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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While most of the public is consumed by the health care-death-march spectacle, Senators Bob Corker and Chris Dodd are making serious progress on the Senate’s “financial services reform” legislation. The legislation was dead just a couple weeks ago, but Sen. Corker thought he could snag a seat at the grown-up table and stepped forward to ‘cut a deal.’

As is the new DC operating procedure for major legislation, there are almost no firm details on the current language. We know there will be a large new federal bureaucracy, somewhere within government, to provide “consumer protection” for financial products. We know there will be a $50 billion tax on banking customers to provide a permanent bailout fund, or as Sen. Corker would describe it, a “wind-down” fund. Unfortunately, we also know that the bill will do nothing to reform Fannie Mae or Freddie Mac, who continue to drain billions from the U.S. Treasury.

We’re told the Corker-Dodd Bailout Bill is a necessary response to the financial melt-down triggered by the collapse of the housing bubble. But, if it doesn’t take even small steps to reform Fannie and Freddie, then, simply, it isn’t a serious proposal. Its like rebuilding the porch on a house, while ignoring it’s cracked foundation.

Washington politicians would rather ignore this, but the housing bubble was the result of very explicit government policy. Throughout the 90’s and early 2000’s, officials from both parties became addicted to forever pushing homeownership rates higher than the laws of economics would otherwise allow.

If you want to identify the roots of the homeownership-cult among elected officials, fire-up the way-back machine and check out a little report issued by the Federal Reserve Bank of Boston in the early 90’s. Under the leadership of Richard Syron, then-President of the Boston Fed (more on him later), the report was the result of discussion among the bank’s staff and the usual collection of academics and professional activists. It was to make recommendations to the nation’s bankers on addressing alleged discrimination in mortgage lending.

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