Getting up in the middle of the night to take note of an upcoming anniversary is not usual around here, but this occasion seems important. Tomorrow will be February 14. One year ago tomorrow, a New York governor and former attorney general sent us all a warning. Writing in the Washington Post, Elliot Spitzer reminded us that American banks were on the edge of disaster.
Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.
Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
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.
In the late 1980's, warnings had already been issued by managers of some of the biggest investor groups that some of the nation's oldest, biggest, and most respected banks were at risk. JP Morgan. Bank of New York. Couple of big Boston banks. Already the depredations of the Reagan administration were being felt in conservative financial circles. "Conservative" here refers to financially conservative, not politically neo-conservative. (But Democrats aren't off the hook, either. After all, Bill Clinton signed the repeal of Glass-Steagall in 1999.)
Back to Elliot Spitzer just before he was taken down.
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
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.
Spitzer, formerly New York's attorney general, had been on the case for years. The New York governor was speaking for a lot of people here, most notably the attorneys general of all 50 states. Three weeks later, he was gone. On March 10th, the Justice Department, which had known for months that he was one of a number of men involved in an investigation of a Washington call-girl ring, sent the FBI to talk to him and in a few days Spitzer was no longer the governor of New York. He was out, under a cloud, discredited and silenced.
That was March 10, 2008. On March 22nd, Scott Horton wrote in his Harper's column:
The Miami Herald story, quoted by Horton, notes that "Stone [is] known for shutting down the 2000 presidential election recount effort in Miami-Dade County [and] is a longtime Spitzer nemesis..."
The New York Times had come out a day earlier than Horton's article with a long article about Spitzer's case. Horton, commenting on the article, wrote that the Spitzer case "looks increasingly like a political hit."
It sure does. The potentially inflammatory article by Spitzer (now, of course, a man who has been carefully discredited and sidelined) blamed what we now know has been an inevitable financial crash on the Bush administration.
Why am I getting up in the middle of the night to write this now? Because at 8 am this morning, London time, the BBC led its news hour off with a mind-boggling account, assisted by Republican member of Congress Paul Ryan, of how a "Democrat [no 'ic'] administration" and "Democrat-controlled" Congress have let the ball drop on a financial recovery program, have killed bipartisanship in Washington, and are doomed along with the nation they're supposed to serve. This came straight-faced and unchallenged from the BBC -- not Fox, not a quote from the Limbaugh show, though the BBC reporter sounded as though he had been to Fox's training camp.
My first thought was about the staggering fortitude of the Republican machine which, like it or not, is cranking along just fine. The only change from the Bush era is that the Republicans have gotten hungier, even more focused, and maybe more powerful in their desperation. Spitzer? State attorneys general? Obama? They're just temporary phenomena, easily destroyed.
Call me touchy, but I think the Democratic honeymoon never even got started. That Republican machine could easily be deprived of fuel by a Democratic majority, across the country and on the Hill. Why isn't that happening?
