Report: Political Contributions From Bailout Recipients Grew With Subprime Problem
The top subprime lenders largely blamed for triggering the economic meltdown were owned or financed by the banks now collecting billions in government bailout money, a report released Wednesday shows.
Coming on the same day the Democrat-controlled Senate shot down a bill that would have helped hundreds of thousands of homeowners escape foreclosure through bankruptcy, the report from the Center for Public Integrity also highlights the dramatic increase in political contributions from the financial services sector over the last three presidential cycles.
Through an analysis of government data on nearly 7.2 million high-interest or subprime loans made from 2005 through 2007, the Center was able to name the top 25 originators of those loans. Those 25 companies accounted for nearly $1 trillion-- or about 72 percent--of industry-reported subprime loans during that period.
Subprime loans have interest rates higher than the prime interest rate and are typically offered to people with poor credit. The period studied by the Center marked the peak and the collapse of the subprime boom.
The report found that at least 21 of the top 25 subprime lenders were financed--through direct ownership, credit agreements, or large purchases of loans for securitization--by banks that received bailout money. Twenty of those lenders have closed, stopped lending, or were sold. The five banks still lending are Wells Fargo, JPMorgan Chase, GMAC LLC, Citigroup, and AIG; all five have received government bailout money.
Citigroup, for instance, has collected $25 billion through the Troubled Assets Relief Program, $20 billion through the Treasury Department's "targeted investment program," and a $5 billion Treasury backstop on asset losses. It has also been guaranteed protection from losses on $306 billion in assets.
Congress has been aware of the dangers of the subprime market for the past decade, the Center for Public Integrity's report points out.
"In the late 1990s, the problem was looked at exclusively in the context of borrower or consumer fraud, not systemic danger," former Representative Jim Leach told the Center. A Republican from Iowa, Leach served as chair of the House Banking and Financial Services Committee from 1995 through 2000.
Some congressmen tried to address the problems in the subprime market, including Sen. Dick Durbin (D-Ill.), the report points out. In 1998, Durbin tried, but failed, to strengthen protections for borrowers with high cost loans through an amendment to the Home Ownership and Equity Protection Act.
In recent weeks, Durbin had pushed hard for the passage of the foreclosure bill the Senate rejected Wednesday.
"The banks that are too big to fail are saying that 8 million Americans facing foreclosure are too little to count in this economy," he said.
In that span of time, between 1989 and 2008, the financial services sector spent over $3.5 billion lobbying Congress--more than any other sector, according to the Center for Responsive Politics. The sector also gave $2.2 billion in federal campaign contributions.
Wednesday's report highlights data showing that presidential election cycle contributions from the financial services industry doubled from $4.2 million in the 1998 election cycle to more than $8.4 million in the 2000 campaign. In the 2008 campaign, Barack Obama received $14,447,682 from securities and investment companies, while John McCain received $8,547,727.
The Center for Public Integrity also conducted a computer analysis of more than 350 million mortgage applications reported to the federal government between 1994 and 2007. It found that in 1994, $73,000 was the annual median income for a loan of $120,000. By 2005, the same median income could receive a loan of $183,000.