Banking Law

Someone needs to hit Eliot Spitzer with a Thorazine dart, slap a straight jacket on him, and strap him to a gurney before his Bush Derangement Syndrome causes his head to explode. Not that if that happened, any bystanders would be splattered with gray matter, but when a vacuum is breached, the concussive effects of the implode can be devastating. Ask anyone who saw Britney Spears on Rodeo Drive last Saturday sporting an English accent.

Spitz's latest meltdown is a doozy. His opinion piece in todays edition of The Washington Post tips over into the abyss of downright falsehood.

After laying out the contention that he and "49 other" state attorneys general several years ago saw an increase in predatory lending practices so vast that those practices "threatened our financial markets,"  he alleges that the Bush administration not only looked the other way, it actively campaigned to protect predatory lenders by thwarting Eliot Mess and the rest of the Unmentionables in their pursuit of the bad guys.

In fact, the government chose instead to align itself with the banks that were victimizing consumers.

[...]

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.

If I had time to fisk this loon, I'd be happy to do so, but why work when someone's already done the heavy lifting for you? With little delay, Comptroller of the Currency John Dugan called Spitzer a liar.

Almost everyone who has paid attention to the subprime lending crisis has concluded that OCC-regulated national banks were not the problem.  Instead, the worst abuses came from loans originated by state-licensed mortgage brokers and lenders that are exclusively the responsibility of state regulators.

However, comments from today assert that the OCC and national bank preemption have prevented the states from taking action against predatory or abusive lenders.  That?s just plain wrong.

The OCC extensively regulates the activities of national banks, including mortgage lending.  The OCC established strong protections against predatory lending practices years ago, and has applied those standards through examinations of every national bank.  As a result, predatory mortgage lenders have avoided national banks like the plague.  The abuses consumers have complained about most ? such as loan flipping and equity stripping ? are not tolerated in the national banking system.  And the looser lending practices of the subprime market simply have not gravitated to national banks: They originated just 10% of subprime loans in 2006, when underwriting standards were weakest, and delinquency rates on those loans are well below the national average.

Nothing the OCC has done has prevented the states from regulating and preventing abuses among the lenders that they license ? lenders that are the source of most of today?s problems.  The states have ample authority ? as well as clear responsibility ? to set standards for these lenders and enforce them.  It defies logic to argue that preemption was an impediment.  National banks are bound to obey the strict standards enforced by the OCC everywhere they operate ? even in states that had far less rigorous standards.  The states should have applied equally rigorous standards to the non-bank lenders that were responsible for the bulk of the problems.

Spitz is obviously still sorry he can't sit down after the ass-kickings the OCC repeatedly gave him, using a pair of Julie Williams' stiletto-heeled, sling-back pumps, in his losing lawsuits over the preemption power of the OCC. Opponents of national bank preemption of state laws that restrict predatory lending have legitimate arguments to make. None of them were made by Spitzer, whose bald-faced lies are so easily exposed that if the Governor of New York had an ounce of integrity and an iota of intellectual honesty, he'd feel ashamed. Luckily for Eliot, he's a punk through-and-through, and completely devoid of either quality, so he'll sleep just fine tonight.

What a dork.