Portion below; whole thing here: http://shareholdersunite.com/2009/03/23/captured-politics/
In 2004, the Securities and Exchange Commission, after hard lobbying by Wall Street, reversed its 1975 rule limiting investment banks to leverage of 15-to-1. The new limit could be as high as 40-to-1 if the investment banks’ own computer models said it was safe.
Question: Why wasn’t Wall Street more nervous about the rising tide of leverage and the risk it posed?
Answer: Ah, come on. You know why: The new business model was incredibly profitable. In 1999, AIG’s financial-products group had revenue of $737 million, Morgenson reported in the Times. That had climbed to $3.26 billion by 2005. And almost all of that was profit: Operating income was 83% of revenue in 2005. The biggest expense, by far, was compensation. Salaries and bonuses ranged, depending on how good a year the unit had, from 33% to 46%.
Question: Why didn’t Washington step to at least temper the risk?
Answer: Money. Just look at the who’s who of senators receiving campaign contributions from AIG. According to Federal Election Commission data at the Center for Responsive Politics, Sen. Max Baucus, D-Mont., has received more money from AIG — $91,000 — than from any other contributing company. Baucus chairs the Senate Finance Committee. Dodd, the head of the Senate Banking Committee, has received $280,000 from AIG. (In the 2003-08 election cycles, AIG was only the fourth-largest contributor to Dodd; Citigroup (C, news, msgs) ranked No. 1.) And Dodd now admits he’s the one who wrote the loophole that allowed AIG to award $165 million in bonuses to its financial-products group. (In his defense, Dodd says he inserted the language at the request of the Obama administration.)
AIG doesn’t show up among the top 10 contributors to Shelby, but the ranking Republican on the Banking Committee does count Citigroup (at No. 1) and JPMorgan Chase (JPM, news, msgs) (at No. 3) among his top donors. Twenty-eight current members of Congress own stock in AIG. Sen. John Kerry, D-Mass., is the biggest investor, with stock valued at $2 million (it was valued at $2 million at the time he filed his lastest financial reports, anyway).
Congress has delivered a lot of other goodies in the past decade or so that have contributed to this crisis — and made the cleanup more expensive and painful. For example, the Office of the Comptroller of the Currency and the Office of Thrift Supervision both moved to block states from enforcing their consumer-protection laws against any nationally chartered bank.
Among the measures states were prohibited from enforcing were rules against predatory lending. Not that the federal government stepped in for the states: The Federal Reserve took all of three formal actions against subprime lenders from 2002 to 2007, and the Office of the Comptroller, with authority over 1,800 banks, took only three enforcement actions from 2004 to 2006, according to Multinational Monitor.
But you get the idea by this point.
1 comment:
In the last section of your post, you suggest federal preemption stopped states from exercising their authority and responsibility to enforce state law. That's just wrong and a misunderstanding of the numerous court cases that explain preemption. It is interesting that reporters continue to quote the same untruth over and over until it “becomes quite clear.” Preemption did not prevent states from taking action against the lenders and brokers they regulate. What the numbers tell us is that that the worst offenses in subprime and predatory lending occurred as the result of unregulated and state-licensed brokers. Nothing in preemption stopped state officials from regulating the brokers and lenders under their jurisdiction. Nothing. In fact, national banks regulated by federal bank regulators originated only about 10 percent of the prime loans in the peak years of subprime lending. But, it is easy to criticize the one federal authority versus going after 50 cops not watching their beats. The reality that the 1600 national banks regulated by the OCC are among the most highly regulated institutions in the country. The worst offenses occured in the 5,900 other banks and thousands of brokers, the majority of which are under state jurisdiction. Nothing in preemption prevented states from taking action on these worst offenders.
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