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New York Post

 

Bad Part of Towns

July 08, 2012

By Luigi Zingales

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Strictly speaking we had no Senate; we had only a chamber of butlers for industrialists and financiers.



That was a muckraking journalist at the beginning of the 20th century. But it could easily be said today, especially considering the findings of the congressional Committee on Oversight concerning mortgage lender Countrywide’s VIP loan program.

The committee’s report highlights how Countrywide offered cut-rate mortgages to elected officials as a lobbying tool. Congressional members, staffers, even judges received fast loan processing and, most important, preferential terms. In exchange for what? While the committee is unable to prove any quid pro quo, it suggests that obvious benefit: influence.

Former Senator Chris Dodd, for many years chairman of the Senate Banking Committee, received several discounted loans from Countrywide. Coincidentally, in June 2008, Dodd proposed a housing-bailout program that would have helped lenders like Countrywide. Similar VIP treatment was granted to Kent Conrad, chairman of the Senate Committee on the Budget.

In 2009, before the committee’s evidence was gathered, both Dodd and Conrad were exonerated of any unethical behavior by the Senate Ethics Committee, which nevertheless thought they “œshould have exercised more vigilance” in their dealings with Countrywide.

The exasperating reason for the acquittal? The Senate Gift Rule allows senators to receive benefits “in the forms of loans from banks and other financial institutions on terms generally available to the public.” Since the Countrywide VIP program was not reserved just for senators, the Senate interpreted that the Gift Rule was not violated.

So, who were the other VIPs who gave the senators cover? One was Rep. Edolphus Towns, a Brooklyn Democrat who is retiring after 30 years in office with this one last kiss-off to his constituents.

In 2003, Countrywide gave Towns a $182,972 mortgage on a vacation home in Lutz, Fla., and a $194,540 mortgage on his home in Cypress Hills, Brooklyn. Though the report did not say how much Towns saved, it said that the Countrywide loans to VIPs “ which Towns was ” had an interest rate 0.5 percent lower than for that of the general public, and “junk fees” were waved. The report also noted that underwriters even questioned Towns’ credit score “ whether he should have gotten the loan at all ” but Countrywide waved such worries away.

Towns has blocked the investigation into Countrywide, issuing a subpoena to Bank of America “which bought the mortgage company ”" only after “several months of resistance,” the report said.

What’s particularly galling is that Towns benefitted while the voters in his district suffered. The highest foreclosure rate in the city is in East New York, the people he represented. In 2010, there were 1,139 foreclosure filings there, a rate of 16.8 percent.

How many of those homeowners would love to have gotten Towns’ low interest rate and lack of fees?

Towns and Dodd are walking away with less than a slap on the wrist, as loopholes about what constitutes “corruption” allows them to skate.

If we take the narrow definition that corruption is the “inducement to wrong by unlawful means,” this is no corruption, since the means were not technically unlawful. But if we extend to “improper” means, this certainly looks like corruption to me, or at least the intention to obtain undue influence. Why would have Countrywide made those loans otherwise?

This different nature of the corruption makes it much more difficult to address. It is easier to investigate payments of cash than preferential treatment.

“VIP status” cannot be stopped simply by toughening the rules on them. It is too easy for a receiver to deny any knowledge of the privileges granted, as the elective representatives involved, including Towns, did, and get away with it.

Not only is difficult to design a law that prevents this undue acquisition of influence, it is even more difficult to implement, since the rules are enforced by the very people that are benefitting from the privileges (as the Senate Ethics Committee ruling demonstrates).

This corruption can be stopped only by toughening the rules on business lobbying. Countrywide knew what it was getting out of this. Until the kinds of perks it offered are made illegal, businesses will continue to use them.

Companies that shuttle congressmen, senators and other officials to the front of the line should be liable for damages to the American people, the ultimate losers in this game.

Luigi Zingales is a professor at the University of Chicago Booth School of Business, a contributing editor of City Journal, and author of “Capitalism for the People: Recapturing the Lost Genius of American Prosperity.”

Original Source: http://www.nypost.com/p/news/opinion/opedcolumnists/bad_part_of_towns_2eD9IBNojwXOpS9W6dkDzJ

 

 
 
 

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