I think a common misunderstanding of the business press’s role, made by Fortune’s Andy Serwer above and others, is that the standard for business journalists is whether they issued warnings about the future—predicted that “this whole thing’s going to collapse,” as he puts it. That seems to set the bar artificially high, and in doing so lets journalism off the hook. Who can predict the future?
For me, journalism isn’t about reporting what’s going to happen. It’s about reporting what is happening now. We’re not soothsayers. But we’d better be reporters.
And that’s where Spitzer comes in. He and his fellow attorneys general, state banking regulators, even state legislatures were ringing wild alarm bells about mortgage-industry practices well before the fateful years of 2004 and especially 2005-2006, when the financial services industry and Wall Street expanded subprime lending from a fringe market into the mainstream. Never mind the community groups, like the Center for Responsible Lending and others that turned out to be right on target. These were elected officials.
This public record must form the backdrop to any assessment what news outlets were or weren’t writing.
In fact, the early ’00s were busy years in the anti-predatory lending business. The Federal Trade Commission, before it apparently fell down a black hole, settled an anti-predatory lending investigation against Citigroup’s giant subprime factory, CitiFinancial, for $240 million, covering two million customers. A coalition of states reached an even bigger one with Household International for $484 million. This was in 2002.
The BusinessWeek story lays out the record well, and assigns credit, well-deserved, to North Carolina’s Cooper and Iowa’s Miller for confronting Hawke, who is now back at his old job of defending lenders at a white-shoe Washington law firm.
The headline—“They Warned Us About the Mortgage Crisis”—is apt.
But of course, as Tonto said to the Lone Ranger: “What do you mean ‘us,’ white man?”
Indeed, fights between states and the Bush administration over consumer protections against allegedly rampaging lenders broke out around the country. As BusinessWeek mentions, Michigan in 2004 sought the right to examine the books of Wachovia’s mortgage unit and fought the OCC and the banking industry all the way the U.S. Supreme Court, which decided for Wachovia in 2007—about a year before it was sold to Wells Fargo to fend off seizure by the Federal Deposit Insurance Corporation, an arm of the same federal regulatory structure that blocked Michigan’s scrutiny.
Talk about Pyrrhic victories.
At the time it was fighting Michigan, Wachovia was also fighting Connecticut banking regulators on the same issue, prompting no fewer than thirty-five attorneys general and forty-three bank regulators to side with Connecticut—”a number lawyers call unusually high,” according to an August 2003 Reuters story.
Spitzer’s involvement, though, raised the issue to another level of prominence.
This was long before his incredible implosion, of course. Spitzer had already fought his state’s own banking department to wring a big settlement from Delta Funding Corporation, a notorious, now-defunct hard-money lender to low-income people in Brooklyn and Queens. He was among the AGs to look into Household, starting in 2001, and found that the lender, among other things, didn’t include points and taxes in monthly loan amounts presented to borrowers, who found out what their real payments would be only after the closing. Nice industry, subprime. It always was.
This was about the time Spitzer would discover that Wall Street banks were cheating retail customers by recommending stocks they knew were dogs and right before he discovered that the mutual fund industry was cheating its retail customers by allowing favored clients to trade after hours, which came right before he discovered that commercial insurance brokers were cheating their clients by taking kickbacks from insurers instead looking for the best deal, which was right before he discovered that American International Group—does that name ring a bell?—was hiding losses and otherwise deceiving the market.
So his credibility was very high at the time, while the financial-services industry’s was not.