On April 22nd we published an article entitled IndyMac Attack: Did Schumer, Paulson, Soros, and the CRL Kill the Bank and Profit From Its Collapse? We summarized the story as follows:

At the end of 2007, hedge fund billionaire John Paulson invested $15 million in the leftist non-profit, Center for Responsible Lending, their largest single donation ever. Around the same time, Paulson and his employees contributed over $100,000 to the Democratic Senatorial Campaign Committee, headed, at the time, by Sen. Chuck Schumer. Roughly six months later, CRL and Sen. Schumer both launched a highly public attack on the California-based mortgage lender, Indymac. The lender failed, wiping out the investment of thousands of people. Roughly six months after that, John Paulson, in partnership with George Soros, bought up the remnants of Indymac for pennies on the dollar.

…a top executive of CRL when this deal went down, Eric Stein, is now working at the Treasury Department, heading up the proposed Consumer Financial Protection Agency. Mr. Stein will be the chief federal official designing regulations to protect consumers. Right.

At the time, we asked if this could all be coincidence.  Today, we are getting closer to answering this question.

As reported by hedge fund blog AbsoluteReturn+Alpha, Congressman Darrell Issa (R-CA), ranking member of the House Committee on Oversight and Government Reform is probing John Paulson on his relationship with the Center for Responsible Lending.

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Gary Rivlin’s new book Broke U.S.A. does a rather thorough job of chronicling the rise of the subprime lending industry in this country.  The positive attributes of his tome include excellent detail and insight into how subprime lending operates in this country, very concise and descriptive prose, and some intriguing profiles of the lenders and activists involved.  To the book’s credit, Mr. Rivlin describes blatantly deceptive and corrupt lending practices in the early days of consumer finance.  He rightly singles out both employees and management of Household Finance and Fleet Financial for such behavior, as well as Associates Bank and NationsBank.

On the down side, however, Mr. Rivlin’s bias against subprime lenders is apparent.  His profiles of activists are more comprehensive than the lenders, and they are portrayed as crusaders against an industry designed to “make money off the poor”.  He fails to mention the more unflattering angles on certain activists.  Further, while his research delves deeper than just about any other media story, he either deliberately omits damaging truths about the activist community, or failed to research thoroughly enough.  Nor does he ever once mention the litany of non-industry-funded studies that support the cash advance industry.

There are several glaring omissions or distortions in Mr. Rivlin’s book that speak to his unfortunate bias.  The first, and most significant, is lionizing the founder of the Center for Responsible Lending, Martin Eakes.  Mr. Rivlin came up short in his research about Mr. Eakes.  In addition, he largely gives Mr. Eakes a pass for his role in the subprime mortgage meltdown.  Mr. Eakes pioneered the product and created a secondary market for these mortgages.  There’s no getting around that, try as Mr. Rivlin will.

Second, Mr. Rivlin gives borrowers a complete pass on their responsibility in every transaction.  While some of the people who were cheated admit to their own mistakes, nowhere in the book does Mr. Rivlin ever lay out a very simple argument: that borrowers constitute half the transaction, and are therefore half of any problems that exist within the industry.  To that end, Mr. Rivlin plays the typical card of a mainstream media journalist — harping on the sob stories of subprime borrowers, but not providing any compelling stories of how borrowers were helped by subprime lenders.  Anyone reading his book would come away believing that every lender mentioned was only out to cheat customers.

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UPDATE: Video has since been removed from YouTube

By now, you’ve probably seen the mob-scene that developed on the front lawn of the private residence of Greg Baer, deputy general counsel for corporate law at Bank of America.  This was planned for some time by the SEIU as part of a larger national event, their Showdown on K Street, which was shared with National People’s Action and thousands of other activists from MoveOn.org and other left-wing groups.

Prior to the main event on K Street in Washington DC, SEIU and company made a little pit stop.  According to Fortune magazine Washington editor Nina Easton, 14 busloads of riled up protesters unloaded on Baer’s private property and stormed up to his doorstep, while his teenage son was home alone.  Easton is a neighbor of Baer’s and had called to check on her neighbor’s son when she heard and saw all the commotion outside. Easton writes,

“Waving signs denouncing bank “greed,” hordes of invaders poured out of 14 school buses, up Baer’s steps, and onto his front porch. As bullhorns rattled with stories of debtor calls and foreclosed homes, Baer’s teenage son Jack — alone in the house — locked himself in the bathroom. “When are they going to leave?” Jack pleaded when I called to check on him.

Baer, on his way home from a Little League game, parked his car around the corner, called the police, and made a quick calculation to leave his younger son behind while he tried to rescue his increasingly distressed teen. He made his way through a din of barked demands and insults from the activists who proudly “outed” him, and slipped through his front door.

“Excuse me,” Baer told his accusers, “I need to get into the house. I have a child who is alone in there and frightened.”

Imagine what you would have done if your child were inside that house and that mob was on your front lawn as you tried to reach him.

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The financial reform bill is finally in its home stretch in the Senate, but Americans have yet to fully engage on the issue.  In fact, in recent weeks as I’ve worked with various grassroots leaders across the country to discuss the bill, its impacts on our economy and on us as American citizens, I must admit, it’s probably the first time I’ve ever found myself frustrated at the progress of activism.

It’s a complex issue, and let’s face it, not exactly an exciting one either.  But that’s precisely what the left is counting on.  So, whenever I find myself feeling frustrated that others might not share my same level of fervor on the issue, I remind myself of its complexity and lackluster appeal.  And then, I proceed directly to the source – the bill itself.

I hone in on a few key points in three categories that resonate with most activists I know:  Big Labor, Big Government, and Big Brother.  Put those together in the context of Big Banks, and they spell out big disaster.

As the left goes on demonizing Wall Street and big bankers on one hand, Democratic lawmakers on the other hand are busy making sweetheart backroom deals with them up on Capitol Hill, promoting their legislation to the public as “consumer protection.”  But really, such measures are nothing more than payback to the likes of three-way mortgage entitlement partnership stronghold of the Bank of America, Center for Responsible Lending and Fannie Mae.

Meanwhile Democrats and Obama allies like Organizing for America are also using the issue as a shameless fund-raising opportunity.

The banks actually SUPPORT this bill – so don’t let that “Main Street Not Wall Street” message fool you, no matter which side of this issue you’re on.

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Despite the populist rhetoric and anti-bank bank posture, a look behind the curtain of the Wall Street Reform bill reveals nothing more than self-interest, business as usual and more power and influence to Wall Street instead of the free market.  And as if the permanent bailouts and too big to fail advantages already in the Obama Dodd bill aren’t enough for the greedy banks, a proposed amendment offered by former Bank of America executive Sen. Kay Hagen is a perfect case and point.

Hagen’s amendment proposes to “protect consumers” from lenders whose market includes lower and middle class Americans — the type of folk that Bank of America wouldn’t lend a dollar to — despite trillions in federal support.

These loans, often called “payday loans,” provide short-term cash to Americans who need money to repair their car, fix their house, even pay a medical bill, while they wait for payday to payback the loan.  The Hagen amendment would limit competition for the big boys at Bank of America but allow consumers to take cash advances from their credit cards.

The Hagan amendment does not protect consumers from outrageous and exorbitant fees that Bank of America charges consumers.  In fact, its actually going to cost consumers more in fees. A Bank of America customer with a two-week overdraft of $66 results in a $30 fee — an APR of 1,165%!  In fact, last year Wall Street banks charged consumers $38 billion in overdraft and NFS fees. And by putting the traditional short term lenders out of business, the Hagan amendment will force more strapped consumers to resort to paying overdraft fees that will earn big banks an additional $14 billion a year.

Its not surprising to find out that Sen. Hagan has received over $315,000 in political contributions from commercial banks and financial institutions including $19,000 from Bank of America.

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As self-righteous Senators grill Goldman Sachs about their role in the housing bubble, it would not be far fetched to request that the Senators switch seats with the Goldman executives.

After all, it wasn’t Goldman that passed the Community Reinvestment Act that forced banks to make loans to people who could never pay them back. It wasn’t Goldman that created and supported Fannie Mae and Freddie Mac. And it wasn’t Goldman that drove interest rates down to a below market level to cause a housing rush not seen since gold was found in them thar’ hills in the mid-1800s.

But if Senators were really interested in finding out the cause of the housing bubble, they would call one Eric Stein to the dais.

Mr. Stein is currently that Deputy Secretary of Treasury for consumer protection and is likely to head the vastly powerful Consumer Bureaucracy currently being pushed by big banks and Wall Street. But prior to his appointment to Treasury, Mr. Stein the bag man for the Center for Responsible Lending and its many Self Help subsidiaries, was singly responsible for more bad loans than all Goldman employees together. Working with billionaire con-man John Paulson, Stein lobbied to pass the laws at the root of the crisis and pressured banks to make bad loans that caused their portfolios to collapse when the economy turned. They were the Bonnie and Clyde of the subprime mortgage world.

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The left-wing architects of the subprime mortgage collapse have yet to be called to account.

Much has already been written about the possibly criminal conduct of Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.), who relentlessly gamed the political system to clear the way for their friends at government-sponsored Fannie Mae and Freddie Mac to make billions at the expense of taxpayers, but very little has been written about the role that their liberal friends and allies in the private and nonprofit sectors played in bringing the U.S. economy to its knees.

Funded by huckster John Paulson and predatory lending kingpins Herb & Marion Sandler (who also gave generously to ACORN through the years), the inappropriately named Center for Responsible Lending (CRL) laid the foundation for the current financial crisis.

The media seems barely to have noticed that CRL’s puppet, Eric Stein, is now leading the Obama administration’s push to Sovietize the American banking system. Stein, who is now the U.S. Treasury’s deputy secretary for consumer protection, was previously a vice president at CRL.

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Looking for evidence that the Financial Reform legislation pending before the Senate is a power grab and not an effort at “reforming the system?” Look no further than the man Washington insiders believe would head the proposed “Consumer Financial Protection Agency” should the bill become law.

Eric Stein.

Remember the name. He is deputy assistant secretary for consumer protection at the Treasury Department. He was also a key player in the Center for Responsible Lending — a front group funded by billionaire John Paulson who worked with Goldman Sachs to package mortgages into securities.

In the house of cards that was the mortgage securities market — Stein was the Jack of spades. While Paulson was the bag man for the CRL operation, Stein was it’s hatchet man. Stein harassed and threatened banks into making bad loans. Paulson primed the pump and Stein fueled the fire.

Stein promoted policies that, in his words, encourages other lenders to make suststainable loans to borrowers with blemished credit.” In other words, they would buy loans from banks to make such loans Then the loan would be kicked up to Fannie Mae. Paulson got rich. Taxpayers got bilked.

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As you know, we’ve been writing for some time about The Center for Community Self-Help and its financing affiliates Self-Help Credit Union, Self-Help Federal Credit Union, and Self-Help Ventures Fund.  As of late, the organization has been under increased scrutiny for its questionable lobbying activities, its former leader and soon to be CFPA Czar Eric Stein, and  its $15 million donation from disgraced hedge fund billionaire John Paulson.

According to the Self Help website, the organizations “provide financing, technical support, consumer financial services, and advocacy for those left out of the economic mainstream.”  Within that complex web of entities under the Self-Help umbrella exists about forty or so real estate development projects.  I thought it might be a productive exercise to start looking into some of Self-Help’s individual properties.

So, I started with Barr Building, LLC, a Self-Help investment registered under its affiliate Self Help Ventures Fund.  The property is located at 910 17th Street NW, Washington, DC.

And wouldn’t you know, it happens to be home to one of our most frequent subjects:

The Service Employees International Union (SEIU).

This seemed especially curious, because it was only recently I’d discovered that SEIU, together with the AARP, is also the proud funder and agitator for one of the Center for Responsible Lending’s other advocacy projects – its state-specific lobbying websites targeted at regulating short-term loans in an effort to insulate its own predatory practices from any private industry competition.  For example, take a look at this site, from Arizonans for Responsible Lending.  It’s chock filled with all of the usual SEIU corporate campaign elements:  the menacing title and domain name, the array of photos depicting abused consumers who simply could not have known any better, the manufactured headlines, and of course – the staple of their strategy – the studies and the research (all funded and conducted by their own organization allies).

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At the end of 2007, hedge fund billionaire John Paulson invested $15 million in the leftist non-profit, Center for Responsible Lending, their largest single donation ever. Around the same time, Paulson and his employees contributed over $100,000 to the Democratic Senatorial Campaign Committee, headed, at the time, by Sen. Chuck Schumer. Roughly six months later, CRL and Sen. Schumer both launched a highly public attack on the California-based mortgage lender, Indymac. The lender failed, wiping out the investment of thousands of people. Roughly six months after that, John Paulson, in partnership with George Soros, bought up the remnants of Indymac for pennies on the dollar.

It is a drama that no longer surprises us, unfortunately. Wealthy investors use their access to elected officials and their checkbook to advocacy groups for private profit. But this story has a twist; a top executive of CRL when this deal went down, Eric Stein, is now working at the Treasury Department,  heading up the proposed Consumer Financial Protection Agency. Mr. Stein will be the chief federal official designing regulations to protect consumers. Right.

This is that story.

Financial crises create opportunities. Prudent and discerning entrepreneurs who save their capital for a rainy day are able to acquire assets at firesale prices and put these assets to higher and better uses. Market forces cleanse wasteful malinvestments, innovative business models make existing ones obsolete and the economy roars forward all the stronger for it.

But while market entrepreneurs generally prosper during times of great dislocation, ultimately to the benefit of all participants in the economy, today political entrepreneurs have hijacked the economic system. The politically connected elites have used this downturn to carry out a massive wealth transfer from the people to the public and private sectors, fleecing the middle class for their own enrichment.  In their hypocrisy, the long ago small businesses that grew large because of free markets have helped chain these markets through lobbying for regulations and subsidies to shield themselves from competition and their own errors.

This has occurred most egregiously in the financial sector, where there has been a veritable free-for-all in legalized political plunder.  Those who understand the illusory nature of our monetary and symbiotically related political and financial systems have clamored to profit as much as possible before the house of cards falls, with the sanction of our supposed representatives.

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Last week, in CFPA Czar or Fox in the Hen House? You Decide, I brought you more details about the people and structure of the ACORN-esque Center for Responsible Lending (CRL) and the Center for Community Self Help (CCSH) as part of a series of pieces we’ve been writing about the financial crisis and the proposed Consumer Financial Protection Agency (CFPA).

The importance of the pieces in this series cannot be understated.  As Congress faces down a massive power-grabbing partisan financial reform bill this week, it seems to have lost sight of many of the causes of the financial crisis in the first place.  While we hear about the exemptions in the bill of institutions like Fannie Mae and Freddie Mac, the stories we’ve been covering on CRL and CCSH further illustrate the dangers of unchecked entities and a government with too much intervention and far too much power.

At the peak of the subprime mortgage boom and the subsequent financial crisis, primary donors to CRL and CCSH basked in billions of dollars in pure profit, thanks in large part to that very intervention and power.

Next, we’re going to introduce you to the questionable lobbying activities of this complex organization.  But before we do, let’s review a few pertinent details from our previous posts about this organization:

• John Paulson is the largest single donor to the Center for Responsible Lending.  Paulson owns one of the world’s largest hedge funds, and most recently, the SEC has alleged “that Paulson & Co. paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.”
• Herb and Marion Sandler are the second largest donors to CRL, and together with Paulson appear to comprise the majority of the organization’s funding.  The couple owned GoldenWest Financial/World Savings bank, before selling it for over $2 billion to Wachovia, which tanked shortly thereafter
• Eric Stein, who once worked for Fannie Mae (an institution currently exempt from regulation in the financial reform bill), was also the longtime leader of CRL and Sr. Vice President of CCSH.  Today, Stein sits in Obama’s Treasury Department in charge of crafting the current financial reform legislation and the new Consumer Financial Protection Agency (CFPA).

Now, onto the lobbying.

A complaint that was filed with the House, Senate, and the IRS alleges that CRL, CCSH, and its vast network of non-profit and for-profit companies may have committed serious violations of the Lobbying Disclosure Act (LDA) and the Honest Leadership in Open Government Act (HLOGA).  The complaint was filed in the Fall of 2009 by the Consumers Rights League.

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Big Government Contributor, Charlie Gasparino gives his take on the SEC charges against Goldman Sachs at the Daily Beast:

John Paulson is an interesting guy: He was one of a handful of hedge-fund managers who bet the mortgage-bond market would decline beginning in late 2006, and made billions from that bet. Here is where the SEC charges get interesting: Goldman allowed Paulson to help create the bond and to put some of the most risky mortgages in the portfolio, or mortgages that were most likely to default and tank the investment.

The SEC’s problem with all of this is not that Paulson went to Goldman to create the bond (Paulson wasn’t charged) or even that Goldman even sold the same instruments to investors, but that Goldman didn’t tell investors of Paulson’s involvement. Remember, because of his short position he had every incentive to pack the bonds with the crummiest mortgages that would later default, which they did.

Goldman’s excuse for all this is that it somehow lost money on the whole sordid affair (not sure how that happened) and that the SEC’s case is completely unfounded in law and fact. It left out, of course, that in 2007 Goldman also shorted the housing market like Paulson, and that contributed to its massive earnings that year, not to mention Blankfein’s paycheck which nearly reached $70 million.

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The activity surrounding the controversial Consumer Financial Protection Agency (CFPA) in the financial reform legislation is really picking up these days.  But many Americans would never know it.  It seems Democrats may have learned something from the experience of the health care bill after all.  In their efforts to avert a repeat disaster of losing control of the message, they appear to be taking every step necessary to ensure that the public engages as little as possible in this debate.

But I assure you, this is a debate that the American public should engage in, pronto.

Because behind the scenes, certain lobbyists are quietly but aggressively scurrying about, pushing hard for the passage of the CFPA in a power grab by the Executive Branch that would dwarf the Health Care Reform bill and the Patriot Act.  And with the passage of the proposed CFPA, one man in particular with a history tied to some of the deepest tentacles in the financial crisis – and to the Community Reinvestment Act changes of 1995 – would gain the power to selectively manipulate the entire landscape of the financial, small business and housing markets.

Last week, we reintroduced you to an early trigger in the financial crisis, with good reason. In “Death by Senator: As Financial Reform Looms, We Revisit IndyMac,” we revisited the role that Senator Chuck Schumer’s (D-NY) very public letter played in the fall of one financial institution.  As I ended that piece, I teased that there was more to the story that would soon follow.

So, let’s pick up from June 30, 2008.

Merely days after the now infamous Schumer letter triggered a run on the bank that would total over $1.3 billion, this lengthy and scathing report was released to the public:

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From Politico:

John Paulson, one of the world’s richest hedge fund managers, has not been shy about spreading his wealth to Senate campaign coffers — or to the chairman of the committee that could directly affect his bottom line.

Paulson held a ritzy $1,000-per-head fundraiser for Senate Banking Committee Chairman Chris Dodd last year — and then maxed out his donation with $4,800 more for the Connecticut Democrat’s now-aborted reelection run.

Paulson is hardly alone.

According to a review of Federal Election Commission records, the nation’s 10 richest hedge fund managers have dumped nearly $1 million into campaign accounts over the past several years — with much of it going to senators who’ve given them a friendly reception on Capitol Hill.

And despite all the tough talk about a crackdown on Wall Street, consumer advocates and critics from other financial sectors say hedge funds would get off pretty easily under the regulatory reform bill Dodd’s committee approved last month — a charge Dodd’s aides reject.

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From Agence France Presse:

The world’s top hedge fund managers made hay last year with record pay because their much-maligned sector bet heavily on recovery of the financial sector after it received state aid, a survey showed.

The 25 chief executives of global financial heavyweights pocketed a total of 25.33 billion dollars (18.6 billion euros), doubling their earnings from 2008, according to a ranking by industry magazine AR Absolute Return+Alpha.

“The world may still be coming out of the Great Recession, but for the richest hedge fund managers, 2009 was the best year ever. And it couldn’t have happened without the carnage of 2008,” the magazine said.

Seven hedge fund managers broke the one-billion-dollar mark last year, while the last one on the top-25 list made 350 million dollars.

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After being the target of false accusations last week, the Freedom Alliance did the proper thing: they published all the details that any skeptic would want to see regarding the charity.  This is what one would expect from any person, or entity, that is falsely accused.  They open their books because they have nothing to hide.

The same cannot be said for the Coalition on Homelessness and Housing in Ohio (COHHIO).  It’s Executive Director, Bill Faith, has repeatedly denied requests for COHHIO to open its books for examination.

Yet while purporting to be an advocate for low-income citizens, the Center for Consumer Freedom has discovered that Faith’s coalition includes some organizations without phone numbers, organizations that are listed multiple times, and organizations that have confirmed they have not supported the group’s position against payday lending.

Then there’s the little problem about salaries, of which Faith receives six figures, far above the median pay of $54,000 for executive directors of non-profits. COHHIO spent less than one-third of its revenue on actual programs, far below the 65% recommended by Give.org. Doesn’t sound to me like a terribly efficient advocate for the homeless. Sounds more to me like a way to line Faith’s pockets and pursue his ulterior motive.

That motive likely lies in Faith’s link to the corrupt Center for Responsible Lending. Self-Help, the credit union behind CRL, and therefore behind Bill Faith, stands to gain by picking up customers from defunct payday lenders.

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On Wednesday, we brought you the story of a little report from the Boston Fed and its role in creating the housing bubble. In that piece, we mentioned an organization you probably hadn’t heard of before, the Center for Responsible Lending. It is one of the more influential–in a bad way–organizations you don’t know. Over the coming weeks, we’ll lift the veil on this organization. Consider today’s installment a primer.

The Center for Responsible Lending is the most influential liberal advocacy group dealing with the financial services industry in the nation’s capital. It is the policy arm of credit unions based in North Carolina and California. Yes, its parent organization has a vested interest in the outcome of CRL’s advocacy.

The Center performs both public policy research and lobbying. (Lots of lobbying, but that is for another day.) Despite its well known left wing prejudices, the media uncritically accepts the Center’s published papers, giving the group extra heft on Capitol Hill.

The Center aggressively criticizes lending discrimination and pushes lenders to increase their underwriting to poor neighborhood where borrowers are less likely to be able to pay back mortgages. The Center is keenly interested in the redistribution of wealth and cares little about the financial safety and soundness of the banks it targets.

Lenders who fail to cooperate with the Center are accused of “redlining,” i.e. illegally discriminating against borrowers in low-income neighborhoods.

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If the road to Hell (or serfdom) was paved with good intention (and economic ignorance) then surely that road starts at the North Carolina doorstep of the Center for Responsible Lending. Haven’t heard of it? Not surprising. It’s less well-known than ACORN and SEIU, but its actions have terrible consequences for the rest of us.

The Center for Responsible Lending is part of a giant web of financial institutions that make cheap loans (and act like loan sharks as they sue their customers over loans as small as $96) — all while smearing the reputation of customers and lobbying to restrict competing financial products. (Click here to learn more.) For what it’s worth, the Consumers Rights League, a watchdog group, has filed a massive IRS complaint alleging:

• The totality of the Center’s activities seems to constitute lobbying in violation of their tax-exempt status.
• The Center receives the vast majority of their revenue from only two donors—both of whom have potentially made billions of dollars as a result of the Center’s lobbying activities.
• The Center may have attempted to hide the role of major donors who stood to benefit from the Center’s lobbying activities by failing to file disclosures required by the Lobbying Disclosure Act.
• The Center may have attempted to mask the extent of their lobbying by illegally combining entities on reports and improperly or outright failing to report lobbying expenditures and activities.
• The Center has reported significantly fewer lobbying expenditures to the IRS than to Congress in what seems to be an attempt to camouflage lobbying expenditures that exceed the allowable amounts for tax-exempt 501c3 organizations.

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