Who's Behind the Financial Meltdown?
Center for Public Integrity Investigation Identifies Top 25 Subprime Lenders and their Wall Street Backers
WASHINGTON, D.C., May 6, 2009 — The top subprime lenders whose loans are largely blamed for triggering the global economic meltdown were owned or backed by giant banks now collecting billions of dollars in bailout money, according to Who’s Behind the Financial Meltdown? , a new investigation by the Center for Public Integrity.
“The mega-banks that funded the subprime industry were not victims of an unforeseen financial collapse, as they have sometimes portrayed themselves,” said Center Executive Director Bill Buzenberg. “These banks were deliberate enablers that bankrolled the type of lending that’s now threatening the financial system.”
These are among the findings that emerged from the Center’s computer analysis of government data on nearly 7.2 million “high-interest” or subprime loans made from 2005 through 2007, a period that marks the peak and collapse of the subprime boom. The analysis also revealed “The Subprime 25 “ — the top 25 originators of the high-interest loans, accounting for nearly $1 trillion and about 72 percent of industry — who reported subprime loans during that period.
The Center found that U.S. and European banks poured huge sums into the subprime lending market due to unceasing demand for high-yield, high-risk bonds backed by home mortgages. The banks — including household names like Lehman Brothers, Merrill Lynch, Citigroup, Credit Suisse/First Boston, and Goldman Sachs & Co — made huge profits while their executives collected handsome bonuses until the bottom fell out of the real estate market.
According to the analysis:
• At least 21 of the top 25 subprime lenders were financed by banks that received bailout money — through direct ownership, credit agreements, or huge purchases of loans for securitization.
• Nine of the top 10 lenders were based in California, including all of the top 5 — Countrywide Financial Corp., Ameriquest Mortgage Co., New Century Financial Corp., First Franklin Corp. and, Long Beach Mortgage Co.
• Twenty of the top 25 subprime lenders have closed, stopped lending, or been sold to avoid bankruptcy. Most were non-bank lenders.
• Eleven of the lenders on the list, including four recipients of bank bailout funds, have made payments to settle claims of widespread lending abuses.
A second story in the package, “Predatory Lending: A Decade of Warnings ,” details the troubling history of congressional oversight involving abusive lending practices. The story traces how obscure laws passed by Congress in the 1980s paved the way for creation of the subprime lending industry, and documents how lawmakers essentially ignored repeated warnings that high-cost loans represented a systemic risk to the American economy.
Included in the Center’s online package are extensive maps and tables detailing the extent of the companies’ subprime lending nationwide, the banking industry’s backing of subprime lenders, and political contributions and lobbying expenditures by the real estate and financial industries.
Who’s Behind the Financial Meltdown? is generously supported by the Carnegie Corporation of New York , the Ford Foundation , the John S. and James L. Knight Foundation , the Open Society Institute , the John D. and Catherine T. MacArthur Foundation , the Park Foundation , the Rockefeller Brothers Fund , and many other generous institutional and individual donors. The Center also received assistance from Palantir Technologies .
The Center for Public Integrity is a nonprofit, nonpartisan and independent digital news organization specializing in original investigative journalism and research on significant public policy issues. Since 1990, the Washington, D.C.-based Center has released more than 475 investigative reports and 17 books to provide greater transparency and accountability of government and other institutions. It has received the prestigious George Polk Award and more than 36 other national journalism awards and 20 finalist nominations from national organizations, including PEN USA, Investigative Reporters and Editors, Society of Environmental Journalists, and National Press Foundation. In 2007, the Society of Professional Journalists recognized three Center projects with first-place online awards — the only organization that year to be recognized with three awards. The Center has been honored with the Online News Association’s coveted General Excellence Award, and a special citation for the body of its investigative work from the Shorenstein Center on the Press, Politics and Public Policy at Harvard’s Kennedy School of Government.