Center ‘Meltdown’ series continues to expose abuses that could lead to the next economic crisis

Introduction

In September 2008, as Lehman Brothers shut its doors and the economy began its downward spiral, The Center for Public Integrity started asking one simple but central question of accountability — who caused the financial meltdown?

As we began our research, it soon became clear there were three primary drivers behind the economic collapse — the subprime lenders who fed the bubble, the Wall Street bankers who funded it and the government regulators who failed to keep disaster from occurring.

It took the next eight months of investigative work before we could publish our answers in May 2009. The resulting project: Who’s Behind the Financial Meltdown: The Top 25 Subprime Lenders and their Financial Backers.

For good measure that year, we also reported on the overlooked history of attempts to rein in abusive loan practices. We found unheeded warnings going back a decade that this type of unrestrained lending could indeed lead to an economic disaster for borrowers and banks. And we explained the whole complicated mess in our Meltdown 101 analysis.

We carefully analyzed the role of the big banks in the disaster. The mega banks were not the unwitting victims of an unforeseen financial collapse, as they sometimes portrayed themselves back then, but enablers that bankrolled the type of lending threatening the financial system. Through our reporting, we showed that at least 21 of the top 25 subprime lenders were directly or indirectly financed by the banks that went on to receive federal bailout money.

Our work was based on analysis of 350 million mortgage applications covering 1994 through 2007, focusing especially on the peak subprime lending years of 2005-2007. The Center for Public Integrity did what no other news organization was able to do — use the data to name the names of the top non-bank lending entities that were most responsible for the subprime lending at the heart of meltdown.

Now five years later, The Center for Public Integrity is revisiting those names in a special three-part series called, “After the Meltdown — Where are they now?” Once again, we focus on the top 25 subprime lenders, Wall Street banks and government regulators that were most responsible for the crash — and we find that few if any have been held accountable.

• The first installment, “Ex-Wall Street chieftains living large in post-meltdown world,” looks at the former Wall Street CEOs five years later and their lavish lifestyles.
• The second installment, “Subprime lending execs back in business five years after crash,” tells the story of how many of those executives from the biggest subprime lenders are back in the mortgage game.
• And in the third and final installment, the Center for Public Integrity caught up with the regulators who were responsible for overseeing the financial system prior to and during the crash.

Here are seven key findings from our latest reporting five years after Lehman went under:

• None of the top banking CEOs or senior executives has been prosecuted for actions taken that led to the financial crisis.
• The CEOs have faced little liability for the financial wreckage that occurred on their watch. Company insurance policies and shareholders have covered most legal settlements.
• Top executives from the 25 biggest pre-crisis subprime lenders — including at least 14 founders or CEOs — are back in the mortgage business at mortgage companies that are less regulated than banks.
• Many of these lenders make loans that don’t meet the strict standards required to earn a government guarantee — loans banks have largely abandoned.
• Mortgage lending is far safer than before the crisis, with many of the worst loan products banned outright. But lenders are beginning to loosen their standards, and experts say the industry will find ways over the coming years to offer ever-riskier products.
• Many former regulators are cashing in on their experience — helping companies navigate post-crisis reforms, writing books on their experiences, making a killing on the speaking circuit — or have retired quietly.
• Five years later, most regulators have admitted mistakes made in the events leading up to the financial crisis and things they could have done better.

This degree of factual accountability reporting is why The Center for Public Integrity exists in the first place. We are continuing our reporting in the financial field to be able to expose the abuses that could lead directly to the next economic meltdown.

Until next week,
Bill