As we approach the 10-year anniversary of the collapse of Lehman Brothers, it is worth considering how much progress we have made, not only towards stabilizing the mortgage industry, but at protecting vulnerable Americans from exploitation by unscrupulous lenders in general. The story of the financial collapse that took place a decade ago is essentially one about the fecklessness and irresponsibility of regulators. Timothy Geithner, former President Barack Obama's first treasury secretary, wrote about this problem with candor — if somewhat woodenly — in Stress Test, his memoir of the 2007-08 crisis:
The financial crisis exposed our system of consumer protection as a dysfunctional mess, leaving ordinary Americans way too vulnerable to fraud and other malfeasance, while leaving the financial system vulnerable to sudden crises of confidence. Many borrowers, especially in subprime markets, bit off more than they could chew because they didn't understand the absurdly complex and opaque terms of their financial arrangements. Underwriting standards deteriorated dramatically, producing flimsy loans that were quickly packaged into complex securities; the eagerness of investors to buy them does not excuse shoddiness of the products … The financial cops weren't authorized to patrol the system's worst neighborhoods. [Stress Test]
The mortgage industry has changed significantly since 2008. By all accounts it has improved, though military veterans remain a frequent target of ludicrous schemes to refinance their homes.
What about other areas? The Washington Post reported recently on the private equity industry's increasing investment in so-called "predatory lending," which is a hokey modern synonym for usury. The tactics employed by companies like Mariner Finance to convince their victims into accepting loans at 34 or even 36 percent interest are appalling. People like Stephen Huggins open their mail and find checks made out in their name for specific amounts ($1,200, say) which they are free to cash immediately. What they do not realize is that in addition to the exorbitant rates of interest, they are also signing up for hundreds or even thousands of dollars in insurance, processing, and other fees. In Huggins' case, he was also sued by Mariner, despite making several payments, and forced to pay for the company's legal representation while not being able to afford his own.
How is it possible that such a sleazy and patently exploitative practice is permitted by the Consumer Financial Protection Bureau? Are they asleep at the wheel or just indifferent? It is no use blaming the Trump administration, despite their obvious commitment to gutting the agency created by Obama under the terms of the Dodd-Frank financial reform law in 2010, ostensibly to guard the public against these well-heeled loan sharks. Mariner has been in this business for a long time. A six-year-old ad on the company's Facebook page encourages customers to take out high-interest loans for such emergencies as "a vacation." "The installment lending industry provides an important service to tens of millions of Americans who might otherwise not have safe, responsible access to credit," the company's general counsel told The Washington Post, which is like saying the Big Bad Wolf offered affordable demolition services to pigs who would not otherwise have been able to dismantle their unsafe dwellings.
Will it surprise anyone, I wonder, to learn that the CEO of Warburg Pincus, the private equity firm that controls the private equity fund (yes, you read that right) that owns and operates Mariner, is, in fact, one Timothy Geithner?
The financialization of the economy, and the misery and oppression that it has brought to the poorest Americans, is one of the great blind spots in our discussions about public policy. Conservatives rightly intuit that many regulators cannot be trusted, but their cynical response to this is to suggest that fewer or even no regulations are better than weak ones or ones that are inconsistently applied. Liberals meanwhile are credulous about the good faith of regulators and too willing to congratulate themselves on passing legislation and creating new agencies without bothering much about follow-up or oversight. Almost no one, with the exception of Bernie Sanders and a few other radical progressives, recognize how bad the situation really is.
What we really need is a significant expansion of the CFPB's powers and the creation of a new range of statutory offenses for which exploitative lenders can be prosecuted by the Justice Department. We need a federal usury law that applies to lenders not named Tony Soprano. Expecting any of this to happen while President Trump is in the White House is, of course, a pipe dream. But would it have been any better under President Hillary Clinton, whom private investment money preferred to Trump by a significant margin?
Treating the poor and the weak as if they were a cash crop is, for different but equally foolish reasons, a bipartisan cause.