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A closer look at who made this subprime mortgage mess

If there was ever an economic climate in which to play the Blame Game for the financial meltdown of the century, we're wallowing in it.

Time magazine not long ago published its "25 People to Blame for the Financial Crisis." It caught my eye, I must admit, if only to rant about the choices. No. 1 on the Time list is former Texas Sen. Phil Gramm, the same chap who last summer said we were in a "mental recession" and that we have "sort of become a nation of whiners."

At No. 3 is Angelo Mozilo, founder and former chief of the nation's biggest lender of subprime mortgages, Countrywide Financial. Bank of America bought Countrywide and is busy changing its name to a brand less tainted by irresponsible lending.

Mozilo's in great demand. Florida Attorney General Bill McCollum says Mozilo and Countrywide violated the state's deceptive trade practices act by placing consumers in loans they could not afford or with false or misleading rates. He wants Mozilo to come testify in a Florida court.

Which brings us to newer take on the Blame Game. An investigative report called Who's Behind the Financial Meltdown? was issued this week by the Center for Public Integrity. It identifies the top 25 originators of high-interest subprime loans, accounting for nearly $1 trillion, from 2005 through 2007.

Who's No. 1? Countrywide.

The nonprofit, nonpartisan center focuses on investigative research on public policy issues. It's backed by the Carnegie Corp. of New York, the Ford Foundation and the John D. and Catherine T. MacArthur Foundation, among other groups.

Here's what's most disturbing. All 25 of the top subprime lenders were mortgage companies like Countrywide, Ameriquest Mortgage and New Century Financial. They existed to make lots of mortgages but relied on someone else to provide their funding — actual cash and capital — to back mortgages they made.

It turns out that many of the companies funding these subprime mortgage lenders are the giant banks that are now getting bailed out with federal taxpayer and TARP funds.

The center found at least 21 of the 25 subprime lenders were financed by banks receiving bailout money — through direct ownership, credit agreements, or buying loans for securitization.

"The mega-banks that funded the subprime industry were not victims of an unforeseen financial collapse, as they have sometimes portrayed themselves," says Center for Public Integrity director Bill Buzenberg. "These banks were deliberate enablers that bankrolled the type of lending that's now threatening the financial system."

According to the center's report, "U.S. and European investment banks invested enormous sums in subprime lending due to unceasing demand for high-yield, high-risk bonds backed by home mortgages. The banks made huge profits while their executives collected handsome bonuses until the bottom fell out of the real estate market."

Investment banks Lehman Brothers, Merrill Lynch, JP Morgan & Co., and Citigroup Inc. owned and financed subprime lenders. Others, like Credit Suisse First Boston and Goldman Sachs, were big backers of subprime lenders.

Bailouts for the very clowns who fumbled this from the start? Unleash the dogs!

Robert Trigaux can be reached at trigaux@sptimes.com.

A closer look at who made this subprime mortgage mess 05/06/09 [Last modified: Wednesday, May 6, 2009 10:07pm]
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