Bad Mouthing De-regulation

By Ralph Nader, Nader.org. Posted January 19, 2008.

It was at a large wedding reception in New York City that I saw Chairman of the Federal Reserve, Alan Greenspan, sitting down to dinner one spring evening in 2000. Having heard on the grapevine that the Federal Reserve was finally going to do something about predatory lending--an area of enforcement under their jurisdiction--I went over to his table and asked him this question:

"Mr. Chairman, I hear that you are going to crack down on predatory lending practices." He nodded and said quite firmly, "Yes, Enough is Enough." Since it was, after all, a social occasion, those words were enough for me and I returned to my table with the good news. For years, my associates, Jon Brown and Jake Lewis, had been working to document the prevalence of predatory lending and communicate our concern to the federal banking agencies and members of Congress.

Jon Brown developed detailed computerized maps of bank redlining in low-income areas, city by city, which were geographic guides to places where there were plenty of predatory lending practices.

As it turned out, Chairman Greenspan's Federal Reserve did nothing about either traditional predatory lending or the rise of the latest version of that abusive pattern--the now notorious sub-prime mortgage scandals and mega-losses that are shaking the financial industry to its foundations

Actually, Mr. Greenspan often lauded leveraged, collateralized sub-prime lending as helping lower-income people to get home mortgages. He did not give much weight to the deception and imprudence and gouging of the lenders lurking in the fine print and flowing from the silver tongues of the salespeople.

The Federal Reserve touts itself as the agency where lots of smart people work - economists, statisticians, forecasters--and, of course, the often-described very smart Chairman. Yet as the speculative greed that developed, sold and resold ever more abstract and risky financial instruments comprised of bundled home mortgages went toward its final orbit of collapse, these "best and the brightest," failed to act. They failed to regulate.

The business assault on regulation and its drumbeat demands for de-regulation over the past quarter century have now caused a burgeoning sub-prime mortgage collapse that is producing hundreds of thousands of home foreclosures. The housing market is plummeting. Giant banks are desperate for infusions of capital from abroad to save them from insolvency. Huge mortgage lenders are teetering on bankruptcy, looking desperately to be taken over by other financial companies.

Foreign banks and municipalities around the world that assumed these risks are marking down big losses.

All this has been caused by a combination of speculative greed, taking on huge risks for higher returns and the refusal to apply financial law and order--i.e. regulation--by the Bush regime. All this was preventable by institutional prudence and a vigilant Federal Reserve.

So what are all these giant financial corporations on their knees begging for these grim days? They are begging the Federal Reserve to use every bit of its authority to save them through lower interest rates and by using a variety of other more abstruse tools the Fed has to rescue the very banks that help fund its budget and dominate the regional Boards of the Federal Reserve.

It is true that corporate heads have rolled--most notably the CEOs of Citigroup and Merrill Lynch. By and large, however, the remaining top culprits who got their banks and mortgage lending firms into such deep losses for investor-share holders are staying put with their enormous compensation packages.

When the big boys get into trouble, they expect Uncle Sam to bail them out. Who pays the ultimate bill? You guessed it. The small taxpayer and the consumer.

So next time your hear the words--deregulation or over-regulation--by the thoughtless think tanks, heavily funded by business money, remind yourself that you believe in tough law and order for big business and your demand that politicians weigh in with a strong enforcement crackdown on corporate crime and fraud.

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