If the Justice Department wants to get serious about investigating financial fraud by Wall Street big boys, it ought to drop by the White House and interview Jeffrey Immelt, CEO of General Electric. Immelt is chair of President Obama’s jobs and competitive council, where he strategizes about how to revive American manufacturing. In some other places, only thirty miles from the White House, Immelt is known as the subprime foreclosure king.
General Electric preyed upon low-income minorities—people of color and immigrants—with notorious subprime mortgages designed to fail. And fail they did. GE Capital’s mortgage subsidiary originated some $700 million in housing loans to families in Prince William and Manasses—high-cost, predatory loans of which $218 million wound up in foreclosure. GE, well known for its inventiveness, pioneered online loan origination in which borrowers did not have to prove they had any income. Naturally, they were charged sky-high interest rates and sold weird mortgages with variable rates that went up but never went down.
Nearly 50 percent of Prince William homeowners are still “underwater” on their mortgages, still struggling to hold on their houses. The county has particular meaning for this year’s presidential election because Prince William is the first county in Virginia to have a “minority majority”—voters who are non-white. They are especially meaningful for Obama because he needs to win big again in Prince William to have any hope of carrying Virginia as he did 2008.
Mortgage-making was a messy but lucrative business for GE. It became the tenth-largest subprime lender in the nation. Its failure rate was the highest among the big-name banks working the northern Virginia territory. But GE made sure it got out before the borrowers failed. WMC Mortgage, the GE subsidiary that originated the dubious loans, immediately sold them to other companies or packaged them as mortgage-backed securities and sold them to Fannie Mae and Freddie Mac, the federally guaranteed housing finance companies now in conservatorship. Some minor portion of the $150 billion in losses Fannie and Freddie have dumped on the taxpayers can be credited to Jeffrey Immelt’s brilliant banking. When the mortgage scam became a national scandal, GE sold the company that had done its dirty work.
The federal government has not shown much interest. The Federal Housing Finance Agency that now oversees Fannie and Freddie did belatedly sue GE last fall for misrepresenting the quality of the mortgage securities it sold the government. This spring, with White House trumpets and flourishes, the Justice Department announced a major investigative task force to hunt down the swindlers (the second time such a task force was announced).
When government fails to do its duty, citizens have to step up and defend themselves, any which way they can. This month and next, we are seeing an impressive swarm of home-grown protests and nonviolent clashes around the country, citizens confronting bankers and demanding justice. The story makes the local news but has usually been ignored so far by national media.