Jitendra Joshi
May 6, 2009 - AFP
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US and foreign banks were not unwitting victims of circumstance but deliberately culpable in the financial meltdown that engulfed the United States last year, a campaign group said Wednesday.
The Center for Public Integrity named 25 "subprime" mortgage companies whose risky lending was blamed for the US property market collapse and the subsequent global economic crisis.
Many of the lenders were either controlled by US and European banks, or could not have indulged in their high-risk lending spree without the connivance of banks, the investigative journalism group said in a new study.
"The mega-banks that funded the subprime industry were not victims of an unforeseen financial collapse, as they have sometimes portrayed themselves," the center's executive director Bill Buzenberg said.
"These banks were deliberate enablers that bankrolled the type of lending that's now threatening the financial system," he said.
The study was released as the US House of Representatives was set Wednesday to vote on a Senate-approved bill that would set up a 9/11-style commission of experts to probe the root causes of the financial crisis.
The purpose is not "to point fingers and place blame," Republican Representative Darrell Issa said, "but rather to identify mistakes" to prevent a future recurrence.
The Center for Public Integrity said it had forwarded its report to leading members of Congress.
Lead author John Dunbar said the study highlighted "a catastrophic regulatory failure" that had required trillions of taxpayer dollars to rescue the banking industry.
"There was nobody watching the store all the way through this process," he told reporters.
The center analyzed US government data on more than seven million subprime loans made from 2005 to 2007, when the real estate bubble was at its peak.
It said the "Subprime 25" accounted for nearly one trillion dollars or about 72 percent of industry-reported loans extended to risky borrowers who would not normally have qualified for a mortgage.
At least 21 of the 25 were financed by banks that received US government bailout money, and 11 of them have made hefty payments to settle prosecution claims of widespread lending abuses, it said.
Four of them have received bailout funds, including collapsed insurer American International Group and banking behemoth Citigroup.
Top of the list with at least 97.2 billion dollars in subprime loans was Countrywide Financial, which was bought by Bank of America last year to avert bankruptcy for the giant mortgage company.
Second with 80.6 billion dollars in loans was Ameriquest Mortgage, now part of the Citigroup family. Third with 75.9 billion was New Century Financial Corp, which went bust in 2007 and now faces a federal investigation.
"The center found that US and European investment banks invested enormous sums in subprime lending due to unceasing demand for high-yield, high-risk bonds backed by home mortgages," Dunbar said.
"The banks made huge profits while their executives collected handsome bonuses until the bottom fell out of the real estate market."
Two of the subprime lenders have been seized by the US government: Washington Mutual, owner of Long Beach Mortgage (fifth on the list), and IndyMac Bank (number 14).
The top foreign-owned lender at number nine was HSBC Finance, part of the British-based banking giant HSBC. EquiFirst (16th on the list) was shut down by its British owner Barclays Bank in February.
Others such as RBS Greenwich Capital Investments -- part of the Royal Bank of Scotland -- and Swiss bank Credit Suisse First Boston were major backers of subprime lenders, the study said.
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