13 Bankers: The Wall Street Takeover and the Next Financial Meltdown (50 page)

46.
On the passage of the CFMA, see Paul Blumenthal, “Read the Bill: The Commodity Futures Modernization Act,”
The Sunlight Foundation Blog,
April 1, 2009, available at
http://blog.sunlightfoundation.com/2009/04/01/read-the-bill-the-commodity-futures-modernization-act/
.

47.
Tett,
Fool’s Gold, supra
note 6, at 48–49. The Federal Reserve decision is Federal Reserve Board Supervisory Letter SR 96–17 (GEN), August 12, 1996, available at
http://www.federalreserve.gov/boarddocs/SRLetters/1996/sr9617.htm
.

48.
Jones, “Emerging Problems,”
supra
note 24. The views expressed in the paper were those of the author, not necessarily the Federal Reserve. See also Arnold Kling, “Not What They Had in Mind: A History of Policies That Produced the Financial Crisis of 2008,” Mercatus Center at George Washington University, September 2009, available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1474430
.

49.
The rule was issued by the OCC, the OTS, the FDIC, and the Federal Reserve. Published in the Federal Register, November 29, 2001, available at
http://files.ots.treas.gov/73135.pdf
.

50.
Reported by Corine Hegland, “Why It Collapsed,”
National Journal,
April 11, 2009. On the impact of relaxed capital requirements, see Kling, “Not What They Had in Mind,”
supra
note 48.

51.
See, e.g., Standard & Poor’s, “Structured Finance Rating Transition and Default Update as of Feb. 27, 2009,” available at
http://www2.standardandpoors.com/spf/pdf/media/Transition_Report_
022709.pdf
. Matt Krantz, “As Company Priorities Shift, Fewer Get AAA Debt Rating,”
USA Today,
March 15, 2005, available at
http://www.usatoday.com/money/companies/management/2005–03–15-aaa-usat_x.htm
.

52.
Quoted in “The Watchmen,”
This American Life,
originally broadcast on June 5, 2009; transcript available at
http://thislife.org/extras/radio/382_transcript.pdf
.

53.
Kevin G. Hall, “How Moody’s Sold Its Ratings—and Sold Out Investors,” McClatchy, October 18, 2009, available at
http://www.mcclatchydc.com/227/story/77244.html
.

54.
Elliot Blair Smith, “ ‘Race to Bottom’ at Moody’s, S&P Secured Subprime’s Boom, Bust,” Bloomberg, September 25, 2008, available at
http://www.bloomberg.com/apps/news?pid=20601109&sid=ax3vfya_Vtdo
. Gary Witt has contested the accuracy of this article, at least as far as Moody’s is concerned. See James Kwak, “Moody’s, Rating Models, and CDOs,” 13 Bankers Blog, April 28, 2010, available at
http://13bankers.com/2010/04/28/moodys-rating-models-and-cdos/
.

55.
U.S. Securities and Exchange Commission,
Alternative Net Capital Requirements, supra
note 1.

56.
Reported by Stephen Labaton, “Agency’s ’04 Rule Let Banks Pile Up New Debt,”
The New York Times,
October 2, 2008, available at
http://www.nytimes.com/2008/10/03/business/03sec.html
.

57.
U.S. Securities and Exchange Commission Office of Inspector General,
SEC’s Oversight of Bear Stearns and Related Entities: The Consolidated Supervised Entity Program,
September 25, 2008, available at
http://www.sec-oig.gov/Reports/AuditsInspections/2008/446-a.pdf
, ix.

58.
Deniz Igan, Prachi Mishra, and Thierry Tressel, “A Fistful of Dollars: Lobbying and the Financial Crisis” (paper presented at the 10th Jacques Polak Annual Research Conference, hosted by the International Monetary Fund, Washington, D.C., November 5–6, 2009), available at
http://www.imf.org/external/np/res/seminars/2009/arc/pdf/igan.pdf
.

59.
P.L. 103–325 § 152(d); codified as 15 U.S.C. § 1639(h).

60.
Greg Ip, “Did Greenspan Add to Subprime Woes? Gramlich Says Ex-Colleague Blocked Crackdown on Predatory Lenders Despite Growing Concerns,”
The Wall Street Journal,
June 9, 2007, available at
http://online.wsj.com/article/SB118134111823129555.html
.

61.
Quoted in Binyamin Appelbaum, “As Subprime Lending Crisis Unfolded, Watchdog Fed Didn’t Bother Barking,”
The Washington Post,
September 27, 2009, available at
http://www.washingtonpost.com/wp-dyn/content/article/2009/09/26/AR2009092602706.html
.

62.
On Fed nonregulation of subprime mortgage lenders, see ibid., and Mike Konczal, “Consumer Protection at the Fed: July, 2000,”
Rortybomb,
September 27, 2009, available at
http://rortybomb.wordpress.com/2009/09/27/consumer-protection-at-the-fed-july-2000/
.

63.
15 U.S.C. § 1602.

64.
Press Release, U.S. Department of Housing and Urban Development, “HUD, Treasury Release Joint Report Recommending Actions to Curb Predatory Lending,” available at
http://www.hud.gov/library/bookshelf12/pressrel/pr00–142.html
.

65.
Appelbaum, “Watchdog Fed Didn’t Bother Barking,”
supra
note 61.

66.
Ip, “Did Greenspan Add to Subprime Woes?”
supra
note 60.

67.
Edward M. Gramlich, “Booms and Busts: The Case of Subprime Mortgages,”
Federal Reserve Bank of Kansas City Economic Review
(Fourth Quarter 2007): 105–13, available at
http://www.kc.frb.org/PUBLICAT/ECONREV/PDF/4q07Gramlich.pdf
.

68.
Alan Greenspan (lecture, Federal Reserve System’s 4th Annual Community Affairs Research Conference, April 8, 2005), available at
http://www.federalreserve.gov/BoardDocs/speeches/2005/20050408/
default.htm
.

69.
Binyamin Appelbaum and Ellen Nakashima, “Banking Regulator Played Advocate over Enforcer: Agency Let Lenders Grow Out of Control, Then Fail,”
The Washington Post,
November 23, 2008, available at
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/22/AR2008112202213.html
.

70.
Eric Dash, “Post-Mortems Reveal Obvious Risk at Banks,”
The New York Times,
November 18, 2009, available at
http://www.nytimes.com/2009/11/19/business/19risk.html
.

71.
1999 N.C. SB 1149; Ga. Code Ann., § 7–6A.

72.
Press Release, Standard & Poor’s, “Standard & Poor’s to Disallow Georgia Fair Lending Act Loans,” January 16, 2003, available at
http://www.mortgagebankers.org/NewsandMedia/PressCenter/32153.htm
.

73.
Office of the Comptroller of the Currency, Department of the Treasury,
Preemption Determination and Order,
August 5, 2003, 68 F.R. 46264.

74.
Cited in Christopher R. Childs, “So You’ve Been Preempted—What Are You Going to Do Now?: Solutions for States Following Federal Preemption of State Predatory Lending Statutes,”
Brigham Young University Law Review,
2004: 701–37.

75.
“Except where made applicable by Federal law, state laws that obstruct, impair, or condition a national bank’s ability to fully exercise its powers to conduct activities authorized under Federal law do not apply to national banks.” 12 C.F.R. 7.009. This regulation was created by a rule of the OCC issued on January 13, 2004: 69 F.R. 1904.

76.
See
Barnett Bank of Marion County v. Nelson,
517 U.S. 25 (1996); and
Watters v. Wachovia Bank,
550 U.S. 1 (2007).

77.
For an opposite perspective, see Charles W. Calomiris and Peter J. Wallison, “Blame Fannie Mae and Congress for the Credit Mess,”
The Wall Street Journal,
September 23, 2008, available at
http://online.wsj.com/article/SB122212948811465427.html
.

78.
Fannie Mae Historical Conventional Loan Limits, updated July 30, 2009, available at
http://www.fanniemae.com/aboutfm/pdf/historicalloanlimits.pdf
.

79.
Katz,
Our Lot, supra
note 17, at 71–72; Department of Housing and Urban Development,
Blueprint for the American Dream,
2002, available at
http://www.hud.gov/news/releasedocs/blueprint.pdf
; Wayne Barrett, “Andrew Cuomo and Fannie and Freddie: How the Youngest Housing and Urban Development Secretary in History Gave Birth to the Mortgage Crisis,”
The Village Voice,
August 5, 2008, available at
http://www.villagevoice.com/2008–08–05/news/how-andrew-cuomo-gave-birth-to-the-crisis-at-fannie-mae-and-freddie-mac/
.

80.
Doris “Tanta” Dungey, “Krugman on the GSEs,”
Calculated Risk,
July 14, 2008, available at
http://www.calculatedriskblog.com/2008/07/krugman-on-gses.html
.

81.
James Hamilton, “Did Fannie and Freddie Cause the Mortgage Crisis?,”
Econbrowser,
July 15, 2008, available at
http://www.econbrowser.com/archives/2008/07/did_fannie_and.html
; David Goldstein and Kevin G. Hall, “Private Sector Loans, Not Fannie or Freddie, Triggered Crisis,” McClatchy, October 12, 2008, available at
http://www.mcclatchydc.com/251/story/53802.html
; Menzie Chinn, “CRA and Fannie and Freddie as Bêtes Noire,”
Econbrowser,
October 21, 2008, available at
http://www.econbrowser.com/archives/2008/10/cra_fannie_and.html
.

82.
Katz,
supra
note 17, at 71–73; Michael Carliner, “Fannie Mae and Freddie Mac—Androgynous Financiers,”
Musings on Housing and the Economy,
July 12, 2008, available at
http://michaelcarliner.com/blog/2008/07/12/fannie-mae-and-freddie-mac-androgynous-financiers/
.

83.
For the federal funds rate, see Federal Reserve Board of Governors,
Open Market Operations,
available at
http://www.federalreserve.gov/fomc/fundsrate.htm
. Housing prices are from the S&P/Case-Shiller Composite-10 House Price Index, adjusted using the CPI–All Urban Consumers.

84.
Tim Duy, “Hawkishness Dominates,”
Tim Duy’s Fed Watch,
October 1, 2009, available at
http://economistsview.typepad.com/timduy/2009/10/hawkishness-dominates.html
.

85.
Bureau of Economic Analysis,
National Income and Product Accounts,
Table 1.1.6, available at
http://www.bea.gov/national/nipaweb/Index.asp
; U.S. Census Bureau,
Income, Poverty, and Health Insurance Coverage in the United States: 2008,
Table A-1, available at
http://www.census.gov/prod/2009pubs/p60–236.pdf
.

86.
On the LTCM crisis, see Roger Lowenstein,
When Genius Failed: The Rise and Fall of Long-Term Capital Management
(New York: Random House, 2000).

87.
Ibid. at 159, 179–80.

88.
Partnoy,
Infectious Greed, supra
note 37, at 368–70.

89.
Bethany McLean and Peter Elkind,
The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron
(New York: Portfolio, 2003).

90.
Press Release, University of California Office of the President, “Banks, Law Firms Were Pivotal in Executing Enron Securities Fraud,” April 8, 2002, available at
http://www.ucop.edu/news/enron/art408.htm
. The University of California was the lead plaintiff in the lawsuit.