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How Wall Street and Washington Betrayed America

March 2009 Essential Information * Consumer Education Foundation



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How Wall Street and Washington Betrayed America

March 2009

Essential Information * Consumer Education Foundation

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Primary authors of this report are Robert Weissman and James Donahue. Harvey Rosenfield, Jennifer Wedekind, Marcia Carroll, Charlie Cray, Peter Maybarduk, Tom Bollier and Paulo Barbone assisted with writing and research.

Essential Information PO Box 19405

Washington, DC 20036 202.387.8030

info@

Consumer Education Foundation PO Box 1855

Studio City, CA 91604 cefus@

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Table of Contents

Introduction: A Call to Arms, by Harvey Rosenfield .................. 6

Executive Summary ......................................................... 14

Part I: 12 Deregulatory Steps to Financial Meltdown ....................... 21

1. Repeal of the Glass-Steagall Act and the Rise of the Culture of ..............

22

Recklessness

2. Hiding Liabilities: Off-Balance Sheet Accounting .............................. 33

3. The Executive Branch Rejects Financial Derivative Regulation ..............

39

4. Congress Blocks Financial Derivative Regulation .............................. 47

5. The SEC's Voluntary Regulation Regime for Investment Banks .............

50

6. Bank Self-Regulation Goes Global: Preparing to Repeat the Meltdown? ...

54

7. Failure to Prevent Predatory Lending ............................................. 58

8. Federal Preemption of State Consumer Protection Laws ....................... 67

9. Escaping Accountability: Assignee Liability ....................................

73

10. Fannie and Freddie Enter the Subprime Market ................................. 80

11. Merger Mania ........................................................................

87

12. Rampant Conflicts of Interest: Credit Ratings Firms' Failure .................

93

Part II: Wall Street's Washington Investment ........................... 98

Conclusion and Recommendations:

Principles for a New Financial Regulatory Architecture ........... 109

Appendix: Leading Financial Firm Profiles of Campaign

Contributions and Lobbying Expenditures ........................... 115

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