Spitzer’s Wallstreet crisis: Predicting the fall of Fannie Mae
Wallstreet is in crisis today as stocks plunged to depths reminiscent of the Great Depression. Roughly $700 billion went up in smoke.
The Washington Post reports that AIG (American International Group) is the next major Wallstreet firm in the crosshairs of the cash crunch. In the aftermath of a financial meltdown that sunk Bear Stearns in March, the stock market has been on a wild ride … much of it plummeting at record pace, with major institutions collapsing following the mortgage industry crisis, including the venerable Lehman Brothers.
But everyone knew this was coming, right? Everyone, except of course, the American public. But, we had ample warning.
In January 2005, a story published by CNN titled, “The Fall of Fannie Mae,” exposed the fallacy inherent in the autonomy of the Congress-created private corporate giant. The story ought to be required reading in every school in the nation.
It’s a sad, albeit intriguing tale of power, greed, corruption, politics and a Good Old Boys Club — all of which provide insight into how a simple plan to help middle-class and poorer Americans buy homes turned into the biggest boondoggle in American history. Names like Enron, Lehman Brothers and Bear Stearns were all mentioned in the story. Along with them were a number of prominent politicians who defended a massive swindle perpetrated at the highest levels of Fannie and Freddie, threatening the very foundation of the entire U.S. mortgage system.
Eliot Spitzer drops a bomb on the Bush administration
On Valentine’s Day 2008, another warning about the potential collapse of Fannie and Freddie was sounded. This alert came from a prominent political official, New York Governor Eliot Spitzer.
His opinion piece in The Washington Post exploded like a bomb on the White House. A few weeks later, the FBI would release to media sordid information about Spitzer’s predilection for high-priced call girls. And the looming financial crisis, caused in part by the Bush administration — according to Spitzer’s explanation in the Post — disappeared from the radar of national media.
Today, in the wake of the sinking of two Titanic ships, Fannie and Freddie — which threatens to drag down Wallstreet itself — Spitzer’s allegations loom large. So what did Spitzer say?
Fannie Mae and Freddie Mac fraught with corruption
In a nutshell, before Spitzer became governor of New York in 2006, he was the state’s Attorney General. He says in 2003 he joined with all the other states’ Attorney Generals in a combined effort to fight the Bush administration, which was thwarting each state’s crackdown on national banks engaged in predatory lending practices. These banks were not only taking advantage of the poor, but they were creating a volatile market. The banks didn’t care since Fannie and Freddie were buying up all the mortgages as fast as banks could write them. Fannie and Freddie were getting fatter and fatter, and the nation’s Attorneys General were seeking to trim the fat and protect both the consumer and the financial institutions in which we were all invested.
The Bush Administration refused, however, to allow the states to stop the illicit practice. In an effort to intervene, it invoked the Office of the Comptroller of the Currency — a federal agency created to oversee the books of the nation’s banks.
Bush Administration battles America’s Attorneys General
In 2003, Spitzer says the Bush administration invoked an ancient clause from the 1863 National Bank Act that rendered all state predatory lending laws moot. That touched off a battle between the Bush administration and all 50 states’ Attorneys General. In the end, Bush won. Of course, you and I lost … as did much of America.
His prize? The federal government took possession of both Fannie Mae and Freddie Mac. Under the federal government, we’ve learned that the failure of these two giants was due simply to a flawed business model, according to Treasury Secretary Henry Paulson.
The end game: government control
The net worth of both companies are today a mere fraction of what they once were. The rampant corruption that collapsed the financial worth of these two Goliaths, as well as numerous associated companies still exists. But in light of the crisis that has had reverberations around the globe, no one seems anxious to punish those responsible. We’re all too busy crying over lost homes and jobs, while our government fights two wars and expands its options to take on two more.
But at least we got rid of Spitzer. Apparently, there is nothing worse in this nation than a political leader purchasing the services of a prostitute. If Spitzer had been smarter, he would have pimped out Fannie Mae and lived high on the hog off of her fat ass … like everyone else. At least that’s exactly what we can expect from those who just purchased her at the highest price going … the cost of the American Dream.
Posted on September 16th, 2008 by MikeGreen
Filed under: The Economy
Why isn’t this article put out on the news??? Spitzer get out there! no one cares about your indicretions anymore just tell everyone the truth.. please..
Finally, someone expresses the reality of illegal selling schemes and lack of accountability. Big Government ran roughshod over regulatory institutions such as the OCC.
As Trust Officer/compliance officer in Trust dept’s for over 32 years, the mortgage selling etc, ignore the principles of “trust”, which should apply to relationship management of the mortgage system: one on one management, no selling, no incentive to cheat consumers.
What do we have to do to get Spitzer and the 49 Other Attourneys general back in alliance to persue the bastards who continue rob the country. What happened to “of the people, for the people”? I’m far too unimportant to make a change, is there anyone out there that can finance a campaign to show ALL Americans the truth???
Democrats created the Fannie Mae and Freddie Mac problems years ago. They stopped ALL eforts at reform until it was too late. Now they are trying to blame Bush, McCain and Republicans, everyone but themselves. That’s the Gods truth and here is the proof:
http://strategicthought-charles77.blogspot.com/2008/09/democrats-created-fannie-mae-and.html
FYI
Eliot Spitzer, George Bush, and Wall Street: Hey, NY Times: What’s The Real “Breaking News” Story?
Posted March 16, 2008 | 02:35 PM (EST) HuffinftonPost
Greg Palast was the first reporter to raise the potential connection between Eliot Spitzer being exposed for using prostitutes and his being the only voice against the Bush administration’s planned bail out of Wall Street with billions and billions of taxpayer dollars. You can read Greg’s March 14th article here.
One reason I am drawn to this story is that The Wall Street Journal ran a very interesting analysis by Alan M. Dershowitz on March 13th (”The Entrapment of Eliot Spitzer”). Here’s the key part of Dershowitz’s article:
There is no hard evidence that Eliot Spitzer was targeted for investigation, but the story of how he was caught does not ring entirely true to many experienced former prosecutors and current criminal lawyers. The New York Times reported that the revelations began with a routine tax inquiry by revenue agents “conducting a routine examination of suspicious financial transactions reported to them by banks.” This investigation allegedly found “several unusual movements of cash involving the Governor of New York.” But the movement of the amounts of cash required to pay prostitutes, even high-priced prostitutes over a long period of time, does not commonly generate a full-scale investigation. Email
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Buzz up!on Yahoo!
We are talking about thousands, not millions, of dollars. We are also talking about a man who is a multimillionaire with numerous investments and purchases. The idea that federal investigators would focus on a few transactions to corporations — that were not themselves under investigation — raises as many questions as answers.
Even if Mr. Spitzer’s derelictions were serendipitously discovered as a result of routine, computerized examination of bank transactions, the dangers inherent in selective use of overbroad criminal statutes remain. Money laundering, structuring and related financial crimes are designed to ferret out organized crime, drug dealing, terrorism and large-scale financial manipulation. They were not enacted to give the federal government the power to inquire into the sexual or financial activities of men who move money in order to hide payments to prostitutes.
Once federal authorities concluded that the “suspicious financial transactions” attributed to Mr. Spitzer did not fit into any of the paradigms for which the statutes were enacted, they should have closed the investigation. It’s simply none of the federal government’s business that a man may have been moving his own money around in order to keep his wife in the dark about his private sexual peccadilloes.
Dershowitz says “There is no hard evidence that Eliot Spitzer was targeted for investigation,” but Spitzer was definitely in the Bush administration’s face, so to speak.. having just published his own OpEd piece in The Washington Post, “Predatory Lenders’ Partner in Crime: How the Bush Administration Stopped the States From Stepping In to Help Consumers”, on February 14th. Here’s an extensive excerpt from what Spitzer wrote:
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.
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.
Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
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.
Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.
When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.
Hard evidence he was targeted? No. Reason he might have been? Only further investigative reporting can answer that question.
But then there’s the curious nature of how The New York Times broke the Spitzer story, which was brought to my attention by Mark W. Adams at Dispassionate Liberal. Here’s the part of this report that caught my eye:
Somebody at Justice found someone at the New York Times with as much integrity as Judy Miller, and “leaked” the name of Client 9. Somebody at the Times decided that a headline saying “Spitzer was caught with a hooker” wasn’t nearly as productive as saying he was “linked to a prostitution ring.” They didn’t just want to expose a crime here. They wanted Spitzer destroyed.
Come on. Didn’t they make it sound more like he was a pimp and not a john? And wasn’t that exactly what the headline writers at the NY Times wanted? This was overkill.
I distinctly remember the use of this “linked to a prostitution ring” language when the story broke on Monday. That’s how it was framed on the news channel playing in the offices of the Congresspeople I happened to be visiting. I remember first thinking to myself “He’s running a prostitution organization on the side?”, not “He went to see a hooker?”.
Why did the Times use such language? Maybe their Public Editor can help answer that question.
I am writing this today because the only thing I’ve heard on the Sunday talk shows is about Eliot Spitzer’s “crime”… his dysfunctional personality… (Actually, David Brooks wrote a brilliant analysis, The Rank-Link Imbalance, on this subject the other day)… and how we, Americans, should be happy to be rid of him.
While I am not condoning Spitzer’s use of prostitutes in any way… what I am suggesting is that perhaps we should not be so quick to celebrate Eliot Spitzer leaving the American stage. He and his fellow State Attorneys General were on to something when they attempted to protect the American consumers from predatory lending several years ago.
The vastly under-reported story of how the Bush administration blocked that effort… combined with the fact that the Bush administration and the Federal Reserve has now done the exact opposite: acted to protect the banking/investment industry with $200 billion (and more to come?) of our money… is being drowned out by the Spitzer prostitution story.
Hey, NY Times… how about making how the Bush administration actively blocked efforts to protect Americans from predatory lending… and any possible connection between that story and Eliot Spitzer being caught… your next Breaking News story?
In referring to Eliot Spitzer’s February 14th Washington Post essay, Greg Palast writes:
Spitzer wrote, “When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favorably.”
But now, the administration can rest assured that this love story — of Bush and his bankers — will not be told by history at all — now that the Sheriff of Wall Street has fallen on his own gun.
Well, the Sheriff of Wall Street may have been silenced, but The New York Times and other papers are in a position to follow this story to its rightful conclusion. Will they? Only time will tell.
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[...] now know that the Bush administration, along with a complicit Congress, waged economic war against the people of the U.S. in his first year after taking office. All 50 states banned together [...]
Have you been wondering who is responsible for the bank crisis and the failure of Fanny Mae and Freddie Mac? Every voting age American should be required to watch this video. The video is from 2004 Congressional hearings about regulating Fanny Mae and Freddie Mac. You will see Republicans pointing out problems and calling for more regulation of Fanny Mae and Freddie Mac. You will see Barney Frank, Maxine Waters and other Democrats denying there is a problem and criticizing the regulators and Republicans for trying to prevent the upcoming crisis. If this video doesn’t make you ashamed to be a member of the Democratic Party, nothing will.
Proof positive that democrats are responsible for bank crisis