Study: Bush administration blocked efforts to prevent housing crisis

Why, oh why, does not even come as a surprise?

Federal regulators in the Bush administration blocked attempts by state governments to prevent predatory lending practices that resulted in the financial crisis now stalking the American economy, a new study from the University of North Carolina says.

In 2004, the Office of the Currency Comptroller, an obscure regulatory agency tasked with ensuring the fiscal soundness of America's banks, invoked an 1863 law to give itself the power to override state laws against predatory lending. The OCC told states they could not enforce predatory-lending laws, and all banks would be subject only to less-strict federal laws.

Now, a research paper (PDF) from UNC-Chapel Hill's Center for Community Capital shows that those anti-predatory lending laws had actually worked. States that had stricter regulations on issuing mortgages were found to have fewer foreclosures. "We believe that these findings are remarkable, since they suggest an important and yet unexplored link between [anti-predatory lending laws] and foreclosures," the study's authors state.

New York Governor Eliot Spitzer wrote a Washington Post column seven months before the banking crisis describing how the Bush administration were actively blocking attempts by states to fend off a financial crisis.

Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.

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.

This is why I think the Reagan/Thatcher doctrine is dead. The Bush administration's zeal for preventing any kind of regulation whatsoever prevented people who could see this crisis coming over the horizon from doing anything about it. This was brought about by an ideological blindness which the Republicans have indulged in ever since the time of Reagan.

And this is why the sensible wing of the Republican party are keeping their heads down. What really do they have to say to anyone when their mantra for the past thirty years has been, "deregulate, deregulate, deregulate"? We can all see what that led to, and the truth is that they have nothing left in their locker to offer us. Except, perhaps, that other tired old ruse of crying for tax cuts for the wealthiest members of society.

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Tags: Bush, Cheney, Republicans, financial crisis, credit crunch