When Congress gets around to investigating the genesis of the current financial crisis, former Gov. Roy Barnes and Gov. Sonny Perdue may be among the first witnesses called to Washington to testify.
Here’s why: The first battle of the current financial market crisis was not fought in Congress this week and the first casualties were not Lehman Brothers or the American taxpayers. The first battleground of this conflagration was actually in the Georgia General Assembly in 2002 and 2003, and the first casualties were Roy Barnes’ re-election and Georgia’s homeowners.
In 2002, when Clinton/Obama pal Franklin Raines was making millions mismanaging Fannie Mae, and McCain campaign manager Rick Davis’ lobbying firm was being paid hundreds of thousands of dollars by Fannie/Freddie’s Homeownership Alliance, Barnes saw what was coming and tried to do something about it.
Digging through the rubble of Wall Street and the $700 billion-plus bailout (more than the total budget of the last Carter administration), it is reasonable to ask: How did we get here, and what was Barnes trying to do? Barnes believed the best way to keep banks from ripping off Georgia homeowners was to stop Wall Street from investing in such practices. He proposed and passed a state law to clean up the lending business in Georgia.
One of the strongest tenets of the Barnes law in 2002 was the arcane notion of “assignee liability.” It held that assignees of the loan — those Wall Street firms that bought bundles of loans that we the taxpayers of today are going to have to take off their hands for pennies on the dollar — would have been liable for any of the shenanigans that led to the sub-prime loan being made in the first place. These titans of finance would have been responsible for such monumental tasks as making sure the original bank closing the loan did basic underwriting to determine whether the borrower could actually repay the loan.
Reporting on the Barnes law, Newsweek recently wrote, “The 2002 law made everyone up the line, including investment banks on distant Wall Street and rating agencies like Standard & Poor’s, legally liable if the loans they sold, securitized or rated were deemed unfair.”
“There has to be accountability,” Barnes told Newsweek. “In the end you have to be able to say, do I really want to make this loan? Because I may have to eat it.”
“A victory for Georgia consumers,” the Atlanta Journal-Constitution called the new law, which was also hailed by AARP and the NAACP.
When Barnes started talking about accountability the K-Street crowd marched on Georgia. Barnes found himself besieged by lobbyists from major banks and national regulators — as well as Fannie Mae and Freddie Mac — (Newsweek, “Predators’ Ball,” Aug. 18-25, 2008)
While those well-healed banking lobbyists weren’t able to stop Barnes’ bill in 2002, they recognized that they had to make an example out of Barnes and Georgia to prevent other states from considering their own similar reforms. The bankers and Wall Street money men poured money and support into Sonny Perdue’s and the Republicans’ coffers in 2002. After beating Barnes Sonny and company took away any real possibility for assignee liability as they dismantled Barnes’ earlier hard-fought consumer victory. Afterward, no state took up assignee liability again.
With any possibility of liability lifted from their shoulders for any of the abuses that were clearly evident in some of these loans, the Wall Street bankers continued to bundle and repackage the loans with similar loans from all across the country. They sold them far and wide with no care or concern for the viability of the underlying transactions. In fact, Fannie and Freddie became the top purchasers and bundlers of sub-prime loans from 2002 on. Of course today they are wards of the taxpayers to the tune of billions and billions of dollars.
After the geniuses in Washington get through figuring out whether John McCain is a hypocrite for decrying lobbyists and then hiring Rick Davis of the Freddie/Fannie Homeownership Alliance or whether Franklin Raines really advises Obama on the economy, Congress should hold hearings and get to the bottom of this mess — the greatest economic crisis since the Great Depression. The first witness should be Barnes, who can explain what it was he saw, what he tried to do to prevent it and how his efforts to protect consumers would have actually been in the best interests of Wall Street. The second witness should be Perdue, to explain how and why Freddie Mac, Fannie Mae and the rest of the bankers (some gone or soon to be gone) convinced him to make Georgia more “business friendly.”
You can reach Shipp at P.O. Box 2520, Kennesaw, GA 30156, e-mail: firstname.lastname@example.org, or Web address: billshipponline.com.