Predatory Scapegoating

Some three weeks before New York Governor Eliot Spitzer was forced to
resign his office in disgrace (sex! scandal! floozies!), he published an
op-ed in the Washington Post. Titled "Predatory Lenders' Partner
in Crime: How the Bush Administration Stopped the States From Stepping
In to Help Consumers," the piece expressed Spitzer's concern that for
several years there had been a marked increase in predatory lending
practices, including distortion of terms, surprise balloon payments,
hidden fees and deceptive "teaser" rates. These practices, he wrote,
were having a "devastating effect on home buyers." In addition, the
sheer number of such transactions, "if left unchecked, threaten...our
financial markets." To those in the know (OK, those few egghead "elites"
not enthralled by the birth of the Brangelina twins), the situation
loomed so egregious that the attorneys general of all fifty states, both
Democrats and Republicans, lodged suits against the worst predatory
subprime lenders. A number of states, including New York, passed laws to
rein in such practices.

The response was shocking, and not nearly wellpublicized enough: the
Bush administration employed a little-used 1863 law to annul all state
antipredatory-lending laws and, if that wasn't enough, to block states
from enforcing their own consumer protection laws in suits against
national banks. Thus, when Spitzer tried to open an investigation into
discriminatory mortgage lending in New York, the administration actually
filed a federal lawsuit to block it. These interventions were so extreme
and so unprecedented that the attorneys general and the banking
superintendents of all fifty states came together to oppose the rulings
unanimously. But to no avail.

It is worth quoting the last paragraph of Spitzer's op-ed in its
entirety: "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."

Spitzer wrote his article eight months ago, in February. To some, it
might be tempting to characterize his observations as prescient. It's
probably more accurate to say that Spitzer just had his eyes open (if
not for Mata Hari)--and he was not alone. Nobel Prize winner and New
York Times columnist Paul Krugman has been sounding the knell for a
very long time. But, frankly, I worry that even now there is too little
attention--in media or in political debate--to the incremental
ingredients of this crisis. For it is not merely a failure to regulate
Wall Street; it's a failure to govern at all. The FDA is packed with
industry insiders who seem content with the gross understaffing of
inspections bureaus. Animal feed laced with melamine was imported from
China, consumed here and has now entered the human food chain.
Nontherapeutic experimentation with pesticides on humans has been given
the nod. Pharmaceutical companies have gotten approval for drugs like
Vioxx and Fen-Phen that should never have been put on the market.
Efforts by farmers to do voluntary testing for mad cow disease have been
blocked by the Agriculture Department. The Justice Department's civil
rights division has been gutted. The FCC has hacked away at public
access to the airways and OK'd obscene concentrations of media power.
The Transportation Department is underfunded beyond all conscience, and
the toll has been tragic: collapsed bridges, breached levees up and down
the Mississippi and nearly unnavigable railroad tracks. And FEMA...
well, we all remember FEMA.

Maybe now is not the time to be ungraciously partisan; perhaps in the
middle of the tornado we "don't want to argue about causes," as Sarah
Palin said of global warming. But let's make one thing crystal clear:
neither this global economic catastrophe nor the impending plunge in our
standard of living is the fault of poor blacks or other disenfranchised
minorities. It should be obvious, I suppose: African-Americans are only
about 13 percent of the population, and about 48 percent of them are
homeowners. Yet I emphasize this because to listen to some widely
exported theories by John McCain's surrogates and right-leaning radio
shock jocks, you could get the impression that this all came about
because penniless black slackers took out home loans they were just as
unqualified for as the jobs they stole from more qualified white
contenders.

Perhaps the most insidious and ubiquitous propagation of this imagery is
the McCain ad that features a scary photo of Franklin Raines, former
head of Fannie Mae, the single black head of any organization implicated
in this mess. Yet of all the hundreds of CEOs, crooks and swindlers who
could be named--from Ken Lay to AIG's Christopher Swift to Jack
Abramoff--it is Raines who is used as the Willie Horton-ized whipping
boy of civilization's downfall. This is pure manipulation: Raines is not
connected in any way to Barack Obama. Yet McCain's campaign director was
a top manager at Fannie Mae. If we must look for figureheads, allow me
to nominate George Herbert Walker IV, who just happens to be George W.
Bush's second cousin. He also happens to be Lehman Brothers' investment
management director, who, just before the firm's collapse, dismissed a
suggestion from the asset management firm Neuberger Berman that top
executives forgo their multimillion-dollar bonuses so as to "send a
strong message...that management is not shirking accountability for
recent performance." Walker actually apologized that the very notion had
been circulated: "Sorry team. I am not sure what's in the water at
Neuberger Berman. I'm embarrassed and I apologize."