical in my assumptions about their actions (though that probably has less to do with their being Republican than their being politicians in general) so accounts like this would usually suggest the motivating factor was greed. My mind immediately leaps to the corrupting influence of lobbyists in cases like this, and it simply seems natural to me that the large American banks would throw piles of money at government officials, urging them to somehow keep these predatory lending practices legal. While I still consider this a possibility, I no longer leap to it as the most likely scenario.
Perhaps I could blame it on Naomi Klein‘s Shock Doctrine, or perhaps it’s all the Friedman-worship one runs across in the course of an MBA program, but I now consider another motivation on the part of the Bush administration: free market purity. Perhaps the administration believed in the power of unfettered markets so strongly that the notion of state governments’ interference in a company’s right to profit was unacceptable, and they removed the roadblock. It would be a nice bit of irony that, in their quest to remove a government barrier from the path of capitalism, the only tool available to them was more government bureaucracy: the OCC.
I’m not saying either of these theories is what actually happened. I don’t claim to be particularly insightful in matters economic or political. I was merely interested to notice that, because of these new things I have read and learned, my immediate bias has changed. I’m probably no less cynical about politics than before, but I now consider things in another light. That’s something, I guess.
To sum up: reading makes you smarter. Duh.
* Truth be told, I don’t really agree with Democrat policies that often either; it simply strikes me as the lesser of two evils.
[tags]eliot spitzer, predatory lending, milton friedman, naomi klein, shock doctrine, education[/tags]