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UNC study: Bush administration blocked efforts to control housing crisis
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A new study from the University of North Carolina says that Federal regulators in the Bush administration blocked attempts by state governments to prevent the predatory lending practices that created a ripple effect resulting in the financial crisis currently stifling the U.S. economy.
In 2004, a regulatory agency known as the Office of the Currency Comptroller (OCC) gave itself the power to override state laws against predatory lending by invoking an obscure 1863 law. The OCC told states that banks would be subject to only relatively lenient federal laws and that stricter state laws could not be enforced.
A research paper published on Monday from UNC-Chapel Hill's Center for Community Capital shows that those anti-predatory lending laws had actually worked. States that had stricter regulations on issuing mortgages were found to have fewer foreclosures. See: http://www.ccc.unc.edu/documents/Phase_I_report_Final_Oct5,2009_Clean.pdf.
"We believe that these findings are remarkable, since they suggest an important and yet unexplored link between [anti-predatory lending laws] and foreclosures," the study's authors conclude.
Many critics of the Bush and Clinton administration cite the gutting of regulations of lenders that have been in place since the Great Depression as the primary cause of the current financial crisis. The UNC study may be the first scientific evidence of that.
Seven months before the collapse of Lehman Brothers and the government bailout of banks that was rammed through congress by the Bush administration, the former Governor of New York, Elliot Spitzer, wrote a column for the Washington Post describing the Bush administration's efforts to block states from enforcing laws that may have prevented the crisis in the mortgage industry. Spitzer, who had a reputation for fighting corporate corruption, wrote:
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. Several state legislatures, including New York's, enacted laws aimed at curbing such practices. 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.
A month later the New York Times broke the well-known story linking Spitzer to a prostitution ring that ended his political career. According to investigative reporter Greg Palast and many others, that was not a coincidence. See: http://www.gregpalast.com/elliot-spitzer-gets-nailed/.
As the Obama administration proposes "a sweeping overhaul of the financial regulatory system," many critics will vehemently oppose regulations on the grounds that they create more problems than they solve. The UNC study is yet more evidence that regulation of the banking industry is not the problem that created the financial crisis, it is the solution and is a way of helping prevent future economic catastrophes. The study is also more evidence that borrowers buying beyond their means are not solely responsible for the sub-prime mess that led to the worst recession in 70 years.
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