The Mortgage Mess: The Lobbyists' & Legislators' Roles

Monday's Wall Street Journal featured an excellent article, by Glenn Simpson, entitled "Lender Lobbying Blitz Abetted Mortgage Mess."

It's a very lengthy article, but a very important one. Between the mortgage companies in California, their lobbyists in Washington, D.C., a publicist related to one of the lobbyists, and various state and national legislators, it's clear that this mess is not simply a case of mortgage lenders run amok.

No, they bought and paid for plenty of legislative help.

In fact, before you start believing Barney Frank or Chris Dodd as they spout off about more regulations and legislation to prevent this from happening in the future, consider telling them to look to their own kind first.

Simpson's article includes some details involving states and specific legislative language that was excised to help the mortgage banking industry. New Jersey and Georgia were two key battlegrounds in which industry political donations turned the tide of legislation in favor of the lenders.

If there weren't a demand for donations, this wouldn't happen. But state legislators take campaign contributions, so lobbyists exist to implement the legal function of distributing industry money to them.

The lack of legislation to curb so-called predatory lending isn't accidental. State-level office holders looked the other way and/or deliberately stopped such legislation in association with cash flowing to them from lenders, through lobbying groups.

Given these facts, what should make us think that the same thing wouldn't recur at the Federal level? It's one thing for windbags like Dodd and Frank to expound on what ought to be done.

How little money will it take from mortgage lenders to gut any future Congressional action? Probably a lot less than you think.

In the end, the recent so-called 'subprime meltdown' had plenty of actors and money flowing every which way. It's your typical mess composed of greedy business people and politicians, lobbyists, and careerist regulators.

It was in nobody's interest to stop the game, and in many people's interest to keep it going. Don't kid yourself that it only took some avaricious lenders to create the subprime situation. They had plenty of paid help. Well paid help, to judge from reading Simpson's piece.