Subprime Non-Bank Lenders Ask Obama and Geithner for Bailout, in Guise of Stimulus
Byline: Matthew R. Lee of Inner City Press on Wall Street: News Analysis
NEW YORK, February 10 -- The abuse of the subprime-triggered U.S. bailout fund has reached a new high, or low, with a trade association for non-bank subprime lenders asking to be eligible for Troubled Assets Relief Program funds. In a February 5 letter to Barack Obama, copied to Timothy Geithner and Larry Summers, the American Financial Services Association argues that while "to date, the majority of the federal government's financial relief programs have been directed toward assisting depository institutions... a campaign to get credit into the hands of consumers must also encompass finance companies."
AFSA's board of directors includes, as incoming chair, a representative from the financial company World Acceptance. This South Carolina-based company has been described as "below-subprime" by SmartMoney, for example, and as making "small, expensive loans to paycheck-to-paycheck types, mostly in Southern states." Now this type of company is in line to get bailout funds, in the guise of stimulating the economy.
AFSA's letter to Obama goes on to say that "many finance companies rely on bank lines of credit to fund loans to consumers. For this reason, we ask the administration to ensure that, if these banks accept TARP money, they keep these lines of credit open and fluid."
Even prior to the predatory-lending triggered meltdown, consumer groups like Bronx-based Fair Finance Watch documented to the Federal Reserve that, for example, Bank of America, JPMorgan Chase, Citigroup and Wells Fargo were financing and enabling payday lending firms. Inner City Press sued the Federal Reserve under the Freedom of Information Act to gain access to the list of finance companies lent to by Wachovia, since failed and bought by Wells Fargo.
Now the argument is made that banks' should be required to lend to subprime finance companies as a condition of their bailout funds.
Geithner raises glass, Bernanke and Summers smile, AFSA's TARP not yet shown
These novel arguments are merely an extension of currently accepted abuses. CIT, a finance company with a subprime component, was allowed to become a bank holding company with no public notice or comment, in order to receive bailout funds. Ocwen, a subprime mortgage servicers, has applied to the Federal Reserve to buy a small Texas bank, in order to gain access to bailout funds.
But, AFSA's argument seems to be, why even go through these contortions? Why not openly funnel bailout funds to the very subprime lenders which triggered the crisis? And perhaps Obama, Summers and Geithner will do it.
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