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Predatory Scapegoating | The Nation

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Diary of a Mad Law Professor

Predatory Scapegoating

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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.

About the Author

Patricia J. Williams
Patricia J. Williams
Patricia J. Williams, a professor of law at Columbia University, was born in Boston in 1951 and holds a BA from...

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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."

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