Who’s Behind the Financial Meltdown?

WASHINGTON - The
top subprime lenders whose loans are largely blamed for triggering the
global economic meltdown were owned or backed by giant banks now
collecting billions of dollars in bailout money, according to Who’s Behind the Financial Meltdown?, a new investigation by the Center for Public Integrity.

“The
mega-banks that funded the subprime industry were not victims of an
unforeseen financial collapse, as they have sometimes portrayed
themselves,” said Center Executive Director Bill Buzenberg. “These
banks were deliberate enablers that bankrolled the type of lending
that's now threatening the financial system.”

These
are among the findings that emerged from the Center’s computer analysis
of government data on nearly 7.2 million “high-interest” or subprime
loans made from 2005 through 2007, a period that marks the peak and
collapse of the subprime boom. The analysis also revealed The Subprime 25 —
the top 25 originators of the high-interest loans, accounting for
nearly $1 trillion and about 72 percent of industry — who reported
subprime loans during that period.

The
Center found that U.S. and European banks poured huge sums into the
subprime lending market due to unceasing demand for high-yield,
high-risk bonds backed by home mortgages. The banks — including
household names like Lehman Brothers, Merrill Lynch, Citigroup, Credit
Suisse/First Boston, and Goldman Sachs & Co — made huge profits
while their executives collected handsome bonuses until the bottom fell
out of the real estate market.

• At
  least 21 of the top 25 subprime lenders were financed by banks that
  received bailout money — through direct ownership, credit agreements,
  or huge purchases of loans for securitization.

• Nine
  of the top 10 lenders were based in California, including all of the
  top 5 — Countrywide Financial Corp., Ameriquest Mortgage Co., New
  Century Financial Corp., First Franklin Corp. and, Long Beach Mortgage
  Co. 

• Twenty
  of the top 25 subprime lenders have closed, stopped lending, or been
  sold to avoid bankruptcy. Most were non-bank lenders.

• Eleven
  of the lenders on the list, including four recipients of bank bailout
  funds, have made payments to settle claims of widespread lending abuses.

A second story in the package, Predatory Lending: A Decade of Warnings, details
the troubling history of congressional oversight involving abusive
lending practices. The story traces how obscure laws passed by Congress
in the 1980s paved the way for creation of the subprime lending
industry, and documents how lawmakers essentially ignored repeated
warnings that high-cost loans represented a systemic risk to the
American economy.  

Included
in the Center’s online package are extensive maps and tables detailing
the extent of the companies’ subprime lending nationwide, the banking
industry’s backing of subprime lenders, and political contributions and
lobbying expenditures by the real estate and financial industries.