Prosecutor, Charge Thyself

From WSJ -- With his fraud lawsuit last week against Bank of America, New York Attorney General Andrew Cuomo has joined the long queue of politicians blaming bankers as the chief culprits in creating the financial panic and recession. We dealt with the merits of those BofA charges on Saturday, but that isn't the end of this story. There's also the not so small matter of Mr. Cuomo's own role in... [more]

From WSJ -- With his fraud lawsuit last week against Bank of America, New York Attorney General Andrew Cuomo has joined the long queue of politicians blaming bankers as the chief culprits in creating the financial panic and recession. We dealt with the merits of those BofA charges on Saturday, but that isn't the end of this story. There's also the not so small matter of Mr. Cuomo's own role in promoting policies that fed the housing mania and set the stage for the meltdown. Before he pursued statewide office in New York, Andrew Cuomo was Secretary of Housing and Urban Development during Bill Clinton's second term. And lest you think his tenure is forgotten, the HUD Web site has an instructive item in its Archives section. Entitled, "Highlights of HUD Accomplishments 1997-1999," the document chronicles the "accomplishments under the leadership of Secretary Andrew Cuomo, who took office in January 1997." View Full Image Associated Press Andrew Cuomo HUD's Web visitors learn that in 1999 "Secretary Cuomo established new Affordable Housing Goals requiring Fannie Mae and Freddie Mac—two government sponsored enterprises involved in housing finance—to buy $2.4 trillion in mortgages in the next 10 years. This will mean new affordable housing for about 28.1 million low- and moderate-income families. The historic action raised the required percentage of mortgage loans for low- and moderate-income families that the companies must buy from the current 42 percent of their total purchases to a new high of 50 percent—a 19 percent increase—in the year 2001." It's a sign of Washington's continuing failure to examine its own failures that HUD still views such a policy as an "accomplishment." It's as if the Pentagon described Pearl Harbor as a victory. We know that in the wake of Mr. Cuomo's agitation, Fannie and Freddie's purchases of subprime loans skyrocketed. Subprime and "liar" loans became loss leaders that eventually caused the two mortgage giants to fail—with taxpayers so far on the hook for $111 billion in losses and perhaps hundreds of billions more to come. The problem wasn't merely that HUD under Mr. Cuomo was raising the volume of risky loans for which taxpayers were guaranteeing. HUD was also encouraging a dangerous decline in underwriting standards at these government-sponsored enterprises (GSEs). Says former Fannie Mae chief credit officer Edward Pinto, "HUD commissioned much research aimed at forcing the adoption of more flexible lending standards by the GSEs." In 1999, the Urban Institute published a HUD-commissioned study of Fannie and Freddie's credit guidelines. Among its findings: "Almost all the informants said their opinion of the GSEs has changed for the better since both Fannie Mae and Freddie Mac made substantive alterations to their guidelines and developed new affordable loan products with more flexible underwriting guidelines." Keep in mind that Mr. Cuomo was doing this Fan and Fred cheerleading even as his colleagues in the Clinton Treasury were publicly raising red flags about their too-rapid expansion. Had Larry Summers, who was then Treasury Secretary, and Republican Paul Ryan, prevailed in their reform attempts, Fan and Fred wouldn't have been able to pile up so much rotten debt and turbocharge the housing boom. In 2008, Wayne Barrett wrote in detail in the Village Voice about the changes Mr. Cuomo also wrought at the Federal Housing Administration, encouraging bigger loans with smaller down payments. Mr. Barrett wrote that Mr. Cuomo "made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down . . . ." Mr. Barrett summed up Mr. Cuomo's tenure in the Clinton cabinet by noting that "the country will be living with his HUD mistakes, ill- or well-intended, for a long time to come." Even if one believes the allegations hurled by the New York Attorney General at Bank of America—and there is much reason to doubt them—Mr. Cuomo has arguably done far more harm to taxpayers and investors than the defendants have. Before he is handed the New York governorship by Democratic and media acclamation, voters deserve a full accounting of Mr. Cuomo's complicity in the mortgage meltdown. [less]