Comptroller of The Audit Dean Starkman spent three months last year poring over nearly a decade of financial-press archives to put together “Power Problem,” a CJR cover story that examined coverage in the years leading up to the crisis.
Phil Angelides, who heads the Financial Crisis Inquiry Commission, cited it last week in questions to John Dugan and John D. Hawke Jr., respectively the Comptroller and the ex-Comptroller of the Currency:
So, but when you see I think 26 states actively trying to deal with this because they saw an on-the-ground problem — there’s a fascinating article you may or may not have seen from the Columbia Journalism Review about whether the press saw the coming financial crisis.
The only reason I mention it is there’s a piece of the article that talks about how much press coverage there was from 2000 to 2003 as states were actively trying to fight deceptive, unfair lending across the country, the boiler rooms, the aggressive lending.
I guess I would in a question probably pose to both of you, given the ground reality that you had state officials all over the country concerned about the level of unfair, deceptive lending, I’m going to ask you both to consider what might have been deficient, therefore, in national — in national enforcement that would have led them to believe it was such a matter of paramount concern.
Angelides was referring to the story’s point that forthright press coverage and uncompromised regulation produced a virtuous cycle of reform that helped to police the worst lenders at a time when the mortgage frenzy could have been contained. (The converse was also true, unfortunately; when regulation folded its tent, so, too, did the press.)
Here’s what Hawke, who implemented the ought-to-be-infamous rule in 2003 that pre-empted state regulations of national banks in favor of (weaker, typically) federal rules, said in response (emphasis mine):
Well, I should say, Mr. Chairman, that we asked state law enforcement officials on many occasions to refer to us any evidence that they had or any incidents they had of national banks involved in conduct of the sort that you described. And we got zero. And we asked consumer groups for the same thing.
That would be, how do you say… false. I went to the tape. The record shows states all but begged Hawke’s OCC to take on abusive lenders or allow states to do it to themselves. The OCC first preempted the states, then sat on its hands, effectively running interference for its regulated institutions.
Take a gander at Dean’s “Spitzer’s Ghost” piece from October 2008:
Then Eliot Spitzer publicly took on Hawke and brought national attention to the issue of lending-industry abuses, the abuses that led to our current moment global financial peril. This is 2003.
I recalled my November 2008 Audit Interview with John Ryan of the Conference of State Bank Supervisors, which spent a lot of time trying to get the press to cover the feds’ pre-emption of state predatory-lending laws:
Perhaps the greatest frustration is that some federal regulators were working side by side with the industry to push aside state laws or enforcement efforts to address the sorts of abusive or unsustainable lending we were experiencing at the local level. It seemed outrageous to us that a regulatory agency could preempt these laws without any clear authority.
I asked Ryan today about Hawke’s comments. He says he “would strongly disagree” with them:
“That statement doesn’t reflect what we experienced,” Ryan says. “There were tons of consumer complaints referred to the OCC by the states. I was regularly hearing from state regulators that sending complaints to the OCC was equivalent to a black hole. This resulted in the GAO conducting a study on the matter. The agreement they sent the states was not meant to be cooperative. It required the states to say ‘we surrender, we have no authority’. Their focus was not on cracking down on lending practices but rather facilitating the subprime business model of the biggest banks. The actions of the OCC weren’t meant to create a cooperative atmosphere.”
He pointed to the case of National City, a bank federally chartered by Hawke’s OCC. Here’s the Seattle Post-Intelligencer in 2008 on that (emphasis mine):
When state investigators spotted questionable loan practices, the feds rejected their help and informed the state that it had no business looking into the affairs of federally chartered institutions. Scott Jarvis, director of the Washington state Department of Financial Institutions, said his files are full of letters from federal bank regulators, bankers and other lenders politely telling his office to take a hike.