According to Sarah Palin, our country’s financial system needs some “shakin’ up and fixin’.” John McCain decries the “casino culture” of greedy investors. Barack Obama recently promised to “punish those who set this fire.”
The colorful sound bites hang on this current economic crisis like ornaments on a Christmas tree – and are just as useful. As the presidential race draws to a close, both sides want to own the reform-the-crooks angle while avoiding specifics. Plenty of ire is available for Wall Street’s greed and the inaction of a regulation-phobic Bush administration. But remarkably little anger has been reserved for the special interest influence that caused this failure of government in the first place.
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The fact is Congress failed to take real steps to slow the growth of the unsustainable, often predatory lending that created the housing bubble. And once that bubble burst, it blocked measures to help families stay in their homes, contributing to today’s avalanche of foreclosures, bankruptcies and vacant houses springing up in neighborhoods near you.
Whoever wins the election and inherits this emergency must swiftly push past vague invective aimed at big business and start thinking about how government was influenced by it. Simply put, mortgage bankers and brokers spent a whole lot of money on generous campaign contributions and lobbying that bought them advantageous lending legislation. The top five spenders among them paid more than $31 million for campaign contributions and lobbying activities during the 2008 election alone.
Much of this money went to members of the House Financial Services Committee, to Democrats and Republicans alike. And while nobody can know for sure which dollars influenced which members of Congress, an outside observer would probably guess that the lending industry was satisfied with the bang it got for the buck. That is, until some companies were swallowed by the disaster they brought on.
In July, President Bush signed into law Congress’ first real response to the collapse of the housing market, pumping $3.9 billion into the system to help some homeowners avoid foreclosure. The catch was that refinancing was contingent upon the consent of lenders, a condition industry lobbyists pushed for. But during a time when junk loan products were securitized, sold, and sold again all over the world, getting all parties to agree was generally impossible.
As things deteriorated, Congress considered a measure to give bankruptcy judges the authority to change the value of a loan to reflect what a home was actually worth, a power judges already have over other types of loans. A step like this would have saved thousands of families trapped in subprime, nontraditional and downright lethal loans.
In response, an entity calling itself the “Bankruptcy Coalition” (great name for a band, scary name for a lobby group) sprung up. It consisted of companies such as Countrywide, the American Bankers Association, Wachovia and Bank of America, to name a few. It lobbied hard. It spent more than $65 million on government relations and campaign contributions. Not surprisingly, it won. The bill failed.
In fact, Congress has so far passed no legislation in response to the mortgage meltdown that the lending industry has opposed.
So what have the states done to fill this vacuum? In ours, special interests are on the prowl just as they are in Congress. The Maryland Bankers Association is a powerful force in Annapolis, spreading money generously around the General Assembly. Federal pre-emption already blocks much regulation at the state level for non-Maryland chartered banks, but the industry stands ready to water down or kill outright any pro-consumer measures that may arise. The Bankers Association alone employs at least 12 lobbyists to push for laws that favor it.
Corporate influence trumping the public interest looks, at a minimum, really bad, and over the years support has grown for publicly funded campaigns that let candidates run without relying on big corporate donors. This year Connecticut joined Maine and Arizona in adopting it for state races, and just last week, Gov. Schwarzenegger signed the California Fair Election Act, putting public campaign financing on the ballot for November.
In Maryland, this reform’s time has come. Banning corporate contributions (as 35 states already do) would also be a step forward.
Until then, the presidential candidates will continue to wax populist and punch Wall Street in the face. But come January, meaningful reform of the financial system must run parallel to honest-to-goodness political reform. Let’s hope that lesson is learned in Annapolis as well as Washington.
Ryan O’Donnell is executive director of Common Cause Maryland.
