There is an article in today’s Globe and Mail Report on Business (title as above, written by Kevin Carmichael), discussing a working paper put together by three economists with the International Monetary Fund. Among the items noted in “A Fistful of Dollars: Lobbying and the Financial Crisis”:
- lenders such as Ameriquest and Countrywide “spent millions in the years ahead of the financial crisis to defeat legislation that would have curbed their ability to issue home loans to riskier borrowers.”
- “the prevention of future crises might require weakening political influence of the financial industry or closer monitoring of lobbying activities to understand the incentives behind better [sic].”
- “Finance, insurance and real estate industries spent about $479,500 (U.S.) per company on lobbying in 2006, compared with $300,273 per company on lobbying in the defence industry and $200,187 for construction, according to the report.”
- The bottom line: ”their findings show that the lenders who lobbied against tighter restrictions on mortgages also had laxer lending standards, a greater tendency to resell their loans as asset-backed securities, and had faster-growing mortgage loan portfolios. After the crisis, these firms also experienced the highest rate of delinquencies — adding to the evidence the most aggressive companies on the lobbying front were also the riskiest lenders.”
It also makes me feel good that, a number of years ago, when the big banks in Canada were seeking permission to merge and be relieved of some of the more onerous rules so that they could compete on a level playing field, that the then-federal government, Paul Martin as Minister of Finance, Jean Chretien as Prime Minister, stood up to them and said “no.” It’s a large part of why Canada has escaped the worst of the current crisis.
(Unfortunately, I can’t find the article on the Globe’s website; it’s on page B5 of my edition. If I locate it online, I’ll add a link.)
