UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

May 7, 2009

BAILED OUT BIG BANKS WERE FINANCIAL FORCE BEHIND SUBPRIME SCAM

Center for Public integrity - The top subprime lenders whose loans are largely blamed for triggering the global economic meltdown were owned or backed by giant banks now collecting billions of dollars in bailout money - including several that have paid huge fines to settle predatory lending charges. The banks that funded the subprime industry were not victims of an unforeseen financial collapse, as they have sometimes portrayed themselves, but enablers that bankrolled the type of lending threatening the financial system.

These are among the findings that emerged from CPI's analysis of government data on nearly 7.2 million "high-interest" or subprime loans made from 2005 through 2007, a period that marks the peak and collapse of the subprime boom.

U.S. and European banks poured huge sums into the subprime lending market due to unceasing demand for high-yield, high-risk bonds backed by home mortgages. The banks - including household names like Lehman Brothers, Merrill Lynch, Citigroup, Credit Suisse First Boston, and Goldman Sachs & Co - made huge profits while their executives collected handsome bonuses until the bottom fell out of the real estate market.

At least 21 of the top 25 subprime lenders were financed by banks that received bailout money - through direct ownership, credit agreements, or huge purchases of loans for securitization.

Twenty of the top 25 subprime lenders have closed, stopped lending, or been sold to avoid bankruptcy. Most were non-bank lenders.

Eleven of the lenders on the list, including four recipients of bank bailout funds, have made payments to settle claims of widespread lending abuses.

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