Nomi Prins, what are the five ways that Washington and Wall Street has brought us to this crisis?

NOMI PRINS: Well, it’s a historical matter, and basically there’s been a lot of legislation that has weakened the regulation of the housing industry and the lending industry and the trading that takes place with it that Wall Street has enacted and has gotten us into this major, major credit mess.

It really goes back to the ’90s. There was an act passed in 1994 that was trying to actually help homeowners get protection from abusive lending, in other words, lending at a very, very high interest rate. And it was passed, and it was advocated by consumer advocates, and it had aspects of being a good bill. However, what it did was cap them after a certain rate, after a twelve-and-a-half percent rate, after a certain rate over treasuries, and it didn’t cap all of the abuses that could happen in between. So what it did, in fact, was create the beginning of the subprime situation, where lenders could say, “Alright, we don’t want to come under this regulation”—it’s called the HOEPA law, H-O-E-P-A, Home Owners Equity Protection Act of 1994. Lenders said, “Alright, you know what? We won’t come in there at the high rates. We don’t want to get on the radar screen in that respect. We’ll just come right under, and we’ll start to look for ways to make loans with lots of bells and whistles and lots of fees attached to them, where we can come under the radar screen and start to create this kind of market of potential problems.”

Now, we didn’t know these problems were happening in the ’90s. That was one issue. They didn’t start to happen until the market started to fall apart after the boom of the ’90s, the bust that occurred in 2001, 2002, because of a lot of corporate scandals and other measures that were happening in the world and in the US economy, in particular. And since then, we’ve had a fallout. But the seeds were placed in the ’90s.

The second thing that happened also in the ’90s, in ‘94, was the Truth in Lending Act, which was a 1968 original act. It was put together to create a situation where lenders had to disclose—and not only disclose all of their potential alarms that could go off within a loan to a perspective borrower, they had to also be accountable. And that’s a situation we’ve come a long ways away from, is the accountability of lenders, that they could actually be brought to court, be brought to trial, be brought to be accountable for hidden problems in their loans.

In 1994, that Truth in Lending Act was amended, and it was amended because there started to be a lot of lawsuits, starting in Florida, then flowing through the United States, which basically said, “You know what? If lenders go outside of their responsibilities, they can be sued. They can have to pay out. They can lose certain amounts of money that they have counted on.” And the lenders were like, you know, “We don’t like that. We don’t like to be accountable for what we’re doing,” so they lobbied for the amendments, and that happened in the ’90s.

Nomi Prins, former investment banker turned journalist. She used to run the European analytics group at Bear Stearns and is now a senior fellow at Demos. She is the author of two books: Other People’s Money: The Corporate Mugging of America and Jacked: How Conservatives Are Picking Your Pocket. Nomi Prins joins me now here in the firehouse studio in New York.

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