Posts Tagged ‘Andrew Cuomo’

States back at the plate

Last week the U.S. Supreme Court granted states attorneys general the power to sue federally regulated financial institutions for violating state fair lending laws. The opinion in Cuomo v. Clearinghouse [PDF] was written by Justice Antonin Scalia, joined by the court’s four liberals. When Scalia says the Bush administration has gone too far, you know we’re in trouble.

Here’s what happened: over the past decade a number of states began passing their own laws and regulations with the objective of curbing predatory practices by financial institutions, especially subprime lenders that disproportionately targeted black and Latino borrowers. Thanks to the Home Mortgage Disclosure Act, one of the great achievements of Gale Cincotta and other community reinvestment activists, it’s possible to identify discriminatory patterns in lenders’ business practices (when they report accurately, which they don’t always).

North Carolina’s anti-predatory lending law was an early and influential one; New York imposed measures too, and then-Attorney General Eliot Spitzer began going after lenders regulated by the New York State Department of Banking. As states took action, the Bush administration’s Office of the Comptroller of Currency did too, first blocking North Carolina’s law and then preempting all states from enforcing their regulations and laws – enforcement that would have curtailed many dangerous and exploitative loan products, features and sales practices.

Thanks to the court’s ruling, states can go after fair lending violations but not other types of infractions outside the scope of this particular case. It also does not give states the power to subpoena prior to the filing of a lawsuit, which has Bob Lawless at Credit Slips suspecting that states will “sue first, supoena later” – “the banks might come to regret what they asked for.”

Saturday, July 4th, 2009 | Tags: , , ,
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They won’t like what they find

Today President Obama gave his blessings to a congressional “Financial Crisis Inquiry Commission,” with subpoena power and a charge to “examine the causes of the current financial and economic crisis in the United States.” No use pretending otherwise – I’m looking forward to the spectacle, and hope the chair is a bulldog who digs with sharp instruments for the damning facts. The commission’s agenda seems almost impossibly broad, but if anything it needs to be broader – I’m going to get all Elizabeth Warren and say that the commission should be doing a whole lot more to look at the mortgage wholesaling and retailing industry through which financial institutions peddled toxic products to consumers. Right now the vast lending apparatus responsible for injecting doomed loans and bad data into the works falls into one half of the first of the commission’s 22 areas of inquiry: “fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector.”

The commission will rightly focus not only on practices in the private sector but on role of government enforcement and regulations in promoting risk, excess, fraud and failure. The findings on many fronts will point right back at Congress. The new legislation allows for the commission “to refer to the Attorney General of the United States and any appropriate State attorney general any person that the Commission finds may have violated the laws of the United States in relation to such crisis,” but part of the horror here is that most of what has happened to lead the nation into a ditch was in fact legal, under laws passed by Congress or regulations issued by federal agencies over the last three decades. Witnesses on the stand shouldn’t just include the likes of Bear Stearns’ Ralph Cioffi; we need to hear from former Sen. Phil Gramm and ex-HUD Secretary Andrew Cuomo too, among many others.

Wednesday, May 20th, 2009 | Tags: , ,
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Thoughts on Lewis & Einhorn

There’s much to savor, not surprisingly, in Michael Lewis and David Einhorn’s assessment in the Times today about the causes of Wall Street’s collapse and some possible treatments for the acute corruption and incompetence that reigns in what passes for the U.S. financial regulatory system.

The upshot, they say: give a heave-ho to those ratings agencies already — the ones that gave top grades to securities that in no way deserved them — and make the Securities and Exchange Commission once again a watchdog agency working on behalf of investors.

Yes, and yes; yes to Lewis and Einhorn’s other recos, too. But. What they’ve offered here is a promising recipe for avoiding investor apocalypse in the future. Okay, and a strong, reasoned argument for helping overstretched homeowners, too. And yet none of this gets to the heart of why the real estate bubble was so disgustingly destructive to the nation, or what über-regulators are going to need to focus on as agents of the public interest — which, I’m sorry, is not always the same thing as investors’ interests.

What Lewis and Einhorn are essentially talking about building a better, sharper, stronger debt-trading machine. The most poisonous flowers of the old growth, collateralized debt obligations and credit default swaps, come in for properly savage thrashings here. So why no questioning of mortgage-backed securities themselves? Is it really enough to improve their reliability of their ratings and oversight? For investors, absolutely. Enough about them for a moment. For many homeowners, the strange invention that Lewis himself so delightfully chronicled in Liar’s Poker — the transmogrification of the places where we live into tradeable bets and blips — wreaked miseries long before investors in those securities had to suffer. (Full Treasury/HUD report here.) Indeed, if regulators had succeeded in keeping the zaniest excesses of derivatives trading in check, the kinds of depradations Larry Summers and Andrew Cuomo railed against in 2000 would undoubtedly still be going on. Engineering a more robust business in indebting consumers is not the way out of this nightmare.

Sunday, January 4th, 2009 | Tags: , , , , , , ,
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