"Greed Ingrained as Value"

Dear Steve,

I appreciate your recent letter that asked ‘how did the credit crisis happen?” As a lawyer who used to do some bank work, I am familiar with key regulations and recent history. In fact, I was on the front lines of the Resolution Trust Corporation clean-up in the last Savings & Loan crisis.  As the one Texas Senator who has fought predatory lending interests for a decade on the front lines in Austin, I see this passage in American history as the New Gilded Age—it is really a story of greed now ingrained as a value.

First, why nothing was done during the Bush years? Take a look at Bush’s top 10 contributors for the 2004 Election Cycle:

As has so often been the case in the Bush years, in the absence of any leadership from Washington DC, governors, mayors and even state senators have tried to fill the void.

Several Governors and Attorney's General, Democrats and Republicans, around the US have taken on the battle to beat predatory financing—in Arkansas, Georgia, Maine, Massachusetts, Minnesota and other states. In Illinois, the law mandates housing counseling for families seeking a mortgage or refinancing who meet certain criteria including blemished credit.

Here in Texas, not a single statewide Texas leader has provided even an ounce of leadership. All are tethered by campaign contributions and cocktail parties to the lobbyists that sold the bank bailout plan in Washington DC. Take a look sometime at the campaign contributions to Texas elected officials from finance companies, payday lenders, credit card companies and predatory lenders—the very industries that got us into this mess.

It's no wonder that these same financial institutions stand to benefit most from the bailout.

As of Oct. 1,  the Chairman of the Texas House Committee on Financial Institutions, the committee that "oversees" predatory lenders and subprime outfits, had over $850,000 in his campaign account from many of these same donors. And his committee is where every Texas reform bill has died over the last several sessions.

What do we do?  Right now, greed is ingrained as a core Wall Street value. That has to change, starting on Main Street.

Once, America was known for what we made. Henry Ford made a durable Model T—then raised wages so his assembly linemen could buy them. Along the way he helped grow the American middle class—the bulwark of democracy.

America was known as a center of innovation. Fulton built the steam ship. Wright invented the plane. In 1960, after the USSR beat us to space, President Kennedy inspired Americans "to go to the moon in ten years."  Back then, less than ten years later we made that great step forward.  Along the way, great scientists first had to develop computers, new metals, and nanotechnology.

So, what is the innovation of the Bush years? Here it is—picking the pockets of those who produce value. When banks make more off ATM fees and overdraft charges than from hard earned interest; when IRA accounts have fees attached that range to 2 percent; when credit cards have fine print that lets credit card companies declare "universal defaults" any time, then raise fees; when payday lenders now charge 1100 percent interest per year; when students have to run a gauntlet of credit card companies just to enroll; every one of us—especially in your industry—has to ask the hard question: what in the heck happened to America?

People on the street do not understand CEO pay on Wall Street. Just 40 years ago, Mitt Romney's dad voluntarily turned down $268,000 in pay over five years when he was chief executive at American Motor Company, because he could not bear the thought of making so much more than the working man on the line. Again, in 1960, he refused a $100,00 bonus.  Here is what he said—"The total sum of $152,000 far exceeds my needs and my appetite."

Just recently, Secretary Paulson had to defend $484 million—or about $17,000 an hour—in payments to the CEO of Lehman Brothers, a company that is now bankrupt.  We also continue to read headlines where executives at AIG—once the world's biggest insurance company—spent $86,000 on an English hunting trip and $440,000 on an executive retreat, after the American taxpayer became an 80 percent owner in their company.  In September, the Federal Reserve Board authorized an $85 billion dollar loan to stave off AIG's bankruptcy.

Even in the midst of the current financial crisis, Wall Street continues its run on Main Street—leaving working Americans to sort through the wreckage.

After the last eight years, income inequality is greater than at anytime in American history.  Since the late 1990s, average incomes have declined by 2.5 percent among the bottom fifth of families, while inching up by just 1.3 percent for those in the middle fifth.  The wealthiest Americans—those making over $130,000—saw their incomes rise by 9 percent.  In a few short years, incomes have widened faster and deeper than at any time in US history—including the last Gilded Age.

According to the Center on Budget and Policy Priorities and the Economic Policy Institute, over the past two decades, the wealthiest saw their incomes grow more than twice as fast as the middle-class in more than two-thirds of the country.

Now, Henry Paulson, the biggest bear on Wall Street expects every taxpayer to pony up—to provide liquidity and take "toxic assets" off the market—so he and others like him, can just start over again. I don't think Americans want to do that. After George Bush went around the world preaching financial discipline to all of Africa—before they could participate in his new Africa Financial Sector Initiative—Paulson said Africa must "enhance transparency, shorten the business start-up process, improve the rule of law, and strengthen property rights so that the private sector can do what it does best—start businesses, create jobs, and sustain and accelerate growth."

In October, British Prime Minister Gordon Brown stated that the market must abide by a system of "morals."  He said that risk-taking sometimes "crosses the line" between responsible entrepreneurship and irresponsible behavior and "that is why we back the work ethic; we support effort and enterprise and responsible risk-taking. These are the morals markets need."

As an example of how far we are today from that vision, the Wall Street Journal reports that AIG has continued to lobby to relax oversight rules, even while requesting an additional $37.8 billion loan from taxpayers.

Especially now, this is what Americans expect from Wall Street—transparency, ethics, reward for hard work, not excessive greed, and accountability.  The shareholders, directors and particularly the managers who put us in this mess should pay the price of getting us out. 

Phil Gramm was able to do bundle up this greed and peddle it several times over because great leaders like Henry B. Gonzalez were dead or others were quiet. In 1993, Gonzalez proposed sweeping reforms, at the Federal Reserve, promoting transparency and accountability.  With resistance from the central bank, Gonzalez told its chairman, Alan Greenspan, "This is not radical reform, and there is no cause for the Federal Reserve to proceed as if barbarians are at the gate and it is the end of Western civilization.  We should not pretend the Federal Reserve, of all institutions in Government, is infallible."

And that's what's wrong today—not enough elected officials are speaking up for what is the right thing to do. Last session, I filed a simple bill to limit interest on payday loans to US military men and women to 36 percent, a bill that several states and even the US government have approved.  During the committee hearing, a dozen lobbyists for predatory lenders sat and listened.  One Senator, who represents Tarrant County, stopped the bill.  Eventually, we got it out of the Senate, and watched as the same lobbyists killed it in the House.  The bill limiting interest to 36 percent for all Texans did not even get a hearing.  In a state that leads in subprime loans and is now 48th in home ownership, not a single statewide leader even sees it as an issue.

What is clear to me—is that democracy needs a make over. Predatory lenders charge 1100 percent interest because voters keep their allies in office.  Voters simply don't know, because the money and the message come from those who get the benefit.  If we want to reform Wall Street—then we need to start with Main Street.

So, it's back to us—do we want America back?  Do we want a Texas where predators are off the street?  Then get involved—the change we want in the US is the change we each will need in ourselves. And each of us has to make that change happen—at home, in the community and across the country.

Eliot Shapleigh