Spokane7
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July 16, 2011 in Opinion
GOP targets taxpayer protections
Republicans want to make Americans more responsible for their own economic security while curbing the protections that would help them do it safely. A double win for Wall Street operators. Republicans deliver them a new batch of easy marks – Average Joes who don’t understand the small print – and then let the financiers do as they please. A few guys make a quick buck milking the unsophisticated, and when the music stops, the taxpayer picks up the debris. It happens every time, and it will happen again if Republicans succeed in emasculating the new Consumer Financial Protection Board.
Here’s the pattern: During the Reagan era, the deregulated savings and loans embarked on an orgy of reckless lending. This was a bipartisan disaster: Republicans wanted to free the S&Ls to invest their deposits as they wished, while the Democrats insisted on having the taxpayers guarantee the money with which they gambled up to $100,000 per account. But the Reagan administration also declawed the government watchdogs. The auditing staff of the S&Ls’ regulator, the Federal Home Loan Bank Board, was slashed. And starting S&L examiners were paid only $14,000 a year.
The S&Ls collapsed, leaving the taxpayer with a $129 billion bill in 1990 dollars. That sum is not very far from the estimated $169 billion that the Fannie Mae and Freddie Mac bailouts will cost us.
Speaking of which … the taxpayers’ implicit guarantee of Fannie and Freddie mortgages enabled the twins to buy all kinds of risky loans, thus encouraging more speculation in real estate. But the George W. Bush administration fought off all efforts to tighten rules for lending. It even stopped states from regulating subprime mortgages.
Bush was pushing his “investor society” vision, whereby the assembly-line worker would happily exchange Social Security’s scheduled payouts for a waltz down Wall Street. Republicans were and still are trying to privatize the program – that is, have workers invest their contributions. Another variation on this theme is the health savings account, whereby people may invest contributions to their medical care in the stock market.
That was a heck of a time to cut funding for the Securities and Exchange Commission, the agency that polices publicly traded shares, but Republicans did. And they are going after the SEC now, this time under the cover of deficit reduction. (The House has already voted to cut the funding of the Commodity Futures Trading Commission, which regulates derivatives.)
The new Consumer Financial Protection Bureau is to be an independent agency funded through the Federal Reserve. That Republicans couldn’t cripple the bureau by starving it gets their goat. According to their rhetoric, there’s something subversive about rules requiring that a mortgage contract be written in plain English or banning predatory loans aimed chiefly at the working poor. Not coincidentally, this is also the view of the companies that market toxic financial products to ordinary Americans.
Most Americans, personally burned by the speculative collapses, would probably not object to a few rules of the road in consumer finance. So the right wing has moved the spotlight off what the CFPB would do and onto its creator, the much-demonized Elizabeth Warren. President Barack Obama has made it clear that he may name someone else to head the bureau. To prepare for that eventuality, Republican leaders have said they won’t approve any nominee, even if it’s not Warren.
It should be noted that many financial companies support the CFPB on the belief that a well-regulated market would build consumer confidence in their products. And those who support the “investor society” concept should feel likewise – unless their real agenda is simply feeding the lambs to Wall Street.
Froma Harrop is a columnist for the Providence Journal.
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Orphan on July 16 at 8:09 a.m.
Well Froma if Americans are not responsable for their own economic security who is, the goverment? After all the goverment has done such a good job on SS and medicare why not trust goverment some more.
hawken on July 16 at 8:42 a.m.
Unionists, public employees, the “Average Joe,” millions of the elderly as well as young adults and families have investments in Wall Street in one way or another.
They have public pension, retirement money, 401k private sector retirement money, college money, personal savings and investment money invested in Wall Street.
Wall street is not a bunch of “fat cat” Republicans.
Wall Street is all of us in one way or another.
When Wall Street prospers, we all prosper.
Diana on July 16 at 9:19 a.m.
Human infomercial hawken says “When Wall Street prospers, we all prosper”.
And when greed gets the better of them and they don’t? See 2008.
Yeah, I totally trust Wall Street to do the right thing.
gmorton on July 16 at 10:08 a.m.
Froma says,
“Speaking of which … the taxpayers’ implicit guarantee of Fannie and Freddie mortgages enabled the twins to buy all kinds of risky loans, thus encouraging more speculation in real estate. But the George W. Bush administration fought off all efforts to tighten rules for lending. It even stopped states from regulating subprime mortgages.”
Yes, indeed. But why did you fail to mention that Fannie and Freddie were *commanded* to begin buying those risky loans by the Clinton administration, and later to increase the fraction of those loans in their portfolios to 50%?
Why did you fail to mention that the underwriting standards banks traditionally applied – regarding loan-to-value ratio, down payment requirements, credit history, and debt-to-income ratios – were progressively abandoned by the Clintonistas in pursuit of “affordable housing”?
And why did you fail to mention that when alarms were sounded over the risks involved in these mortgage products, and tighter regulations proposed, Clinton’s crew rebuffed them, just as Bush later did?
You need to tell the whole story, Froma.
gmorton on July 16 at 10:16 a.m.
And, Froma, you might also have mentioned that the $160 billion shelled out so far to Fannie and Freddie is just the tip of the iceberg, that they still have somewhere between $200 and $400 billion in dubious loans on their books, much of which the taxpayers will also have to eat sooner or later.
And you might have mentioned that while all the large private banks who were bailed out of their subprime adventures have since repaid the government in full, Fannie and Freddie, who received the largest bailout of all, by far, have not repaid a cent, and never will.
hawken on July 16 at 1:09 p.m.
Diana:
Are you referring to “Wall Street Greed,” or Government Greed?
hawken on July 16 at 1:11 p.m.
Diana: Sorry, I left out socialist greed, liberal greed, big government, nanny state greed, all, one in the same. So which are you referring to?
Diana on July 16 at 1:20 p.m.
Now what do you think, hawken? I realize you must feel that your questions are thought provoking and clever, so I’m going to take them as rhetorical. You know exactly what I meant.
Read up on the economic crash of 2008 and get back to me.
gmorton on July 16 at 4:54 p.m.
Diana wrote,
“Read up on the economic crash of 2008 and get back to me.”
Excellent advice. You might start with Moregenson & Rosner’s new book, “Reckless Endangerment.” There you will learn a great deal about “greed,” such as that displayed by Jim Johnson, CEO of Fannie Mae during the 90s, who earned over $100 million in salary and bonuses over that decade.
Johnson and other Fannie execs’ salaries and bonuses, you see, were conditional upon growth in the agency’s portfolio. To assure that growth, Johnson sought out subprime loans, and recruited storefront lenders, like Countrywide, to write them. When regulators began grumbling about the risks, Johnson showered perks and favors on key Congresscritters and bueaucrats, such as Barney Frank, Chris Dodd, Charles Schumer, Maxine Waters, and Donna Shalala to keep the beancounters off his back. Which they dutifully did.
At the time of the crash Fannie and Freddie held or “guaranteed” (with taxpayer’s money) about 45% of all outstanding subprimes. Which you – or perhaps your grandkids – will pay for.
Diana on July 16 at 5:38 p.m.
GMorton, that is a ridiculous post. Sure, focus on one, little tiny part of the meltdown and snort “b-b-but, our grandchildren!”
No doubt it works for baggers and fake PhDs, but you’re in mixed company here if you hadn’t noticed.
gmorton on July 16 at 8:02 p.m.
Diana wrote,
“Sure, focus on one, little tiny part of the meltdown and snort ‘b-b-but, our grandchildren!’”
Heh. I don’t think most people would consider 45% of the crappy loans to be a “tiny part.”
But, to be sure, it is not the only part. Government also progressively dismantled the traditional underwriting criteria for mortgage loans, required federally regulated banks to adopt the looser standards, and thereby set the standard for the rest of the mortgage industry (because the traditional criteria were “unfair” and “discriminatory,” of course). It allowed banks to count mortgage-backed securities in their reserve requirements, thus increasing their risks. It also enacted legislation to require banks, insurance companies, and other institutions required to maintain a capital reserve to rely on bond ratings from S&P, Moody’s, and Fitch, thereby relieving banks and other investors of their obligations to perform due diligence and handing the rating firms a huge free lunch, heavily laced with “moral hazard.”
And when analysts and regulators in both the Clinton and Bush administrations sounded alarms regarding the risks in those securities, they were shut down – because the pols didn’t want to do anything that would derail their “affordable housing” bandwagons.
The government was not the only player in the debacle, of course. Storefront mortgage lenders, investment banks which created lines of credit for the shysters, and equity brokers all cam to roast their wienies in the fire. But the gummint built that bonfire and lit it off.
greenlibertarian on July 16 at 8:30 p.m.
In 2007, the richest 10% of the country owned 81% of all stocks. The other 90% owned 19% of all stocks.
http://www.mybudget360.com/top-1-percent-control-42-percent-of-financial-wealth-in-the-us-how-average-americans-are-lured-into-debt-servitude-by-promises-of-mega-wealth/
Half of all households can’t come up with $2000 in 30 days for an unexpected expense of that size.
Arch_Druid on July 16 at 9:09 p.m.
I’ll accept taxpayers doing more for their own economic security when financial institutions and business interests in general quit expecting the gvt to hold their hands and bailing them out when they hit the skids. You new leftist dudes such as Hawken and etc. should read up on the books such as the latest: “Guaranteed to Fail.” It might just set you straight.
gmorton on July 17 at 12:40 p.m.
Arch_druid wrote,
“I’ll accept taxpayers doing more for their own economic security when financial institutions and business interests in general quit expecting the gvt to hold their hands and bailing them out when they hit the skids.”
I’m with you on that one, Arch.